In the face of a storm of criticism, warnings and recommendations, the government is negotiating a tax information sharing treaty with the United States. The initial American proposal, a form based upon treaties that the United States has with the Cayman Islands and Antigua-Barbuda, has been called "unacceptable" by Panama's ambassador to the United States, Guillermo Ford, but talks aimed at an agreement more palatable to this country continue.

The negotiations were proposed by the United States, which since 1990 has been seeking an agreement of this nature with Panama. Panama's negotiating team includes Vice-Minister of Economy and Finance Domingo Latorraca, Ambassador Ford and the Panamanian ambassador plenipotentiary to the Group of Seven's Financial Action Task Force (FATF), Carlos Cordero.

Sources contacted by The Panama News believe that a treaty of this kind could bury the national banking system. However, the government has argued that an agreement is necessary in order to maintain cooperative international relations, to get Panama off of the Organization for Economic Cooperation and Development (OECD) financial blacklist of tax havens, to open markets to the nation's exports and to fight financial crimes.

Banking Superintendent Delia Cárdenas warns that the negotiations with the United States must be handled with great care, because an agreement of this type might provoke an exodus of the Panamanian banking center's clients to other countries. She explained that if such an accord is reached, its result would be a one-way flow of information from Panama to the United States, since the two countries have different tax systems and Panamanians who work in the United States are not obliged to pay taxes to Panama for such income.

Cárdenas noted that a tax assistance treaty with the US could also affect the Panamanian banking system's legal status, in the sense that it would imply that everybody who maintains deposits in Panama would be considered a white collar criminal by the United States, and that would cause a run on the banks. "If it was a matter of pursuing a financial criminal and Panamanian laws provided that the alleged tax fraud is a crime, then there wouldn't be problems, but you can't classify every person who has an account as a tax evader," she said. "Thus this is a subject that must be treated with great care to avoid making depositors so nervous that they go to other countries."

The president of the Panama Banking Association, Luis Navarro, supported the government initiative that may result in a tax information sharing deal with the United States. Although at the moment there's only an agreement to initiate talks, the announcement of that has led to opposition by depositors, law firms and international financial service companies. Nevertheless, Navarro considers the conversations between the two countries beneficial for the international banking center here to the extent that they lead to conformity with international standards.

The government has given its assurances that it will guarantee privacy and confidentiality, limiting access to tax information within the confines of Panamanian laws and regulations. The form agreement based on the US treaties with Antigua-Barbuda and the Cayman Islands, however, provides for US access to Panamanian bank records without a warrant and without any pending court case.

Navarro said that he has to support the initiative because cooperation according to international standards will permit Panama to become more fully integrated into the world economy and avoid the isolation of its banking and commercial sectors. He added that another advantage would be that it would allow the country to resolve its financial blacklisting problems. This past June the FATF removed Panama from its blacklist of countries that don't cooperate in efforts to stop money laundering, but the OECD, Mexico, Venezuela, Argentina and a number of other jurisdictions maintain Panamanian financial institutions on lists requiring special scrutiny, which slows down transactions involving this country.

Banker Luis H. Moreno, on the other hand, opined that a tax information sharing accord with the United States would do much damage to Panama. "It wouldn't be convenient for Panama because our circumstances aren't the same as those in other countries," he said.

Carlos González Ramirez, president of the Panamanian Business Executives Association (APEDE), said that the country has to seek the best agreement that's possible. "If we get one similar to Switzerland's," he said, "we can come out ahead."

Domingo Latorraca, the vice-minister of economy and finance, said after exploratory talks in Miami with three representatives of the US Department of the Treasury and one from the State Department, that the government has not set a date for the next round of negotiations. "We're dealing with very preliminary conversations that come before formal netotiations," he said. "We're going to take all the necessary time to analyze what's best for the country," he added.

Meanwhile, Panama has hired a US consulting firm to help this country's negotiating team in its efforts to reach an accord with the Americans.

A government source who didn't want to be named also pointed out that the Moscoso administration is well aware that it might sign a treaty with the United States, only to see it rejected in the Legislative Assembly. That's an incentive to reach an agreement that's less onerous for the country, the source pointed out.

The initial US form agreement would have provided that "the requesting state will have the authority to examine books, papers, texts, records and other tangible property that could be relevant or material to an investigation, and could interrogate any person who has knowledge, possession, custody or control of the requested information." The US draft provided that the information must be provided automatically and immediately, and that the person or company whose records have been given to American authorities would not be notified. It also provided that if the records revealed pursuant to the US request proved insufficient, Panama would take measures to compel banks or persons to divulge information that the US government wants.

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