Caribbean & Central America - November 2021

Panama’s President Laurentino Cortizo came to power in July 2019 after campaigning on an anti-corruption platform, but critics say a lack of progress is affecting the business environment.

The role of Panamanian law firms in helping wealthy individuals hide their wealth from tax authorities around the globe has long been criticised by pro-transparency groups. However, in recent years a series of massive data leaks - the Panama Papers in 2016, the Paradise Papers in 2017, and the Pandora Papers in October 2021 - have shone a light on the extent of the practice.

Panama has struggled to repair its reputation in recent years, despite Cortizo’s promises on the campaign trail. The country currently features on the European Union list of non-cooperative jurisdictions for tax purposes, as well as the list of jurisdictions which require monitoring by the Financial Action Task Force (FATF) of the Organisation for Economic Co-operation and Development (OECD) due to having strategic Anti-Money Laundering/Combating the Financing of Terrorism (AML/CFT) deficiencies.

During the election campaign, Cortizo, of the centre-left Partido Revolucionario Democrático (PRD), proposed that “good honest government” and “a lawful state free of corruption” would be two of the four pillars of his administration. He also spoke of plans to draft a proposal to reform the law of public contracts, in order to guarantee transparency, and to reform the country’s constitution as part of efforts to strengthen the independence of powers and the judiciary. Another pledge was anti-corruption measures such as the launch of a zero-tolerance campaign for corruption in all state institutions. Each of these pledges aims to increase competitivity in attracting investment to the country by improving legal certainty for business.

Things started promisingly enough, with a visit to the US in July 2019 to meet with Michael Corbat, then chief executive of Citibank, and representatives from credit ratings agencies Fitch Ratings, Moody’s Investors Service, Standard & Poor’s, and Capital Markets. This was followed by an announcement on 19 August 2019 that the government had reached a commitment with France to work together to remove Panama from France’s list of tax havens. In August 2020 there were also encouraging discussions with the US about the creation of a bilateral task force to tackle money laundering and corruption, but Cortizo has made little progress at home.

In July 2019 he sent a constitutional reform package to the legislature containing anti-corruption measures, but the version approved by the legislature in October sparked so much opposition that the president withdrew the package altogether. Since then, there has been no more progress made on the key campaign promise, despite calls from civil society actors such as Panama’s leading private-sector lobby, Cámara de Comercio, Industrias y Agricultura de Panamá (CCIAP), which worries about the effect on business. In May 2020, the organisation called for the strengthening of the judicial system in order to improve legal certainty and better attract investment. And in December that year, CCIAP repeated its call for constitutional reform and greater transparency. “A strong democracy with a real separation of powers, a judicial system that is properly independent and a government defined transparency and accountability at all times are indispensable so that Panama can achieve full development,” said CCIAP in a statement.

In June 2021 the Fundación para el Desarrollo de la Libertad Ciudadana (FDLC), the local chapter of anti-corruption NGO Transparency International (TI), said that Cortizo’s government had been characterised by “opacity and…[the] absence of a sustained fight against corruption”. Far from making progress in transparency efforts, the FDLC claims that Panama has moved backwards. Accusations of backsliding are backed up by the latest TI Corruption Perceptions Index (CPI), published in late January, which showed Panama fell to 111 out of 180 countries in 2020, down from 101 in 2019. This means the country is ahead of only Guatemala (149), Honduras (157), and Nicaragua (159) in Central America. The FDLC also cites the results of the TI report on the implementation of United Nations Sustainable Development Goal 16 (SDG16) (peace, justice, and strong institutions). Published in June 2021, the report scores Panama poorly on indicators such as transparency and integrity in public administration, where it received just 0.3 on a 0-1 progress scale.

• TI report

Among other things, the TI report cites a deficient regulatory framework for ensuring transparency and integrity among public sector officials who, for example, are only required to present their declaration of assets at the beginning and end of their mandates as opposed to yearly, as is the case in the judicial branch. The report further highlights that the legislation that exists to promote transparency and integrity is not upheld by officials due to lack of monitoring and enforcement.

And it’s not just international monitors that are noticing Panama’s ongoing issues with transparency. On 28 September, pollster Gallup Panamá released the results of a survey which showed that 40% of respondents consider corruption in government the most important problem facing the country, ahead of the 23% who cited unemployment. Those 40% of survey respondents may have been surprised to hear Daleep Singh, the US deputy national security advisor for international economics, cite Panama as a potential leader in the fight against corruption and financial crime. Speaking at a press conference at the end of September, Singh said the US sees Panama as a strategic regional partner and wants to strengthen its links with the country.

While this may be encouraging for Cortizo, serious challenges lie ahead. In a February 2021 report, the FATF said that Panama has taken steps to strengthen its AML/CFT regime since June 2019, but “all deadlines have now expired and work remains”. The FATF then strengthened its language in a 21 October statement, expressing concern with the pace of progress and Panama’s failure to complete its action plan items. “The FATF strongly urges Panama to swiftly complete its action plan by February 2022,” reads the statement, “otherwise the FATF will decide the next step at that time for insufficient progress”.

In addition to its grey list, the FATF also names high-risk jurisdictions subject to a call for action, commonly known as the blacklist. At the time of writing the blacklist comprised two countries: North Korea and Iran. While there has been no talk so far about Panama moving to the blacklist, the threat of a “next step” from the FATF is the latest piece of bad news for Cortizo’s efforts to improve Panama’s reputation when it comes to transparency and corruption, and it may spook businesses looking to invest in the country.