NOWHERE TO HIDE:
WHY WE NEED BENEFICIAL
OWNERSHIP REGISTRIES.

IACC 1.1.20.
Link to the complete conference:
https://19thiacc.pathable.co/meetings/virtual/pPnAie653fvGpKZ4B

Panama: a case study  
By Carlos Barsallo, Chair Panama Chapter of Transparency International    


In 2016, as a reaction to the Panama Papers, the Panamanian Government appointed a committee of independent experts to evaluate the practices of Panama’s financial services center. The committee´s work was: “aimed at having the country lead the international community’s efforts to build a new global financial architecture.” Sadly, so far Panama has not been leading the international community´s efforts to build a new global financial architecture. This does not mean that Panama has not been doing legal changes. Quite the contrary, Panama has been introducing legal changes and some of them are -in theory- good.   Some legal changes have been approved very fast as a reaction to external pressure and with a specific objective, been removed from the Financial Action Task Force list of countries with important deficiencies in the fight against money laundering.   This practical way of reacting to the problem, instead of anticipating and preventing the problem has not allowed time to analyze and answer questions such as: what you want to do, why you do it, and for whom you do it. That is why this workshop is relevant. It could help others with the same struggle.   The questions that I am going to answer regarding beneficial owners’ registries are the how and the when, using some lessons learned so far from the Panamanian case, that is still work in progress.  

First some background. Panamanian lawyers and know your client.   The obligation of Panamanian lawyers to know their client by acting as resident agents in Panamanian corporations has existed legally since 1994, that is, more than 25 years ago. Initially, it was limited to drug trafficking.   The compliance, effectiveness and efficiency have not been duly measured by the Panamanian authorities, private sector or academia. The different governments have always insisted the legislation and practice were adequate. International evaluations indicated otherwise. Not until very recently, have we had official local data (via the national risk assessment) that would allow us to assess whether on any occasion in which resident agents have been required to inform, locally or internationally, of who is the final beneficiary of the corporation’s or private interest foundation, this has been done timely and properly. This single omission and delay speak volumes.   I have good reasons to believe that the legal formulas developed during the last 25 years, particularly those related to the obligations of resident agents, have not functioned properly. This is due to a combination of factors ranging from its poor formulation, sometimes intentional, to the palpable lack of will to strictly apply it.   The following is a key point: Any Panamanian lawyer can be a resident agent. Only Panamanian lawyers, or Panamanian law firms, can be resident agents. According to the report of the Mutual Evaluation of Panama of the Latin American Financial Action Group of January 2018, there were four thousand lawyers and three hundred law firms registered as resident agents with the Panamanian regulator of Non-Financial Subjects.   It is important to consider that according to data from the Supreme Court of Justice of Panama, in 1994 there were three thousand lawyers registered with practicing certificate. In 2020 the number of attorneys with practicing certificate exceeds twenty-five thousand.  The specific law that deals with the obligation of the Panamanian residents’ agents to know their client is Law 2 of 2011. It has been amended 3 times. This law contains certain articles that, in my opinion, contradict the objectives of the anti-money laundering law. For example, it creates room for interpretations in important issues such as the duty to report suspicious activities and due diligence procedures by lawyers. This has created problems when Panama has been evaluated.   The result today is that the Financial Action Task Force has identified Panama as a jurisdiction with strategic anti money laundering deficiencies. Panama is a jurisdiction subject to monitoring by the Financial Action Task Force.   If the above were not enough, the media strength of investigative journalistic work made available to the world, highlighting among them the Panama Papers have made it impossible for Panama not to react with changes that may adjust to the new realities and transparency needs.   The effect of the Panama Papers can be clearly seen not only in the decrease in new incorporations but in the increase in the dissolutions of Panamanian corporations.   For example, if you compare the year 2009 with the year 2019, the substantial drop is evident. In 2009, thirty-eight thousand Panamanian corporations were incorporated. In 2019, fourteen thousand Panamanian corporations were incorporated.  In 2014, one thousand corporations were dissolved, while in 2018 twelve thousand corporations were dissolved.   Faced with incessant international pressure, and with the unsatisfactory results of the latest international evaluation, the National Assembly of Panama approved on March 17, 2020 the Law 129 presented by the Executive Branch through which a Private and Sole System of Registry of Final Beneficiaries in Panama is created.  

The private and sole system of registry of final beneficiaries. The purpose of the new law is to create a sole system of registry: “to facilitate access to final beneficiaries of legal entities collected by lawyers who provide the services of a resident agent to assist the competent authority in the prevention of money laundering”. The creation of the Sole System has followed an accelerated process. It was presented by the Executive Branch to the National Assembly on December 12, 2019. It was approved in the National Assembly on December 19, 2019, in one week. Specific changes were made, and the final version was approved March 17, 2020.   The new Sole System is limited to information on final beneficiaries of legal entities in which a Panamanian lawyer, or a Panamanian law firm, provides the service of resident agent.   It refers to the Panamanian corporation, which is the type of company that requires a resident agent. The Panamanian Private Interest Foundation is also included in the new regulation of the Sole System, as it is a legal entity and has a resident agent. Trusts are not legal entities, even when they have a resident agent, so they do not fall within the scope of the new law.  

The how. The Panamanian registry is private. Just the authorities indicated in the law can obtain information from it.   Access to this new private registry is limited to the Competent Authority. Competent Authority comprises 5 entities:   The Superintendency of Non-Financial Entities,The Financial Analysis Unit for the Prevention of the Money Laundering,the Public Ministry,the Ministry of Economy and Finance of Panama andany other institution or agency of the National Government to which competence is attributed in the prevention of money laundering.     It is interesting to note that the Judicial Branch, with its various instances including the Supreme Court or lower courts, is not included as a Competent Authority. For example, in civil proceedings in which a party requires to know who the final beneficiary of a corporation or private interest foundation is, a judge will not be empowered to obtain such information.   This potentially affects the proper administration of justice. Also, administrative agencies dealing, for example with public procurement, have no access to the registry. The prevention aspect to minimize corruption is not considered or used.  

The when.   The new law is a formal advance that implies order and the search for better information management, until now dispersed and carried in a varied way by the resident agents. However, so far, the registry has not been created and it is not operational. The pandemic has complicated its creation and implementation.   The history of Panamanian regulatory progress shows that sometimes more modern, up- to- date, and comprehensive rules are formally approved than those in other jurisdictions, but their application, or enforcement, is usually poor or lacking.   After its prompt creation, the most important elements to ensure whether the new Sole System registry of final beneficiaries will work or not, are directly related to two aspects, compliance with providing initial information, and, above all, making the necessary updates in a timely manner.   It is important to know how other jurisdictions are doing it. That is what, Jaime the next speaker will address.  

What if Panama doesn’t comply?   The risks for Panama for not implementing the beneficial owner’s registry in practice soon is to stay in the Financial Action task Force (FATF) list of countries with anti-money laundering deficiencies.   According to the law approved in march 2020 and still pending further development via regulation, from the creation of the Sole System, the resident agents must proceed with the registration of the corporations and private foundations as registrants, as well as with the capture of the information required for each legal entity constituted or registered in force, within 6 months of the notification made by the Superintendency of Non-Financial Subjects in national circulation media. This has not happened yet. The pandemic has complicated the efforts.  On October 23, 2020 The FATF gave the option for jurisdictions publicly identified as deficient to not report at the October 2020 meeting given their focus on addressing the impact of the COVID-19 pandemic.   The following countries chose to report Albania, Botswana, Cambodia, Ghana, Mauritius, Pakistan, and Zimbabwe.   The following countries deferred their reporting: Barbados, Jamaica, Myanmar, Nicaragua, Panama and Uganda.   Another jurisdiction is sending a message that they are willing to go further. British Virgin Islands BVI has announced it will have a public registry on beneficial owners by 2023. Panama has to consider this.  June 29, 2020. The government of Bahamas was pressing the FATF to agree to hold an on-site visit ahead of its plenary in October, according to Attorney General Carl Bethel.   November 30, 2020. NASSAU, BAHAMAS — The Financial Action Task Force (FATF) has concluded its on-site visit to The Bahamas, which will now await its recommendations on the question of de-listing from the FATF “Gray List”.  

See Article