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International Narcotics Control Strategy Report - 2008
Released by the Bureau of International Narcotics and Law Enforcement Affairs

From Volume 1, Drug and Chemical Control
Panama
I. Summary

Panama is a major drug transit country. Its geographic location, developed maritime and transportation infrastructure facilitate trans-shipment of illegal drugs from Colombia to the United States and Europe. While the Torrijos Administration has been dynamic in its cooperation with the US on security and law enforcement issues it has been less vigorous in its cooperation with regional neighbors. Panama seized 60 metric tons of cocaine in 2007 --- the highest amount in recent years. Panama is a party to the 1988 United Nations Drug Convention.

II. Status of Country

Panama is a major trans-shipment point for narcotics destined for the US and other global markets. Traffickers exploit Panama’s well-developed transportation infrastructure, such as containerized seaports, the Pan-American Highway, a rapidly growing international hub airport (Tocumen), numerous uncontrolled airfields, and relatively unguarded coastlines on both the Atlantic and Pacific. Smuggling of weapons and drugs continued in 2007, particularly between the isolated Darien region and Colombia. The Government of Panama (GOP) has staffed the US-funded Guabala checkpoint (inaugurated in 2006) on the Pan-American Highway, but resources and high-level management have been lacking. The flow of illicit drugs has contributed to increasing domestic drug abuse, according to Panamanian authorities. Panama is not a significant producer of drugs or precursor chemicals. However, limited amounts of cannabis are cultivated for local consumption.

III. Country Actions Against Drugs in 2007

Policy Initiatives. The Torrijos Administration is publicly committed to counternarcotics and anticrime cooperation with the US As a member state of the Central American Integration System (SICA), Panama participated actively in the US-SICA security dialogue. A number of legislative initiatives have not been passed. These include a proposal to change the criminal justice system from a written (inquisitorial) to an oral (accusatorial) system. A 2006 proposal to merge the current National Air Service (SAN) and National Maritime Service (SMN) into a coast guard (based on the US model) was also not introduced in the National Assembly. The GOP took limited steps to create a stand-alone border control service separate from the National Police (PNP). Also, the GOP took legislative action and disbanded the Technical Judicial Police (PTJ) and transferred most of its personnel to the National Police (PNP), with day-to-day control of major criminal investigations under the direction of prosecutors.

Accomplishments. In 2007, the GOP seized a record 60 metric tons (MT) of cocaine in collaboration with the US Coast Guard. This included the largest on-record maritime seizure of cocaine, which was over 16 metric tons in March 2007. Several sensitive vetted units continue to operate with impressive results. The former head of the SMN was arrested and jailed on charges of corruption and illegal enrichment. In another high profile case, Colombian trafficker Jose Nelson Urrego Cardenas was arrested and his numerous properties confiscated.

Law Enforcement Efforts. In 2007, in addition to the 60 metric tons (MT) of cocaine, GOP authorities seized 96 kg of heroin, nearly 3.9 MT of marijuana, and made 207 arrests for international drug-related offenses. Several USG-supported GOP vetted units expanded operations in 2007. The joint Department of Homeland Security (DHS)-Department of Energy (DOE) Container Security Initiative (CSI) was launched in Panama in October. The primary mission of the CSI is to enhance global container security from the threat posed by high-risk shipments.

Corruption. As a matter of policy, no senior GOP official or the GOP encourages or facilitates the illicit production or distribution of narcotic or psychotropic drugs of other controlled substances, or the laundering of proceeds from illegal drug transactions. The National Anti-Corruption Commission, made strides in 2007 to address government corruption, including auditing government accounts and launching major investigations. A USG-funded “Culture of Lawfulness” program has trained officials from the Ministry of Education (MEDUCA), Private Schools Association, and the PNP on the importance of transparency, with courses taught in schools (early high school level) and in the PNP Academy.

Agreements and Treaties. Panama is a party to the 1988 UN Drug Convention, the 1961 UN Single Convention on Narcotics Drugs, as amended by the 1972 Protocol, and the 1971 UN Convention on Psychotropic Substances. A mutual legal assistance treaty and an extradition treaty are in force between the US and Panama, although the Constitution does not permit extradition of Panamanian nationals. A Customs Mutual Assistance Agreement with Panama was signed on March 15, 1999. A stolen vehicles treaty is also in force. In 2002, the USG and GOP concluded a comprehensive maritime interdiction agreement. Panama has bilateral agreements on drug trafficking with the United Kingdom, Colombia, Mexico, Cuba, and Peru. In 2007, Panama signed the Global Initiative to Combat Nuclear Terrorism. Panama is a party to the UN Convention Against Transnational Organized Crime and its three protocols, and is a signatory to the UN Convention Against Corruption. Panama is a member of the OAS and is a party to the Inter-American Convention on Mutual Assistance in Criminal Matters and the Inter-American Convention Against Corruption. Panama is a member state of SICA and an active participant in the US-SICA security dialogue.

Cultivation and Production. Cannabis cultivation in Panama is limited, and is mostly for domestic consumption.

Drug Flow/Transit. Drugs transit Panama via fishing vessels, cargo ships, small aircraft, and go-fast boats. Hundreds of abandoned or unmonitored legal airstrips are used by traffickers for refueling, pickups, and deliveries. Couriers transiting Panama by commercial air flights also moved cocaine and heroin to the US and Europe during 2007. Limited manufacturing of synthetic drugs occurs in Panama for local consumption. The majority of synthetic drugs distributed in Panama are smuggled into the country via commercial aircraft (using couriers) originating from Europe.

Domestic Programs/Demand Reduction. In 2007, the GOP implemented the final part of its five-year counternarcotics strategy that included 29 demand reduction, drug education, and drug treatment projects, at a total cost of $6.5 million to fund the projects during the five-year period. MEDUCA and CONAPRED, with USG support, promoted counternarcotics training for teachers, information programs, and supported the Ministry’s National Drug Information Center (CENAID). The projects produced positive results such as the training of 250,000 students in drug prevention by the Ministry of Education.

IV. US Policy Initiatives and Programs

Policy Initiatives. USG-supported programs focus on improving Panama’s ability to interdict, investigate, and prosecute illegal drug trafficking and other transnational crimes; strengthening Panama’s judicial system; assisting Panama to implement domestic demand reduction programs; encouraging the enactment and implementation of effective laws governing precursor chemicals and corruption; improving Panama’s border security; and ensuring strict enforcement of existing laws. INL, DHS, and USCG provided resources for modernization and upkeep of SMN and PNP vessels and bases, conducted maritime law enforcement training courses, and assisted the SAN with training personnel and maintaining key aircraft for interdiction efforts. In 2007, the USG provided training and operational tools to the multi-agency Tocumen Airport Drug Interdiction Law Enforcement Team, including, DHS/CBP-provided training for personnel at Tocumen Airport and the Guabala checkpoint on the Pan-American Highway. INL supported a major law enforcement modernization initiative to professionalize PNP mid- and senior-level officers. The program focused on proven community policing tactics, expansion of existing crime analysis technology, and promotion of managerial change to allow greater autonomy and accountability. Work was completed on the initial phase of the National Crime Tracking and Mapping System (INCRIDEFA), which will enable the PNP to track criminal incidents in real time. INL also provided computers, office and other equipment, to the Attorney General’s Anti-Corruption Prosecutor’s Office.

Bilateral Cooperation. In 2007, the GOP continued to participate in joint counternarcotics operations with DEA and USCG, and worked to strengthen national law enforcement institutions with assistance from NAS. The maritime interdiction agreement has facilitated enhanced cooperation in interdiction efforts, with Panama playing a vital role in facilitating the transfer of prisoners and evidence to the US, enabling USG assets to remain on patrol in theater. In 2007, the Coast Guard’s seizure of over 32 metric tons of cocaine was directly related to cooperative efforts executed under provisions of the counternarcotics bilateral agreement between Panama and the United States.

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Panama

Panama is a major drug-transit country, and is particularly vulnerable to money laundering because of its proximity to Colombia and other drug-producing countries. Colombian nationals are able to enter Panama without visas, facilitating the investment of drug money into Panama’s economy. Panama is also an important regional financial center. Panama’s economy is 77 percent service-based, 15 percent industry and 8 percent agriculture. The maritime sector, construction, tourism, and banking are among Panama’s most important and fastest growing sectors. Panama has had one of the fastest growing economies in the Western Hemisphere over the last 15 years, and is estimated to have the fastest growing economy in the region during 2007, with GDP growth approaching 10 percent. The funds generated from illegal activity are susceptible of being laundered through a wide variety of methods in Panama, including the banking system, casinos, bulk cash shipments, pre-paid telephone cards, debit cards, ATM machines, insurance companies, and real estate projects and agents.

Panama’s sophisticated international banking sector, Colon Free Zone (CFZ), US dollar-based economy, and legalized gambling sector are utilized to facilitate potential money laundering. The CFZ is the world’s second largest free zone after Hong Kong, and serves as an originating or transshipment point for some goods purchased with narcotics proceeds (mainly dollars obtained in the United States) through the Colombian Black Market Peso Exchange. The CFZ has over 2,600 business, 25 bank branches, and employs approximately 25,000 personnel. The CFZ is estimated to have imported and re-exported over US $15 billion in goods during 2007. The ports of Panama handle over 4 million twenty-foot equivalent units (TEUs) of container traffic per year. The CFZ has limited resources to conduct supervisory programs and monitor for illegal activities, with a legal staff of approximately five people who, among other things, oversee efforts to detect money laundering, transshipment, goods smuggling, counterfeit products and intellectual property rights violations.

Panama is one of the world’s largest offshore financial centers. Panama’s offshore financial sector includes international business companies, offshore banks, captive insurance companies and fiduciary companies. Approximately 34,800 new offshore corporations were registered in Panama in 2007, as of October 2007. As of June 2007, Panamas had 85 commercial banks: 2 official banks, 14 local banks of general license, 26 foreign banks of general license, 34 banks of international license, and nine representative offices. Shell companies are permitted and have been used by a wide range of criminal groups around the world. Bearer shares are permitted for corporations and nominee directors and trustees as are allowed by law. The Government of Panama (GOP) regulates casinos, but does not regulate Internet gaming sites.

Law No. 42 of 2000 requires Panamanian trust companies to identify to the Superintendence of Banks the real and ultimate beneficial owners of trusts. Executive Decree 213 of 2000, amending Executive Order 16 of 1984, provides for the dissemination of information related to trusts to appropriate administrative and judicial authorities. Both the onshore and offshore financial entities are subject to similar regulation by the Superintendence of Banks. The onshore and offshore registration of corporations is also handled by the Public Registry. There are no differing regulations governing onshore and offshore corporations. The application process for a banking license in favor of a bank to be constituted in Panama and a banking license in favor of a foreign bank are substantially the same.

Panama’s construction sector, which is growing at double-digit rates, is also susceptible to money laundering activities. In Panama City alone, there is either in process or approved the construction of over 150 buildings of twenty stories or greater. It is estimated that approximately 20,000 high-end condominium units will enter the Panamanian real estate market within the next five years. The bulk of these units are for purchase by foreigners. The developer of one residential project (Resort Paraiso Las Perlas on Isla Chapera in the Gulf of Panama), Jose Nelson Urrego Cardenas, was arrested in 2007 on drug money laundering charges.

Money laundering is a criminal offense in Panama under Law No. 41 of October 2000. Law 41 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 and international theft or trafficking of motor vehicles. Law No. 1 of 2004 also adds crimes against intellectual property as a predicate offense for money laundering. In May 2007, Law No. 14 was adopted, establishing terrorist financing as a predicate offense for money laundering. Law 41 establishes a 5 to 12 year prison sentence, plus possible fines. Law No. 45 of 2003 also 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. This law criminalizes a wide range of activities related to financial intermediation, including the following: illicit transfers of monies, accounting fraud, insider trading, and the submission of fraudulent data to supervisory authorities.

Law No. 42 of 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 currency transactions in excess of US $10,000 and suspicious financial transactions to Panama’s financial intelligence unit, the Unidad de Análisis Financiero (UAF). Law 42 also mandates casinos, CFZ businesses, the national lottery, real estate agencies and developers, and insurance and reinsurance companies report to the UAF currency transactions that exceed US $10,000. Furthermore, Law 42 requires Panamanian trust companies to identify to the Superintendent of Banks the beneficial owners of trusts. Additionally, Law 16 of 2005, which regulates the activities of pawnshops, requires such enterprises to report suspicious transactions to the UAF. Financial institutions are prohibited from informing their client or third parties that they have transmitted any information regarding such transactions to the UAF. Law 42 protects reporting entities from civil and criminal suits with respect to providing the information required by the law and otherwise cooperating with law enforcement entities.

The Superintendent of Banks is responsible for supervising both onshore and offshore financial institutions with regard to their anti-money laundering and counter-terrorist financing (AML/CTF) requirements. In 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, to include fiduciary companies within the prevention measures and to bring the banking center into line with international standards and Financial Action Task Force (FATF) recommendations. Financial institutions must have sufficient information to adequately identify their customers. They must examine every cash (or cash equivalent) transaction in excess of $10,000 or a series of transactions that in the aggregate exceed US $10,000 in any given week. Additionally, they must examine with special attention, any transaction, regardless of amount, which could be related to money laundering activity. Financial institutions must also establish procedures and mechanisms for internal controls to prevent money laundering related activities. Financial institutions must also insure that their employees are aware of these laws and regulations.

A number of other supervisory bodies have regulatory responsibility for AML/CTF compliance purposes. The Ministry of Commerce and Industry is responsible for supervising money remittance houses, financing companies, real estate promoters and agents, pawnshops, and companies located in enterprise processing zones. The Panamanian Autonomous Cooperative Institute supervises savings and loan cooperatives, and has established a specialized unit for the supervision of loans and credit cooperatives regarding compliance with Law 42. The National Securities Commission supervises securities firms, stockbrokers, stock exchanges and investment managers, and carries out various training sessions and workshops for its personnel and related entities. The Gaming Commission supervises casinos and other establishments dedicated to betting and games of chance. The Colon Free Zone Authority supervises the companies and activity within the CFZ, and has issued a procedures manual for all CFZ businesses, outlining their responsibilities regarding the prevention of money laundering and the requirements of Law 42. The Superintendence of Insurance supervises insurance companies, reinsurance companies, and insurance brokers.

Executive Decree No. 136 of 1995 establishes the UAF. The UAF falls under the jurisdiction of the GOP’s Council for Security and National Defense within the Ministry of the Presidency. The UAF currently has approximately 25 employees. During 2007, the UAF reinforced the analysis department by hiring two new accountants, a financial analyst, and a lawyer. Also, the statistics and typology departments have newly trained personnel. Despite these additions, the UAF is overworked and understaffed, lacks adequate resources, and suffered the loss of experienced personnel in 2007.

The UAF works with other GOP agencies to identify new methods of money laundering and terrorist financing, and participates in the training of financial and nonfinancial sector employees in detecting and preventing money laundering and terrorist financing. During the first six months of 2007, the UAF trained 1,476 individuals, 59 percent of which were banking employees, 29 percent of which were government employees, and 12 percent of which were financial service employees.

The UAF has access to the records or databases of other government entities that have public websites or public investigative offices. The UAF has online access with other GOP entities to access information from the public registry, traffic department, electoral tribunal, as well as information on immigration movements and travelers’ declarations of the cross-border transportation of currency. The UAF may also request additional information from financial institutions in writing.

Once the UAF has reviewed all cash transaction reports (CTRs) or suspicious transaction reports (STRs) and gathered any other relevant information from reporting institutions and other government agencies, the UAF provides information related to possible money laundering or terrorist financing to the Office of the Attorney General for investigation. Money laundering cases involving narcotics are handled by the Drug Prosecutor’s Office within the Office of the Attorney General. The Judicial Technical Police (Sección de Investigaciones Financieras, or SIF, similar in function to the Federal Bureau of Investigation) provides expert assistance to the prosecutors. The UAF routinely transfers cases to the financial investigations unit of the SIF for investigation.

As of November, the UAF received 1,012 STRs in 2007, of which 170 were sent to the Attorney General’s Office for further action. During all of 2006, the UAF investigated 935 suspicious transaction reports (843 from banks), of which 158 were sent to the Attorney General’s Office. During the second quarter of 2007, the UAF received 63,752 CTRs, a 3.8 percent increase from the same period in 2006. The total amount reported via CTRs during the first six months of 2007 was $2.7 billion, a 46.9 percent increase from the same period in 2006. Approximately 91 percent of the reports came from banks, and 4.5 percent from exchange houses. The UAF attributes the increase in CTRs to the growth in the Panamanian economy. As of October, the Drug Prosecutor’s Office reported 43 drug-related money laundering arrests in 2007.

Under Panamanian customs regulations, any individual bringing cash in excess of $10,000 into Panama must declare such monies at the point of entry. If such monies are not declared, they are confiscated and are presumed to relate to money laundering. Some GOP officials have expressed concern at the millions of dollars in cash they have seen brought into Panama from Colombia. The actual movement/transfer of this cash is legal insofar that it was declared to both Colombian and Panamanian customs. However, the GOP maintains that it cannot vouch for the legitimate origins of said cash. All instances of cash smuggling are required to be reported into a database maintained by Panamanian customs.

On August 10, 2007, Law 38 entered into force. Law 38 provides for the seizure of assets derived from criminal activity. Upon an arrest, assets are frozen and seized. The assets are released upon a judge’s order to the defendant in the event of a dismissal of charges or acquittal. In the event of a conviction, assets derived from money laundering activity related to narcotics trafficking are delivered to the National Commission for the Study and Prevention of Narcotics Related Crimes (CONAPRED) for administration and distribution among various GOP agencies. Seized perishable assets may be sold and the proceeds deposited in a custodial account with the National Bank. Responsibility for tracing, seizing and freezing assets lies principally with the Drug Prosecutor’s Office of the Attorney General’s Office. The GOP has not enacted legislation allowing for civil forfeiture or the sharing of seized assets with other governments.

Law 50 of 2003 criminalizes the financing of terrorism. Under Law 14 of May 2007, terrorist financing and terrorist acts, among other offenses, are now predicate offenses for money laundering. Panama circulates to its financial institutions the list of individuals and entities included on the United Nations Security Council Resolution 1267 Sanctions Committee list. The Ministry of Foreign Relations sends the UAF and the Superintendence of Banks a copy of a diplomatic note or letter with the names of terrorist organizations or financiers designated by the US Government or the UN. The UAF in turn sends it to the appropriate regulators, who in turn send it to the regulated entities. The GOP does not have an independent national system or mechanism for freezing terrorist assets.

Executive Decree 524 of 2005, as amended by Executive Decree 627 of 2006, establishes procedures to regulate, supervise, and control nongovernmental organizations and charities, including regulatory procedures to combat terrorism and prevent terrorist financing. Press reports, however, have questioned the degree to which the nongovernmental organizations are complying with their reporting and registration requirements.

Decree No. 22 of June 2003, gave the Presidential High Level Commission against Narcotics Related Money Laundering responsibility for combating terrorist financing. 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. The GOP has a border security cooperation agreement with Colombia, and has also increased funds to the PPF to help secure the frontier. The GOP also created within the Ministry of Foreign Affairs 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. 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 43 memoranda of understanding with foreign 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 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, the UN International Convention for the Suppression of the Financing of Terrorism, the UN Convention against Transnational Organized Crime, the UN Convention against Corruption, and the Inter-American Convention against Terrorism.

The Government of Panama has a comprehensive legal framework to detect, prevent, and combat money laundering and terrorist financing, and cooperates with the United States and other countries with criminal investigations of drug trafficking, money laundering, and financial crimes. Panama nonetheless remains vulnerable to money laundering owing to its lack of adequate enforcement, personnel and resources, the sheer volume of economic transactions, its location as a major drug transit country, and corruption. The GOP should consider adopting legislation that allows for civil forfeiture and the freezing of terrorist assets, and enhance law enforcement efforts to address such vulnerabilities as smuggling, abuse of the real estate sector, trade-based money laundering, and the proliferation of nontransparent offshore companies. The GOP should also ensure that the UAF and other law enforcement and regulatory entities have sufficient personnel and resources.