Caribbean & Central America - June 2017 (ISSN 1741-4458)

President Juan Carlos Varela last month announced progress vis-à-vis efforts to strengthen and implement measures against money laundering, the financing of terrorism, and proliferation of weapons of mass destruction. The issue has been a major priority for the Partido Panameñista (PPA)-led El Pueblo Primero (EPP) coalition government following the ‘Panama Papers’ scandal – the biggest leak of secret information in history which made headlines in April 2016 [RC-16-04]. President Varela made his remarks at the start of a 15-26 May visit by a delegation from the Financial Action Task Force of Latin America, Gafilat, an intergovernmental organisation that belongs to the Paris-based Financial Action Task Force (FATF) and is tasked with evaluating the progress of implementation of these measures.

In a presidential press release issued on 15 May, Varela said that legal developments in these areas is a high priority for the government in order to guarantee protection against organised crime and meet international transparency standards. Highlighting that “these kinds of criminal activities undermine state authority, promote corruption, and damage legitimate economic activity”, President Varela noted that “cooperation with other countries is crucial in order for the government to have the adequate tools for fighting transnational criminal activity”.

In June 2014, Panama was blacklisted by the FATF for lacking a legal framework in these areas, prompting the Varela administration the following month to proceed with several improvements, agreed with FATF, with regard to due diligence, international cooperation, previous offences, and strengthening the financial analysis unit (UAF), a state security entity. In April 2015, the Varela government approved a new law which replaced legislation dating back to 2000 and toughened supervision of various non-financial sectors, requiring lawyers, real estate brokers, casinos, and construction firms, among others, to report suspicious financial transactions. This all led the FATF to remove Panama from its black list in February 2016. Gafilat began a pre-evaluation process in October 2016, and it will conclude with a summary of the total evaluation in December 2017.

Economy minister Dulcidio De La Guardia expressed optimism about the evaluation, telling reporters that Panama has been improving its legal framework during the last three years and has been preparing for Gafilat’s visit for a year. The local press is also reporting that the government is evaluating the criminalisation of tax evasion, which was a recommendation not only by FATF but also the United Nations (UN) – see sidebar – and the International Monetary Fund (IMF) – see box. Currently, tax evasion is considered an administrative fault but not a criminal offence. De La Guardia said that this is an issue that Panama must start evaluating and debating, telling reporters that the government will study tax evasion laws in other countries in the region and promote a debate on tax evasion as a criminal activity.

IMF visit

Following a visit to Panama City as part of an Article IV consultation, on 4 May the IMF issued a statement highlighting that “measures to strengthen tax transparency and ensure effective exchange of tax information must remain at the top of the policy agenda”. The statement also recognises that Panama’s economy has been the fastest growing in Latin America over the last two decades and is expected to remain among the most dynamic in the region. Noting that economic growth moderated to 4.9% in 2016 “amid external headwinds”, the IMF is projecting growth to pick up slightly to 5.1% in 2017 and about 5.5% over the medium term, “supported by the expanded Canal and the wide range of public and private investment projects”. 

• UN call

On 10 May, the United Nations Independent Expert on foreign debt and human rights, Juan Pablo Bohoslavsky, said that Panama’s financial reform agenda must prioritize combating tax evasion. He made the call following an eight-day visit to Panama. A UN statement notes that Bohoslavsky also “acknowledged…efforts to promote financial and corporate transparency and to strengthen the financial regulatory system, adding that Panama now has a more robust system than it did a few years ago”. He went on to say however that "the most onerous tax evasions must be severely punished within the framework of a comprehensive strategy covering all dimensions of tax fraud".