Panama Bank Secrecy Laws

Executive Summary – This is being revised July of 2011. Panama has been changing their secrecy and privacy laws. They have signed a Tax Information Exchange Agreement with the United States. This allows for easy sharing of information regarding bank accounts, corporations and foundations. They are also openly stating their intent to eliminate corporation secrecy. This should also include eliminating foundation secrecy as well. Panama banks now require a personal visit. The banks also require bank reference letters. These are often considered to be suspicious transaction requests in some countires. Panama banks generally operate only on the USD and this is a problem today with the USD sinking in value. One must hold several currencies and gold to guard against major turmoil in the currency markets. Panama banks do not offer allocated gold and silver. Please keep reading and you will understand the deficiencies and we will also point out excellent replacements for Panama with more privacy and security.

Panama Foundation & Corporation Asset Protection Executive – We are discussing the Panama Foundation and the Panama Bearer Share Corporation here. Please be advised that Panama is not the privacy and tax haven it was two years ago . Panama has signed a Tax Information Exchange Agreement with the US which was ratified by their legislature. They even had the nerve to make this treaty retroactive for three years before the signing date. Retroactive laws are a violation of the constitution of just about any nation. Yes, Panama does have a constitution. It appears that the government does not want to extend the protections of it's constitution to those banking there, owning Panama Corporations or Panama Foundations. They went further than the Swiss. Panama is also signing what they refer to as double taxation treaties with other nations. Panama has also been talking openly about ending corporation secrecy and we would of course assume this includes foundations. It would be foolish to eliminate corporation secrecy laws and not do the same for foundations. The Panama banks will not open accounts for people unless they appear physically at the bank. They also require two bank references generally speaking. We consider a bank reference letter to be a suspicious transaction as far as banks in many countries are concerned. The banks have been in the habit of not opening new accounts for Americans and Canadians. We suggest that you listen to the message that the government of Panama is transmitting and that message is not one designed to attract foreigners into their banking system.

Panama Foundations, Panama IBC's and Fraudulent Conveyance – When you have money in an offshore haven there is always the possibility that a financial enemy of some sort will pursue you. This does not mean you really are in debt to them. It can be emotionally charged. This occurs in divorce, bankruptcy, fights between business partners, supplier and customer disputes, etc. In many countries the court system is corrupt and can be used to get judgments against people in an unjust manner. The defendant may not be able to pay massive legal bills to defend against the action. This often happens in the USA. Well my point is now you have a financial enemy chasing you offshore and you are banking in Panama. How will they attack your money? They will use fraudulent conveyance to go after your assets. This is the collection attorney catch all to bring an action offshore in the jurisdiction of the bank. Rarely is an action ever brought against the corporation, they chase the assets not a piece of paper. Fraudulent conveyance is a term that describes an action when a defendant intentionally moves money out of the reach of a creditor and places it in another jurisdiction out of reach of the creditor. Panama laws allow the creditor to come to Panama and allege a fraudulent conveyance has taken place. This is a civil action. The creditor or their attorney files a case in Panama. The time period for such a filing is three years from the date of the transfer of the assets into the foundation. So every time a transfer is made into the foundation or corporation or corporation owned by a foundation a new three year window is opened up for a financial enemy to attack those transferred assets. The three year window has nothing to do with the date of the formation of the foundation or corporation itself. It gets worse.

The creditor can attempt to get a “sequestro” order (think lien, levy attachment) against your assets or bank account even if the bank account is in the name of a Panama Private Interest Foundation (PIF). This is a process where they get a freeze order on a specific amount of your assets pending the trial. In some countries this is called a lien. They “should” have to post a 10% bond with the court to freeze your bank accounts or they could freeze the title to any real estate, boats, cars that the foundation owns. If they have an allegation for say a $100,000 debt. They would add in legal fees, costs, interest etc and say seek a freeze order for $150,000 or so. They post a $15,000 bond and $150,000 of your money is frozen for several years pending the trial. Normally, the plaintiff tries to increase the amount of the freeze order getting it as high as possible. It gets worse yet. Panama foundation assets have been frozen in the past. If the foundation itself directly does something actionable it can have it's assets frozen. A fraudulent conveyance into a Panama foundation would be one instance of this. And it gets worse yet!

The Panama courts can be approached to get a sequestro order without having any names of bank accounts or bank account numbers. The court in Panama is set up to send a fax out to every Panama bank ordering the freeze (sequestro) that has an account where the personal name of the defendant is associated to it. The banks then have to comply. Wait is gets much worse yet. Yes, it is hard to believe but keep reading.

In Panama if a person alleges that a civil fraud (I did not say criminal) has been committed and files a civil suit they can ask the court for “Preventive Detention”. This means that you can go to prison awaiting the trail, based on nothing more than allegations contained in a civil lawsuit. The time wait is about three years in jail, could be less and could be more. Of course you could settle with the plaintiff from jail to get out. The plaintiff may be in a position to bargain for a high settlement. So you could be in jail on a civil allegation, pre-trial. If you think this is a fabrication or an exaggeration check it out. It is 100% true. But wait it gets worse yet if you can believe it could be any worse.

A person or a corporation can retain legal counsel in Panama and never come to Panama to accomplish this. A Power of Attorney is executed from outside of Panama. They can have their Panama lawyer do all this to you when they do not even set foot inside of Panama. Where we are going is you never get to confront your accuser. Let's say after months of serious stress from being in prison in Panama, a small fortune spent on lawyers etc. you manage to show the court the allegations were not based in fact and you get out of jail. Can you do anything to the person who deceitfully put you in jail? If they are not in Panama you are probably not able to do anything to them. Perhaps they may not be able to come to Panama, but they probably never came to Panama in their life and knowing what they know about the Panama Legal System they probably will never come to Panama. Don't despair there are better solutions available today.

The Belize Trust vs. Panama Foundation – Do not be frustrated about Panama and the Foundation. The Belize Trust is a superior instrument to the Panama Foundation. It can protect against fraudulent conveyance, which no other trust or foundation does. It also protects against the decisions of foreign courts. The country of Belize is a former British Territory and has a most reasonable legal system. Their banks speak English and have good customer service. They are not a dollarized economy like Panama which is just a matter of time until it has major problems. The USA can print all the dollars they want, Panama can not do this. This is a big difference. We can use the Belize Trust in Belize or we can use it in Andorra to be the beneficiary owner of a Belize corporation banking in Andorra. Andorra even has numbered accounts which Panama eliminated many years ago. One can own allocated gold and silver in the Andorra bank and even trade stocks on all the exchanges around the world. In Belize one can have five currencies in their account and in Andorra ten. None of our solutions requires a bank reference letter. We suggest you follow these links to learn more about these offshore banking strategies:

Belize Trusts and Belize Bank Account

Andorra Offshore Bank Accounts

This all be updated and said we will go on to the archived material concerning Panama Bank Secrecy.

Today Panama has become the Switzerland of Latin America. There are 150 banks in Panama many of which have their name on a 40 story modern skyscraper. Panama is often touted as having the best banking secrecy laws in the world. This author believes this to be true and we will address the bank secrecy laws of Panama in depth.

The first important point to look at is the existence of any tax treaties that Panama may be in with any other countries. This is an easy topic since Panama has no tax treaties with any other countries. Tax treaties can be privacy invasive for a banking client. Under some treaties the bank must collect a certain percentage of taxes from interest income paid to the clients and this money is turned over to the client’s home country. Other treaties call for an exchange of information so if a requesting country wanted to gather certain facts about a bank account or if a certain constituent of theirs had a bank account the bank would be obligated to provide the information. The European Union Withholding Tax Treaty is a very relevant treaty.

The next type of treaty one must look at is called the Mutual Legal Assistance Treaty, or MLAT. This treaty allows countries to request information from other countries in the treaty. The general way this type of treaty operates is through diplomatic channels. Panama is in such treaties. The requesting country must have a criminal case on file in the national courts of their country. They would then cite this case already in their criminal courts when the request for information is made. The requesting country would a need to show that the requested information about the Panama bank account is absolutely required to successfully prosecute the case and that the requesting country has no other way to obtain such evidence. Then the request is considered by Panama. Panama may ask for more information. Panama could deny the request on whatever grounds they wish to use. Panama could also decide to conduct their own investigation because they feel that some Panama laws may have been broken and delay the MLAT request until after they have concluded their investigation which may be some years. The statue of limitations could expire before Panama completed their investigation. This is not to say that Panama is in the habit of thwarting requests for information but Panama does have a right to investigate crimes that took place in their jurisdiction. As a result of these investigations they could confiscate assets and prosecute individuals under their own laws.

For the MLAT to take effect the violation in question must be a crime in both the requesting country and the country the information is requested from. Various MLAT treaties have all sorts of details and exceptions and should be read individually if you are seriously interested in a particular treaty. Panama not only has no tax treaties with any other nation but all income tax related offenses in Panama are civil offenses only, not criminal offenses. So tax matters are not a crime in Panama. Thus Panama does not participate in requests for information in tax offenses. Panama does cooperate in certain areas freely. If one acts fraudulently while in the capacity of a fiduciary in a financial relationship Panama will cooperate. Panama also cooperates in cases of narcotics trafficking, money laundering, terrorism and child pornography.

The Panama Bank Secrecy laws are contained in a number of different legal statues. We will go through some of the relevant ones:

Article 74 of Decree 238 deals with protecting the privacy of Panama bank clients. It states that the Commission is prevented from conducting or requesting investigations concerning the banking affairs of any bank clients. Any data obtained by the Commission in the course of its normal regulatory functions may not be revealed to any person or authority, except if subpoenaed in accordance with the legal provisions in force (Panama Court Order required). If a violation of this occurred Article 101 of this Cabinet Decree contains provisions for the dealing of such a violation.

• Article 101 of Cabinet Decree 238 states that:
  "Any person who furnishes information in violation of this Cabinet Decree, or who violates any of the prohibitions established in it, for which no specific punishment is provided for, shall be subject to a monetary fine as determined by the Banking Commission, without prejudice to applicable criminal and civil liabilities." This is fairly strong language.

• Article 65 of Cabinet Decree 238 deals with how the National Banking Commission may gain access to documents relating to the bank's operation, not individual records of banking clients. The Banking Commission needs to regulate the banks financially and thus inspect their books but this is mandated to be done on a collective basis, thus the books for the bank as a whole are inspected not the records for an individual account holder at the bank. The Banking Commission may not examine or inspect any type of individual deposit accounts, nor the securities held in custody by the bank for clients, nor the safe deposit boxes belonging to clients and their contents, nor the documents associated with receiving credit from the bank, unless there is a Panama Court Order in place that specifically authorizes such inspection or examination according to Article 89 of the Panama Commercial Code.

• Panama statues specify that bank secrecy may be lifted by a Panamanian court through Article 89 of the Commercial Code. This is not a commonly invoked procedure but is possible concerning serious criminal activities.

• Articles 168 and 170 of the Panamanian Criminal Code contain two sections which enables criminal prosecution for violation the privacy of Panama banking clients:
  • Article 168. Any person that is in legitimate possession of correspondence, records or documents which are not intended for public knowledge and notwithstanding discloses said correspondence, records or document without proper authorization, even in the event that they were addressed to him, shall be subject to prosecution, whenever such disclosure might inflict damage.

  • Article 170. Any person that in the course of his occupation, employment, profession or activity obtains knowledge of confidential information that in the event of being made public could inflict damages, and such person discloses that information without the consent of the concerned party; or in the case that disclosure of such information were not necessary to safeguard a higher interest, shall be punishable by imprisonment of 10 months to 2 years or a comparable fine, and the inability to practice his occupation, employment, profession or activity for not more than 2 years. One can readily discern that this would cover Panama Stock Brokers, and Panama Banks including all the employees and officers. This could also be construed to cover Directors of Panama Anonymous Bearer Share Corporations and Council Members of Anonymous Panama Private Interest Foundations.

Panama has done away with numbered bank accounts as have the rest of the offshore tax haven jurisdictions. This is due to pressure from FATF, the Financial Action Task Force. FATF is a private entity that unofficially dictates anti-money laundering statues to the banks worldwide. Numbered accounts are no longer allowed.

Panama through the use of anonymous Bearer Share Corporations accomplishes practically the same privacy as the old numbered bank account. The banks around the world including those in Panama must know who their customers are. This usually means getting identity documents such as passports, driver’s licenses, national identity cards, and letters of reference from banks and businesses. The Panama Bearer Share Corporation is anonymous in that there is no reporting or recording of any stock ownership records in any registry or database thus it is impossible to determine who the natural persons are behind the corporate veil. This means when international wire transfers are sent only the name of the anonymous corporation appears in the wire, the true owner of the account is not revealed for the world to see same as it was when numbered bank accounts were allowed. With regards to writing checks the same applies assuming the signatory signs the check in a hard to read manner. To provide for more privacy Panama only allows an attorney to form a corporation or foundation. This cloaks the formation of the corporation with Panama attorney client privilege further protecting the owners of the corporation or foundation with an additional layer of privacy. In most tax haven jurisdictions the formation of a corporation handled by a corporate agent which does not provide privileged communication to protect the identity of the person owning the corporation.

One can readily see why Panama has become the new Switzerland of Latin America.