The Americas
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Panama's finance industry
Fiscal paradise lost
Dec 7th 2010, 22:28 by I.E. | PANAMA CITY
EVER since Panama founded its offshore banking centre in the 1970s, its governments have vowed to resist international demands for information about assets held by foreign citizens in the country. Until the global financial crisis struck in 2008, Panama faced little pressure to cough up such data, because other jurisdictions like the Cayman Islands were more popular with tax cheats. Once the OECD began cracking down on offshore tax evasion, however, and convinced many of the biggest havens to clean up their acts, Panama began to stand out for its intransigence.
The country has claimed that it has been in compliance with international standards since signing a rash of treaties to prevent double taxation, which include information-exchange provisions. But the OECD has insisted that such clauses were not sufficiently comprehensive, and kept the country on its “grey list” of financial miscreants. This year, two French banks left Panama after Nicolas Sarkozy, France’s president, encouraged his country’s financial institutions to close their operations in tax havens. The United States has turned up the heat even further: a jobs bill passed in March established a new 30% tax on income from American assets held by foreign banks that kept their books sealed. Moreover, Democratic lawmakers have delayed ratification of a free-trade agreement with Panama for three years, in part because of concerns about bank secrecy.
Such pressure proved to be too much for Ricardo Martinelli, a conservative supermarket magnate who was elected as Panama’s president last year. On November 30th, he agreed to the country’s first-ever tax-information exchange treaty. The pact, signed with the United States, tightens Panamanian restrictions on the creation of anonymous “shell” companies, and allows each country to request and receive a full report on the holdings in the other country of any citizen suspected of tax evasion. Since Panama only taxes economic activity within its territory, meaning that no American assets are subject to its levies, the deal represents a clear surrender to American demands. Not only are many Americans, who are thought to make up 25-40% of all foreign bank account holders in Panama, expected to close their accounts in the country, but the precedent set by the agreement will probably encourage capital flight from other foreign investors as well.
Mr Martinelli has clearly calculated that Panama will gain more from cleaning up its financial reputation and securing free trade with the United States than it will lose in dodgy deposits. It is now up to America’s Congress, which still must approve the free-trade deal, to prove him right.
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Oh well. There's still always Switzerland.
Whoops.
Never mind.
dodgy deposits attract dodgy cats.
I think Mr Martinelli has clearly calculated that Autoridad Del Canal de Panama will gain more from securing free trade with the United States as 2014 approaches.
In reality, Panama banking centre was never designed for personal deposits from US persons or other foreigners, it was created to attract funds from international banks and provide them with tax benefits, logistic facilities and an strategic location in the Americas. In fact, it is easier to open a bank account in the US, the UK or Switzerland than in Panama, but tabloids and magazines love to give Panama the cocaine trade attraction, it sells newspapers and even soap operas these days. In fact, Panama was rated No.4 from the 30 jurisdictions reviewed in the assessment carried out by the FATF, so there is more than meets in the eye in the Panamanian economy. The tailor of Panama was and remains to be a good fiction novel, nothing more. What this article fail to consider is that in the middle of mayhem in Europe and in America, Panama real economy is still booming, despite all the OECD blah blah. The Expansion of the Panama Canal, the growth of Panama Ports Company and the development of Panama Pacifico area (with London Regional as developer) is enough to bring the numbers of the economy up. I am not sure that this free trade agreement with America will bring Panama everything that the current government thinks will bring, but there you go, I guess it makes sense to create some benefits for trading with US companies.
Would be even nicer & far more laudable, if the same transparency was practised in Uncle Sam's convoluted &/or nefarious political agendas & aspirtations in Panama.
For clarification, do check with the CIA, dating all the way back to the seventies, if you please..
Your comment that "The Cayman Islands were more popular with tax cheats" displays a worrying ignorance and is the purest and most unsubstantiated nonsense.
Cayman led the way with a full, all crime, anti money laundering treaty with the USA in 1990, two decades before the financial crisis struck. Since 2001 Cayman has had full tax transparency with the US and with the EU since 2005.
Publically available statistics show tax evasion in the Cayman Islands is a statistical irrelevance.
Only last week Cayman Finance Chairman Anthony Travers spoke to 1000 delegates at the IMAC Cayman Captives Conference and reminded them of the ignorance of UK politicians who can't tell the difference between tax evasion and tax avoidance. Mr Travers also warned the audience that a small but vocal left wing clique he calls "The Tax Taliban" appear to be wedded to the misguided concept of high taxation. Travers' view is that the promulgation of this fiscally illiterate view suits the UK and US Governments perfectly as, bluntly, they cannot stand the competition from tax neutral jurisdictions such as The Cayman Islands.
The tragedy is that many intellectually lazy commentators in the UK and US media do not spend the time to look behind these facile arguments. However I am confident that The Economist is not in this camp.
Jack Irvine
UK Political and Media Adviser to Cayman Finance.
Although the article is right in regards to Panama's foreign bank accounts, however, Panama will not be become a "Fiscal Paradise Lost." For Panama has rich natural resources, which, with a proper industrial strategy, Panama will continue to be an economic paradise for its people.
So let's not assume that Panama is going to financially colapse.
Panama with its rich natural resources, well managed will be fine. Lets hope congress comes through.
Lloyd Wood Devix RO