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Also in this section: US State Department report on money laundering and financial crimes in Panama Editor's note: Whether to treat reports like the following as news or opinion is always a difficult decision. The US government has some institutional biases about which financial crimes they take seriously enough to report upon and which they don't, but on the other hand what the State Department says about Panama is newsworthy even in instances when it may be driven by opinions and ideologies rather than facts. Because the American administration's attitudes have such a profound impact on economic life here --- whether it's opening a personal bank account or going into business --- it was decided that this report really belongs among the business pages. Panama is a major drug-transit country, and particularly vulnerable to money laundering because of its proximity to major drug-producing countries, its sophisticated international banking sector, its US dollar-based economy, and the Colon Free Zone (CFZs). Some goods originating in or transshipped through the CFZ are purchased with narcotics proceeds (mainly via dollars obtained in the United States) through the Colombian Black Market Peso Exchange. Despite significant progress to strengthen Panama’s anti-money laundering regime, Panama must remain vigilant to the threat that money laundering continues to pose to the stability of the country’s legitimate financial institutions. The economy of Panama is 80 percent service-based, 14 percent industry and 6 percent agriculture. The service sector is comprised mainly of maritime transportation, commerce, tourism, banking, and financial services. After Hong Kong and the British Virgin Islands, Panama has the highest number of offshore-registered companies, approximately 350,000. Panama’s large offshore financial sector includes international business companies, 34 offshore banks, captive insurance companies (corporate entities created and controlled by a parent company, professional association, or group of businesses), and fiduciary companies. Transfer of negotiable (bearer) bonds is another potential vulnerability that could be exploited by money launderers. The high volume of trade occurring through the CFZ (there are approximately 2,600 businesses established in the Zone) presents opportunities for trade-based money laundering. Law No. 41 (Article 389) of October 2, 2000, amends the Penal Code by expanding the predicate offenses for money laundering beyond narcotics trafficking, to include criminal fraud, arms trafficking, trafficking in humans, kidnapping, extortion, embezzlement, corruption of public officials, terrorism, international theft, and trafficking of motor vehicles. Law No. 41 establishes a punishment of 5 to 12 years imprisonment and a fine. Law No. 42 of October 2, 2000, requires financial institutions (banks, trust companies, money exchangers, credit unions, savings and loans associations, stock exchanges and brokerage firms, and investment administrators) to report to the Unidad de Análisis Financiero (UAF), Panama’s Financial Intelligence Unit (FIU), currency transactions in excess of $10,000 and suspicious financial transactions. Law 42 also mandates that casinos, CFZ businesses, the national lottery, real estate agencies and developers, and insurance/reinsurance companies report to the UAF currency or quasi-currency transactions that exceed $10,000. Furthermore, Law 42 requires Panamanian trust companies to identify to the Superintendence of Banks the real and ultimate beneficial owners of trusts. In June 2003, the Panamanian Legislative Assembly approved the Financial Crimes Bill (Law No. 45 of June 4, 2003), which establishes criminal penalties of up to ten years in prison and fines of up to one million dollars for financial crimes that undermine public trust in the banking system, the financial services sector, or the stock market. The legislation criminalized a wide range of activities related to financial intermediation, including the following: illicit transfers of monies, accounting fraud, insider training, and the submission of fraudulent data to supervisory authorities. Law No. 1 of January 5, 2004, adds crimes against intellectual property as a predicate offense for money laundering. Also in June 2003, the Panamanian Legislative Assembly approved Law No. 48 that regulates money remitters. On May 25, 2005, the Panamanian Legislative Assembly approved Law No. 16 that regulates activities of pawnshops and establishes the obligation to report suspicious transactions in these businesses to the UAF. Executive Order 213 of October 3, 2000, amending Executive Order 16 of 1984 relating to trust operations, provides for the dissemination of information related to trusts to appropriate administrative and judicial authorities. Furthermore, in October 2000, Panama’s Superintendence of Banks issued Agreement No. 9 of 2000 that defines requirements that banks must follow for identification of customers, exercise of due diligence, and retention of transaction records and increased the number of finance company inspections. In 2005, the Superintendence of Banks modified that Agreement, in order to include fiduciary companies within the prevention measures and to bring the Banking Center into line with international standards to be in compliance with Financial Action Task Force (FATF) recommendations. The Ministry of Commerce and Industries, by means of the Resolutions No. 327 and 328 of August 9, 2004, sought to prevent operations of promotional companies, real estate agents, and money remittance houses being used to commit the crime of money laundering and the financing of terrorism. As a result, these companies are now compelled to identify their clients, declare cash transactions over $10,000, and report suspicious transactions to the UAF. The Autonomous Panamanian Cooperative Institute established a specialized unit for the supervision of loans and credit cooperatives regarding compliance with the requirements of Law 42. In 2004, the Stock Commission announced that it would begin investigating suspicious activity. During 2005, the National Securities Commission carried out numerous training sessions and workshops for its personnel and regulated entities on money laundering. The CFZ Administration prepared and issued a procedures manual for the users of the CFZ, outlining their responsibilities regarding prevention of money laundering and requirements under Law 42. The UAF continues efforts to raise the level of compliance for reporting suspicious financial transactions, particularly by non-bank financial institutions and businesses in the CFZ. With support from the Inter-American Development Bank (IDB), the Government of Panama (GOP) is implementing a "Program for the Improvement of the Transparency and Integrity of the Financial System." The Program is targeted, through enhanced communication and information flow, training programs, and technology, at strengthening the capabilities of government institutions responsible for preventing and combating financial crimes and terrorist financed activities. Overall, 1500 employees from 14 institutions have benefited from this training, including representatives of the private sector, stock markets, credit unions, bank compliance officials etc. In addition, with the help of this program, Panama has launched an educational campaign to prevent money laundering and terrorist financing. The program began in 2002 and is intended to raise citizens’ awareness of these crimes. In 2004, this program included a training course for the Gaming Control Board and a Hemispheric Congress on Prevention of Money Laundering. In 2005, a pilot program was developed for money laundering prevention training that was financed by the IDB and executed by the Caribbean Financial Action Task Force (CFATF). Over 5,000 public and private sector employees were trained through this program. Participants included representatives from banks, credit unions, real estate agencies, stockbrokers, insurance companies, CFZ trading companies, financial institutions, and money order companies. The US Government also provided anti-money laundering training in 2005, through the Departments of Justice and Homeland Security. By means of Law No. 22 of 9 of May of 2002, the GOP adopted the UN International Convention for the Suppression of the Financing of Terrorism. In 2002 the Institute of Autonomous Panamanian Cooperatives, UAF, and the US Embassy Narcotics Assistance Section cosponsored a roundtable on money laundering that offered practical training to financial institutions to assist in meeting the reporting requirements under Law No. 42. To increase GOP interagency coordination, the UAF and Panamanian Customs are developing an office at the Tocumen International Airport to expedite the entry of customs currency declaration information into the UAF’s database. This will enable the UAF to begin more timely investigations. Panamanian Customs continued a program at Tocumen International Airport to deter currency smuggling by seizing and forfeiting all undeclared funds in excess of $10,000 from arriving passengers. Bulk cash shipments, including through Tocumen Airport, continue to be of great concern, with smugglers often under-declaring the amount of cash being brought into the country. Executive Order No. 163 of October 3, 2000, which amends the June 1995 decree that created the UAF, also allows the UAF to provide information related to possible money laundering directly to the Office of the Attorney General for investigation. The UAF routinely transfers cases to the financial investigations unit (Unidad de Investigaciones Financiera --- UIF) for investigation. During 2004 the Financial Fraud Prosecutor’s office investigated 2,459 cases related to financial crimes, 86 of which led to a conviction. These included credit card fraud and fraud involving banking institutions. Since money laundering was criminalized in 2000, there have been, to May 2005, ten investigations of money laundering and one conviction. Seven of those cases were tried to a conclusion, one case remains active, and two cases were dismissed. The average prosecution time for money laundering cases is 18.9 months. GOP cooperation in the investigation of the Western Hemisphere’s largest Black Market Peso Exchange money laundering scheme was instrumental in the US conviction in 2002 of Yardena Hebroni, owner of Speed Joyeros, a CFZ enterprise. The GOP also revoked the Panamanian residency of Hebroni, an Israeli national, after she was ordered deported from the United States. In an investigation that was initiated in 2004, the GOP received cooperation from the Government of Nicaragua in a money laundering case against former Nicaraguan President Arnoldo Aleman. In 2005, the Panamanian Judicial System formally indicted Aleman for money laundering and he awaits a preliminary hearing to determine whether the case should go to trial. Also during 2004-2005, there were investigations into possible money laundering and corruption by high-level Costa Rican and Peruvian government officials. During November 2005, Panamanian authorities initiated their takedown of Operation Nino, which resulted in the arrest of 12 defendants and the seizure of over $1 million as well as a cache of small arms. This case was initiated in late 2004, when Mexican and Colombian-based narcotics traffickers solicited a Panamanian customs inspector to facilitate the smuggling of bulk currency into Panama. The case was significant because over $13 million was smuggled into Panama in an eight-month period. The investigation involved multiple agencies, used Panamanian undercover authority, and targeted bulk currency. The GOP identified the combating of money laundering as one of five goals in its five-year National Drug Control Strategy issued in 2002. The Strategy commits the GOP to devoting $2.3 million to anti-money laundering projects, the largest being institutional development of the UAF. The UAF currently maintains inter-institutional cooperation agreements with the Attorney General’s Office and the Superintendence of Banks, and have signed a cooperation agreement with the Public Registry of Panama. Decree No. 22 of June 2003, gave the Presidential High Level Commission against Narcotics Related Money Laundering responsibility for combating terrorist financing. Law No. 50 of July 2003 criminalizes terrorist financing and gives the UAF responsibility for prevention of this crime. The Panama Public Force (PPF) and the judicial system have limited resources to deter terrorists, due to insufficient personnel and lack of expertise in handling complex international investigations. On January 18, 2003, the GOP entered into a border security cooperation agreement with Colombia, and also increased funds to the PPF to help secure the frontier. In response to United States efforts to identify and block terrorist-related funds, the GOP continues to monitor suspicious financial transactions. The GOP also created the Department of Analysis and Study of Terrorist Activities. This department is tasked with working with the United Nations and the Organization of American States to investigate transnational issues, including money laundering. Panama has an implementation plan for compliance with the FATF Forty Recommendations on Money Laundering and its nine Special Recommendations on Terrorist Financing. Panama and the United States have a Mutual Legal Assistance Treaty that entered into force in 1995. The GOP has also assisted numerous countries needing help in strengthening their anti-money laundering programs, including Guatemala, Costa Rica, Russia, Honduras, and Nicaragua. Panama also hosted the Seventh Hemispheric Congress on the Prevention of Money Laundering in August 2003. Executive Decree No. 163 authorizes the UAF to share information with FIUs of other countries, subject to entering into a memorandum of understanding or other information exchange agreement. The UAF has signed more than 27 memoranda of understanding with FIUs, including the Financial Crimes Enforcement Network (FinCEN), the US FIU. Panama is a member of the Organization of American States Inter-American Drug Abuse Control Commission (OAS/CICAD), and is the current Chair of the Caribbean Financial Action Task Force. Panama is also a member of the Offshore Group of Banking Supervisors, and the UAF is a member of the Egmont Group. Panama is a party to the 1988 UN Drug Convention. Panama is a signatory to 11 of the UN terrorism conventions and protocols. During 2002, the GOP became a party to the UN International Convention for the Suppression of the Financing of Terrorism, and in 2004, of the UN Convention against Transnational Organized Crime. In May 2005, the International Monetary Fund (IMF) conducted an assessment of Panama’s Anti-Money Laundering and Counter-Financing of Terrorism (AML/CFT) regime. The Government of Panama should continue its regional assistance efforts. It should also continue implementing the reforms it has undertaken to its anti-money laundering regime in order to reduce the vulnerability of Panama’s financial sector and to enhance Panama’s ability to investigate and prosecute financial crimes, including money laundering and potential terrorist financing.
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