This record is a partial extract of the original cable. The full text of the original cable is not available.

UNCLAS SECTION 01 OF 04 PANAMA 002470 
 
SIPDIS 
 
DEPT FOR INL/LP, EB/ESC/TFS AND WHA/CEN 
JUSTICE FOR OIA, AND AFMLS 
TREASURY FOR FINCEN 
DEA FOR OILS 
 
E.O. 12958:  N/A 
TAGS: SNAR KTFN KCRM PTER PM OTHER AGENCIES
SUBJECT:  2005-2006 INTERNATIONAL NARCOTICS CONTROL STRATEGY 
REPORT (INCSR) FOR PANAMA:  PART II, FINANCIAL CRIMES AND 
MONEY LAUNDERING 
 
REF:  State 210324 
 
Panama 
 
The economy of Panama is 80% services, 14% industry and 6% 
agriculture.  The services sector is comprised mainly of 
maritime transportation, commerce, tourism, banking, and 
financial services.  Panama is a major drug-transit country 
and particularly vulnerable to money laundering because of 
its proximity to major drug-producing countries, 
sophisticated international banking sector, U.S. dollar- 
based economy, prevalence of legalized gambling, and the 
Colon Free Zone (CFZ).  The CFZ serves as an originating or 
transshipment point for goods purchased with narcotics 
proceeds (mainly dollars obtained in the U.S.) through the 
Colombian Black Market Peso Exchange.  Despite significant 
progress in strengthening its anti-money laundering regime, 
Panama must remain vigilant to the threat that money 
laundering continues to pose to the stability of the 
country's legitimate financial institutions. 
 
Panama has the second highest (Hong Kong is first) number of 
offshore-registered companies (at present, approximately 
350,000).  Panama's large offshore financial sector includes 
international business companies, offshore banks (currently 
34), captive insurance companies (corporate entities created 
and controlled by a parent company, professional 
association, or group of businesses), and fiduciary 
companies. Transfer of negotiable (bearer) bonds is another 
potential vulnerability that could be exploited by money 
launderers. The high volume of trade occurring through the 
CFZ (there are approximately 2,600 businesses established in 
the Zone) presents opportunities for trade-based money 
laundering to occur. 
 
Law No. 41 (Article 389) of October 2, 2000, amended the 
Penal Code by expanding the predicate offenses for money 
laundering beyond narcotics-trafficking, to include criminal 
fraud, arms trafficking, trafficking in humans, kidnapping, 
extortion, embezzlement, corruption of public officials, 
terrorism, and international theft or trafficking of motor 
vehicles. Law No. 41 establishes a punishment of 5 to 12 
years imprisonment and a fine. 
Law No. 42 of October 2, 2000, requires financial 
institutions (banks, loan companies, fiduciary companies, 
money exchangers, credit unions, savings and loans 
associations, stock exchanges and brokerage firms, and 
investment administrators) to report to the Unidad de 
Analisis Financiero (UAF), Panama's Financial Intelligence 
Unit (FIU), currency transactions in excess of $10,000 and 
suspicious financial transactions. Law 42 also mandates that 
casinos, CFZ businesses, the national lottery, real estate 
agencies and developers, and insurance/reinsurance companies 
report to the UAF currency or quasi-currency transactions 
that exceed $10,000. Furthermore, Law 42 requires Panamanian 
fiduciary companies to identify to the Superintendent of 
Banks the real and ultimate beneficial owners of trusts. 
 
In June 2003, the Panamanian Legislative Assembly approved 
the Financial Crimes Bill (Law No. 45 of June 4, 2003), 
which established criminal penalties of up to ten years in 
prison and fines of up to one million dollars for financial 
crimes that undermine public trust in the banking system, 
the financial services sector, or the stock market. The 
penalties criminalized a wide range of activities related to 
financial intermediation, including the following: illicit 
transfers of monies, accounting fraud, insider trading, and 
the submission of fraudulent data to supervisory 
authorities.  Law No. 1 of January 5, 2004, added crimes 
against intellectual property as a predicate offense for 
money laundering. 
 
Also in June 2003, the Panamanian Legislative Assembly 
approved Law No.48 that regulates money remitters. On May 
25, 2005, the Panamanian Legislative Assembly approved Law 
No 16 that regulates activities of pawnshops and established 
the obligation to report suspicious transactions in these 
businesses to the UAF. 
 
Executive Decree 213 of October 3, 2000, amending Executive 
Decree 16 of 1984 relating to trust operations, provides for 
the dissemination of information related to trusts to 
appropriate administrative and judicial authorities. 
Furthermore, in October 2000, Panama's Superintendent of 
Banks issued Agreement No. 9 of 2000 that defines 
requirements that banks must follow for identification of 
customers, exercise of due diligence and retention of 
transaction records. It also increased the number of 
inspections of finance companies it conducted. In 2005, the 
Superintendent of Banks modified that Agreement, in order to 
include fiduciary companies within the measures of 
prevention of illegal use and to bring the Banking Center 
into line with the highest international standards, thus 
thoroughly complying with the FATF 40 New Recommendations. 
 
The Ministry of Commerce and Industries, by means of the 
Resolutions No. 327 and 328 of August 9, 2004, sought to 
prevent operations of promotional companies, real estate 
agents, and money remittance houses being used to commit the 
crime of money laundering and the financing of the 
terrorism.  As a result, these companies are now compelled 
to identify their clients, to declare cash transactions over 
the threshold of Ten Thousand US Dollars and to report 
suspicious transactions to the UAF. The Autonomous 
Panamanian Cooperative Institute established a specialized 
unit for the supervision of loans and credit cooperatives 
regarding compliance with the requirements of Law 42. The 
National Securities Commission carried out numerous training 
sessions and workshops for its personnel and regulated 
entities. The Colon Free Zone Administration prepared and 
issued a procedures manual for the users of the CFZ, 
outlining their responsibilities regarding prevention of 
money laundering and requirements under Law 42. The UAF 
continues efforts to raise the level of compliance for 
reporting suspicious financial transactions, particularly by 
non-bank financial institutions and CFZ businesses. In 2004, 
the Securities Commission announced that it would begin 
investigating suspicious activity. 
 
With support from the Inter-American Development Bank, the 
GOP is implementing a "Program for the Improvement of the 
Transparency and Integrity of the Financial System." This 
Transparency Program aims, through enhanced communication 
and information flow, training programs, and technology, at 
strengthening the capabilities of those government 
institutions responsible to prevent and combat financial 
crimes and terrorist financed activities. 
 
Overall 1500 employees from 14 institutions have benefited 
from this training, including representatives of the private 
sector, stock markets, credit unions, bank compliance 
officials, etc.  In addition, with the help of this program 
Panama has launched an educational campaign to prevent money 
laundering and terrorist financing.  The program began in 
the year 2002 and is intended to raise consciousness of 
citizens regarding these crimes.  In 2004, this program 
included a training program for the Gaming Control Board and 
a Hemispheric Congress on Prevention of Money Laundering. 
 
In 2005, a pilot program was developed for money laundering 
prevention a training, which was financed by the IBD and 
executed by GAFIC.  Over 5,000 public and private sector 
employees were trained through this program. Participants 
included representatives from banks, credit unions, real 
estate agencies, stockbrokers, insurance companies, Colon 
Free Trade Zone companies, financial institutions, and money 
order companies.  The U.S. government also provided anti- 
money laundering training in 2005, through the Departments 
of Justice and Homeland Security. 
 
By means of Law No. 22 of 9 of May of 2002, the Republic of 
Panama adopted the UN International Convention for the 
Suppression of the Financing of Terrorism; Also, in 2002, 
the Institute of Autonomous Panamanian Cooperatives, UAF, 
and the U.S. Embassy Narcotics Assistance Section 
cosponsored a roundtable on money laundering that offered 
practical training to financial institutions to assist them 
in meeting the reporting requirements under Law No. 42 
 
To increase GOP interagency coordination, the UAF and 
Panamanian Customs have established an office at the Tocumen 
International Airport to expedite the entry of customs 
currency declaration information into the UAF's database. 
This has enabled the UAF to begin more timely 
investigations.  Panamanian Customs continued a program at 
Tocumen International Airport to deter currency smuggling by 
seizing and forfeiting all undeclared funds in excess of 
$10,000 from arriving passengers. Bulk cash shipments, 
including through Tocumen Airport, continue to be of great 
concern, with smugglers often under-declaring the amount of 
cash being brought into the country. 
Executive Order No. 163 of October 3, 2000, which amended 
the June 1995 decree that created the UAF, also allows the 
UAF to provide information related to possible money 
laundering directly to the Office of the Attorney General 
for investigation. Panama has brought cases for domestic 
prosecution, and the UAF routinely transfers cases to the 
PTJ's Financial Intelligence Unit ("Unidad de Inteligencia 
Financiera" or "UIF") for investigation. During 2004 the 
Financial Fraud Prosecutor's office investigated 2,459 cases 
related to financial crimes, 86 of which led to a 
conviction. These included credit card fraud and fraud 
involving banking institutions. Since money laundering was 
criminalized in 2000 and up to May 2005, there have been 10 
investigations of money laundering and 1 conviction. Seven 
of those cases were tried to a conclusion, 1 case remains 
active and 2 cases were dismissed. The average prosecution 
time for Money Laundering cases is 18.9 months. 
 
In 2005, Panamanian authorities cooperated with Nicaraguan 
prosecutors in their money laundering case against  former 
Nicaraguan President Arnoldo Aleman.  Also during 2004-2005, 
Government Of Panama investigators are looking into 
corruption allegations made against former high-level Costa 
Rican and Peruvian government officials. 
 
During November of 2005, Panamanian authorities initiated 
their takedown of Operation Nino, which resulted in the 
arrest of 12 defendants (all either Colombian or Mexican and 
four of which were Lawyers) and seizure of over 1 million 
USD as well as a cache of small arms weapons.  This case was 
initiated in late 2004, when Mexican and Colombian-based 
narcotics traffickers solicited a Panamanian Customs 
Inspector to facilitate the smuggling of bulk currency into 
Panama.  The Fiscalia/PTJ vetted unit initiated the 
investigation in conjunction with Panama Customs, 
documenting the entry of over 13 million dollars into Panama 
over the course of 8 months.  This case was significant 
because it involved multiple agencies, utilized Panamanian 
Undercover Laws, utilized new money laundering legislation, 
and targeted bulk currency. 
 
The GOP identified the combating of money laundering as one 
of five goals in its five-year National Drug Control 
Strategy issued in 2002. The Strategy commits the GOP to 
devote $2.3 million to anti-money laundering projects, the 
largest being institutional development of the UAF. The UAF 
currently maintains inter-institutional cooperation 
agreements with the Attorney General's Office, the 
Superintendent of Banks, and has signed a cooperation 
agreement with the Public Registry of Panama. 
 
Decree No. 22 of June 2003, gave the Presidential High Level 
Commission against Narcotics Related Money Laundering 
responsibility for combating terrorist financing. Law No. 50 
of July 2003 criminalizes terrorist financing and gives the 
UAF responsibility for prevention of this crime. There are 
no legal impediments to the GOP's ability to prosecute or 
extradite suspected terrorists. Panama Public Force (PPF) 
and the judicial system have limited resources to deter 
terrorists, due to insufficient personnel and lack of 
expertise in handling complex international investigations. 
On January 18, 2003, the GOP entered into a border security 
cooperation agreement with Colombia, and also increased 
funds to the PPF to help secure the frontier. In response to 
United States efforts to identify and block terrorist- 
related funds, the GOP continues to monitor suspicious 
financial transactions. 
 
Also, the GOP created the Department of Analysis and Study 
of Terrorist Activities. This department is tasked with 
working with the United Nations and the Organization of 
American States to investigate transnational issues, 
including money laundering. Panama has an implementation 
plan for compliance with the Financial Action Task Force 
(FATF) Forty Recommendations on Money Laundering and its 
Special Recommendations on Terrorist Financing. 
 
Panama and the United States have a Mutual Legal Assistance 
Treaty that entered into force in 1995. The GOP has also 
assisted numerous countries needing help in strengthening 
their anti-money laundering programs, including Guatemala, 
Costa Rica, Russia, Honduras, and Nicaragua. Panama also 
hosted the Ninth Hemispheric Congress on the Prevention of 
Money Laundering up to December 2005. Executive Decree No. 
163 authorizes the UAF to share information with FIUs of 
other countries, subject to entering into a memorandum of 
understanding or other information exchange agreement. The 
UAF has signed more than 37 memoranda of understandings with 
FIUs, including the U.S. FIU, FinCEN. 
 
Panama is active in the multilateral Black Market Peso 
Exchange Group Directive. In March 2002, the GOP signed the 
cooperation agreement issued by the working group as part of 
a regional effort against the black market system. Panama is 
a member of the Organization of American States Inter- 
American Drug Abuse Control Commission (OAS/CICAD),  and was 
the former Chair of the Caribbean Financial Action Task 
Force during October 2004-October 2005 and the Central 
American Council of Superintendents of Banks, Insurance 
Companies and Other Financial Institutions.   Panama is the 
current Vice President of the Association of Supervisors of 
Banks of the Americas (ASBA), from 2005 to 2007.  Panama is 
also a member of the Offshore Group of Banking Supervisors, 
and the UAF is a member of the Egmont Group. Panama is a 
party to the 1988 UN Drug Convention. Panama is a signatory 
to 11 of the UN terrorism conventions and protocols. During 
2002, the GOP became a party to the UN International 
Convention for the Suppression of the Financing of 
Terrorism, and in 2004, of the UN Convention against 
Transnational Organized Crime. 
 
In May 2005, the International Monetary Fund (IMF)held an 
Assessment of Anti- Money Laundering and Combating of 
Terrorism under the new Methodology of the 40 + 9 
Recommendations of the Financial Action Task Group (FATF), 
which shows Panama's advances  in this area.  In April 2005, 
a team from Fincen and OTA visited Panama and met with 
officials responsible for regulating and enforcing anti- 
money laundering laws. 
 
The Government of Panama should continue its regional 
assistance efforts. It should also continue implementing the 
significant reforms it has undertaken to its anti-money 
laundering regime, in order to reduce the vulnerability of 
Panama's financial sector and to enhance Panama's ability to 
investigate and prosecute financial crime, money laundering, 
and potential terrorist financing. 
 
ARREAGA