economy

The US-Panama tax information deal is more than just that
by Eric Jackson

On paper, and for public relations purposes, the US-Panama Tax Information Exchange Agreement is about an end to Panama being a haven where American tax cheaters park their money. If the United States has an ongoing tax investigation that specifically targets a particular US corporate entity or individual US citizen, it will be able to get Panamanian banking information about that person. That much is the principal publicized point, and it's something in common with "dual taxation treaties" that Panama has signed with nine other countries in order to avoid sanctions by the Organization for Economic Cooperation and Development (OECD) as a "tax haven."

But the deal also purports to strip away the veil of anonymity behind which the beneficial owners of Panamanian corporations (Sociedades Anonimas, or SAs) hide. It also purports to  effectively ban anonymous bearer shares in Panamanian companies. Those provisions are not found in the other agreements that Panama has signed.

On the face of it, Panama's banking sector would be seriously affected. Various estimates have it that 40 to 45 percent of Panamanian bank accounts are owned by Americans. But a provision of US law found in the Microentrepreneurs Act of 1999 --- better known as the "Prime Act" --- effectively requires foreign banks that want to do business with the US banking system to provide information about US citizens with accounts in those foreign banks. Plus, in instances where the proceeds of drug trafficking or a number of other crimes are being laundered, Panama already pierces banking and corporate secrecy. So do Panamanian banks lose the business of some American wise guys who are hiding out from the taxman, while keeping those who are concealing assets from the courts in connection with messy divorces?

It does not seem that the Banking Association of Panama is too upset about it. The industry group's president, Moises Cohen, said that after considering the proposal the association decided that it would not much affect their business and approved it.

But perhaps the country's most renowned corporate lawyer, Eduardo Morgan Jr., argues that the deal does nothing good for Panama and in a La Prensa column stated that it "can have negative consequences for our economy" and is motivated by US "hopes that our clients will move their accounts to the banking center in Miami." (Take that last bit in part as a dig at President Martinelli, who has close political and ideological ties with the Miami Cuban exile leadership.)

In this country's lawyer business, organizing Panamanian corporations for foreign customers, which typically then get Panamanian bank accounts, is the daily bread. The bank reforms might be one annoyance, but the corporate provisions of the agreement are intolerable to the business attorneys.

The deal is hailed by some US supporters of a US-Panama free trade pact for removing the final obstacle. But from left and right, US observers are not necessarily thrilled. On the right, former GOP congressman Bob Bauman complained that "Panama's rules will not permit a judicial appeal by those subjected to an IRS information request" and called the agreement "a victory for the tax hungry major deficit spending governments led by the Obama administration." On the left Todd Tucker, a spokesman for Public Citizen's Global Trade Watch, complained that the agreement "does not require Panama to automatically exchange information with US authorities about tax dodgers, money launderers and drug traffickers." He advised that Panama would have to implement changes to a number of its laws to carry out the promises it makes in the agreement, and it would take time to do these things and to see how the changes work in practice.

Meanwhile, it appears that the Panamanian Ambassador in Washington has resigned because of this agreement. As La Estrella reports it, when Vice President and Foreign Minister Juan Carlos Varela went to Washington to sign the agreement, he had sharp words with Ambassador Jaime Alemán. It seems that US President Barack Obama, who was already annoyed with Panamanian President Ricardo Martinelli for other reasons, was offended by the leak of the agreement's text to US anti-tax activists and the finger of blame got rightly or wrongly pointed at Alemán.

The tax information agreement didn't get Martinelli a meeting with Obama and, given that Martinelli's right-hand man Jimmy Papadimitriu is a former John Boehner aide and that Obama has problems with the left wing of his party, it may not get him a presidential submission of the US-Panama Trade Promotion Agreement to the US Congress either. That NAFTA-style free trade pact is a moving target, which may not have been fixed into place by Republican gains in the recent US elections.