Twenty-five years ago, the term "offshore banking" covered a multitude of activities that were conducted outside an individual's or corporation's location. Because the activities were normally best served in a jurisdiction with privacy laws and flexible regulation, most of the business went to the islands meeting this criteria which could, of course, be described, literally, as being offshore. In the last quarter of a century three important changes have taken place: firstly, the two words, once separated by a hyphen, have become one, in recognition of the term's unique character; secondly, because of the diversity of offshore activities, "banking" has been generally replaced by "financial services" except in those cases where pure banking is the central activity; thirdly, because "offshore" now represents a process rather than a place, some offshore financial services locations are actually onshore, even in landlocked countries. Panama is both a traditional offshore banking center and offshore financial services center, and although it is an isthmus rather than an island, it does have two oceans lapping its shores.
Panama introduced a new and comprehensive banking law (which covers local trust companies as well) in February, 1999, replacing one that had been in place since the 1960's. A bank must have a minimum of US$10 million in capital and the banking regulator (Superintendent), whose office is independent of central government, has wide powers of examination and investigation, but his authority is subject at all times to strict compliance with the country's firm rules of confidentiality. Heavy criminal and civil sanctions can be imposed on bankers as well as the Superintendent for wrongful disclosures. Although, however, confidentiality is enshrined in the new law, a prima facie case proving funds are illicit will not protect criminals from exposure. In addition to increased investigative powers, the new law has tightened general controls and regulations and brought the country's supervision more in line with the regulatory standards found in the European and American banking centers. The new law uses the guidelines of the Basle Committee on Banking Supervision and requires all banks that have a General License (unrestricted domestic or international commercial banking activity) to maintain at all times capital that is equivalent to at least 8% of total assets, weighted in proportion to respective risks.
The Government of Panama recognizes its responsibilities as a leading South American banking center and has introduced stringent monitoring and vetting procedures that must be followed by the banking community and other related businesses as well. Banks have compliance officers who are responsible for ensuring that the controls put in place are followed and the Government has created a special financial intelligence unit. The country's commitment to proper banking controls is reflected in the process for opening up a corporate account. Re-published below are guidelines issued by one licensed trust company.
OPENING CORPORATE BANK ACCOUNTS IN PANAMA
Panama recognizes its responsibilities in
support of the international concerns regarding
drug trafficking, money laundering and other
illicit funds activity. Stringent monitoring
and vetting procedures have been introduced
and, as a licensed trust company, we are required
to comply with the provisions of the Panamanian
banking law. Accordingly, the following information
and documentation should be given when a local
corporate bank account is to be opened:
- Clear copy of the beneficial owner/s passport/s. (Photograph, signature, personal information and used visa pages). The same information will be required for any signatories added to the account.
- Three bank references for each beneficial owner and account signatory which should confirm the satisfactory conduct of the accounts and that the relationships have been of at least two years duration. Depending on the choice of bank, reference letters may need to be addressed to the local bank where the new account is to be opened.
- Brief details of the applicant/s business. This is reviewed by every local bank's Compliance Officer who is required to vet all new account applications in accordance with the monitoring procedures laid down. The information needed is:
- The nature/line of the company's business, or intended business, and the approximate annual volume of business which the company does or will do.
- The location/s of the business.
- The origin/source of the funds to be deposited in the new account.
- The reason for opening the new account in Panama.
- The approximate annual volume of funds which will pass through the new account.
After reading the above guidelines, it will come as no surprise to some that it is often easier to open a bank account in New York, London or Zurich than in Panama and it dispels one of several misconceptions about the country's standards as an offshore banking and financial services center. You may also be surprised to learn that although the Cayman Islands has over 500 licensed banks, fewer than 10 of them have a fully-staffed functioning branch in the Cayman's, whereas in Panama (with over 100 operating banks) brass plate banking is not permitted.
Panama's location makes it a natural conduit for banking between North and South America, besides being home to the Panama Canal which generates a considerable amount of bank-related international shipping business. Further, Panama has the second highest (Hong Kong is first) number of offshore-registered companies (approximately 350,000) many of which need banking services; in some cases it is because of the excellent banking facilities that companies are incorporated here in the first place and in other instances it is regional commercial ties that make Panama the natural choice for both corporate and banking management. So local, regional and international companies are drawn to the commercial attractions of this sophisticated banking center. Panama's confidentiality laws are also a magnet for some, particularly when similar laws in other offshore financial services centers are now in danger of compromise. In recent times, worries over tax revenue losses have begun to rival concerns over drug trafficking and money laundering. The United Kingdom, as an example, has several dependencies which are offshore financial services centers (including the Cayman Islands, the British Virgin Islands and the Channel Islands) and they are all destined to have regulatory and supervisory changes that will align them more closely with the systems found in the European Union. Consequently, the strict privacy which has been the backbone of their offshore business is going to be diluted to a point which will displease a vast number of individuals and corporations who have, for many years now, taken for granted the right to privacy.
Only those offshore financial services centers
which are not bound through sovereignty to
the political and social agenda of another
country will be able to counter the inevitable
pressures which will be applied. Panama is
one of those jurisdictions. The debate about
offshore confidentiality is too complex to
either discuss or summarize in this brief
summary, but it is fair to say that many feel
that Panama's position reflects a balanced
approach. It is an approach that is undoubtedly
going to continue to attract more and more
business to this offshore banking center.
Written by Derek Sambrook of Trust Services S.A.
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