Caribbean & Central America - January 2018 (ISSN 1741-4458)

The government led by President Juan Carlos Varela and local business groups reacted angrily to a decision by the European Union (EU) in early December 2017 to list the country as one of 17 jurisdictions considered to be tax havens.

Ever since the Panama Papers scandal (April 2016, when over 11m confidential documents were leaked from the offices of Panama-based offshore law firm Mossack Fonseca), the Varela government has been struggling to reverse perceptions of Panama as a centre for money laundering and tax evasion. The official line is that the country’s large on- and offshore financial sector is now much more transparent and well-regulated than in the past.

Roughly two years before the Panama Papers revealed widespread use of locally registered paper companies to manage funds of dubious origin, the Financial Action Task Force (FATF) had placed Panama on its ‘grey list’ of jurisdictions not doing enough to meet international anti-money laundering and combating the finance of terrorism (AML/CFT) standards. Panama says that in response it passed ten new laws and was taken off that particular grey list in 2016. The government also highlights that in June 2017 the Organisation for Economic Co-operation and Development’s (OECD) Global Forum declared that Panama was now “largely compliant” with international tax transparency standards.

But that did not stop the EU from listing the country as a tax haven. President Varela responded by recalling Panama’s ambassador to the EU from Brussels. Finance minister Dulcidio de la Guardia said the EU decision had been arbitrary and discriminatory. Business lobby Cámara de Comercio, Industria y Agricultura de Panama (CCIAP) suggested any further steps to meet international transparency standards should be put on hold until the EU took Panama off the list. But despite a degree of bluster, Panama’s only real option appears to be to respond constructively to EU concerns. Officials said they were now hoping that a meeting of EU economy ministers on 21 and 22 January might reconsider and take Panama off the tax-haven list.

Focus on supreme court appointments

Confirmation hearings on the appointment of two new supreme court (CSJ) justices, due to be completed by 31 December, dragged on into early January.

President Varela is being closely scrutinised over his plans for the CSJ. Since taking office in 2014 he has accused his predecessor, former president Ricardo Martinelli (2009-2014), of involvement in corruption and of appointing his handpicked supporters to the CSJ. Martinelli is currently in prison in Miami pending completion of extradition proceedings.

Yet the Varela administration faces its own allegations of corruption (the president himself has been implicated in bribery claims involving Brazilian construction company Odebrecht). Opposition parties believe Varela, like his predecessor before him, may be seeking to pack the CSJ (which has the ultimate say on corruption investigations) with ‘yes men’ or, in this case, with ‘yes women’.

In December the president announced his choice for two new CSJ justices (justices have 10-year terms; there are nine in total). The nominees are Ana Lucrecia Tovar de Zarak and Zuleyka Moore Gouldbourne. Both have strong professional credentials. Tovar however is married to Iván Zarak, a member of the ruling Partido Panameñista and deputy economy minister (he resigned on her nomination to avoid a conflict of interest). Moore has attracted particular opposition criticism for her allegedly ‘selective’ handling of Odebrecht-related cases in her role as anti-corruption prosecutor.

The government initially hoped to get the appointments approved in an extraordinary session of the national assembly (Asamblea Nacional, AN) concluding on 31 December. But the hearings have dragged on into early January. Ratification requires a simple majority – 36 out of a total of 71 votes in the assembly. PP deputy Luis Eduardo Quirós said the outlook for getting the necessary votes, which requires the PP to form cross-party alliances, was “favourable”.

• EU steps

In its statement announcing its list of 17 jurisdictions considered to be tax havens, the European Union (EU) notes that the listing process is a dynamic one, which will continue into 2018. It states that as a first step a letter will be sent to all jurisdictions on the EU list explaining the decision and what they can do to be de-listed with a first interim progress report due to be published by mid-2018. According to the same statement, the EU list will be updated at least once a year.