Panama takes a turn towards transparency, but will it go far enough?

The country that became almost synonymous with the creation of offshore companies for disguising corrupt and illicit activity after the Panama Papers has been forced to adjust to new standards of transparency.

Last month, Panama took important steps towards a register that lists the real beneficiaries of companies in which a Panamanian lawyer, or a Panamanian law firm, provides the service of ‘resident agent’. This is the role that Mossack Fonseca infamously played in thousands of companies inside and outside of Panama, including those connected to at least 140 politicians and public officials — among them 12 former or current government leaders. The firm also worked for 33 individuals or companies that had been blacklisted and sanctioned by the US government for money laundering, trafficking, terrorism and fraud.

Unless the President of Panama partially or fully vetoes the Bill to create the new register, it will automatically come into effect as early as February 2020.

Access to the new registry will be limited to four entities: The Superintendence of Non-Financial Subjects, the Financial Intelligence Unit, the Attorney General, including prosecutors, and the Ministry of Economy and Finance, including the tax authority.

Not included, but should be, are the Judiciary, including the Supreme Court, judges and the police. Without them, justice cannot be served. Foreign counterparts will not have direct access to the information either. They will continue rely on exchange arrangements signed by Panama with specific counterparts or, for general cases, on lengthy mutual legal assistance requests every time a Panamanian company or a private foundation is involved in deals they are investigating.

Furthermore, a private registry is by nature less effective than one accessible to the public. As Transparency International argues in its 2019 report Who is behind the Wheel? Fixing the Global Standards on Company Ownership, the evidence suggests that when the media and civil society can access company ownership information, errors or gaps in the data can be more easily addressed.

Speaking of accuracy, there is a glaring loophole in the proposed Panamanian registry. The custodian and administrator of the registry is not responsible for the truthfulness or accuracy of the information provided by the resident agent. Nor is the resident agent responsible. The resident agent may be liable for providing false information, however the penalty imposed is very low — only up to US$10,000.

Only time will tell whether the new system works or not. It is no doubt a step forward in that it brings greater order and improved handling to information that has previously been dispersed and handled in different ways by different parties.

The regulatory history of Panama shows that the country may approve more modern and complete standards than other jurisdictions, but the application of these standards is usually deficient. Panamanian lawyers have been obliged to know their clients when they act as resident agents in corporations since 1994. However, compliance with regulations is another matter.

So far, with limited current resources and based on previous experience, it will be a challenge to effectively supervise the large number of lawyers who act or may act as resident agents. Supervision is and will continue to be the greatest weakness. This can only be solved by allocating sufficient resources to do a good job. Political will is key.

If the registry comes into effect but its use is not enforced, it would be a good example of what the Spanish transparency expert, Miguel Angel Balnes Climent says about certain laws:

Carlos Barsallo is President of Transparency International Panama, Libertad Ciudadana.

A detailed analysis of the proposed Private and Sole Registry of Final Beneficiaries in Panama is available at barsallocarlos.blogspot.com, along with an excerpt in Spanish.