VZCZCXYZ0000
RR RUEHWEB

DE RUEHZP #0255/01 0852014
ZNY CCCCC ZZH
R 262014Z MAR 09
FM AMEMBASSY PANAMA
TO RUEHC/SECSTATE WASHDC 3201
INFO RUEHFR/AMEMBASSY PARIS 0126
RHEHAAA/WHITE HOUSE WASHDC
RUEAIIA/CIA WASHDC
RUCPDOC/DEPT OF COMMERCE WASHDC
RHMFISS/DEPT OF HOMELAND SECURITY WASHINGTON DC
RUEATRS/DEPT OF TREASURY WASHDC

C O N F I D E N T I A L PANAMA 000255 
 
SIPDIS 
 
WHSC PLEASE PASS TO USTR 
 
E.O. 12958: DECL: 03/25/2019 
TAGS: ECON EFIN ETRD PM PREL SNAR
SUBJECT: LAWYERS VS. EVERYONE ELSE - GOP STRIVES TO PREEMPT 
OECD BLACKLIST 
 
Classified By: CHARGE DAVID R. GILMOUR FOR REASONS 1.4 (b) & (d) 
 
¶1. (C) Summary. The Government of Panama intends to announce 
financial transparency measures before the April 2 G20 
Meeting to ensure that Panama is not placed on the OECD 
Blacklist of "tax havens." In a March 25 letter to the OECD, 
the GOP acknowledged that it does not want its financial 
center to be used by citizens of other nations to defraud 
their respective tax authorities and offered to enter into 
bilateral accords to avoid double taxation conforming with 
the OECD Model Convention.  However, wrangling among domestic 
interest groups continues, with some powerful lawyers groups 
digging in their heels against reform.  Minister of Commerce 
and Industries Gisela de Porras leads the effort to conform 
Panama's practices with OECD standards.  She shepherded 
discussion of this challenge at a Cabinet meeting on March 16 
and subsequently chaired meetings with various interest 
groups, including the Association of International Lawyers 
and the Banker's Association last week.  End summary. 
 
-------------------------- 
GOP TAKES PROACTIVE STANCE 
-------------------------- 
 
¶2. (C)  Last week, Minister de Porras told Ambassador 
Stephenson that the GOP was considering a menu of options 
including immobilizing bearer shares in the manner of the 
British Virgin Islands, tightening regulation of cash 
transactions, issuing tighter regulations over the insurance 
industry, and/or entering into some mechanism for the 
exchange of financial information with other governments 
(such a mechanism could take the form of a clause in a tax 
treaty to reduce double taxation, a separate tax information 
exchange agreement, or another type of arrangement). In a 
March 25 letter to the OECD Secretary General, Minister de 
Porras offered to enter into bilateral accords to avoid 
double taxation conforming with the OECD Model Convention 
(which includes provisions for exchange of information in 
Article 26).  She also acknowledged that the GOP does not 
want its financial center to be used by citizens of other 
nations to defraud their respective tax authorities. 
 
¶3. (C) These measures are opposed principally by groups of 
lawyers (there is no unitary bar association in Panama) who 
earn substantial revenues from secrecy aspects of Panama's 
corporate and financial architecture.   Under Panamanian law, 
only lawyers are allowed to establish corporations, and the 
revenue from an estimated 400,000 corporations and annual 
maintenance fees is compelling.  They have recycled the 
sovereignty and 'big countries picking on the little Panama' 
arguments.  Some have urged use of a retaliatory law, the Ley 
de Retorcion, which would bar firms of governments applying 
sanctions from being selected for public procurement. 
Panama's leading dailies have carried a volley of articles 
for and against compromise with the OECD for the past week. 
Former Bank Superintendent Delia Cardenas denied that Panama 
is a tax haven (she is a member of leading presidential 
candidate Ricardo Martinelli's economic team). 
 
¶4. (C)  Nonetheless, the GOP understands that the grounds for 
these arguments have drastically diminished given concessions 
by Switzerland, Austria, and Luxembourg and further steps 
toward openness in some Caribbean financial centers. Also, 
Panamanians understand that the placement on the OECD/FATF 
Blacklist in 2000, while traumatic, led to necessary reforms. 
Current Bank Superintendent Olegario Barrelier supports 
reaching an accord with the OECD. President of the Panamanian 
Bankers Association, Moises Cohen, has urged the government 
to get ahead of the blacklist issue.  A broad constituency 
exists for the GOP's initiative.  Domingo Latorraca, Economy 
and Finance Vice Minister under President Moscoso, opined in 
La Prensa that Panama should evolve in its cooperation on tax 
evasion, "always thinking  of the greater interests of the 
Nation and not in that of those of a few." 
 
------------------ 
TIMES HAVE CHANGED 
------------------ 
 
¶5. (C) In 2008, Panama has much more to lose from being 
blacklisted than it did in 2000. During the past nine years, 
marquee U.S. firms have established regional headquarters in 
Panama, including Dell, Caterpillar, Procter & Gamble, 3M, 
and Hewlett-Packard. The harm to Panama's reputation if it is 
 
blacklisted, as well as the possibility of counter-measures 
such as loss of the U.S. foreign earned income exclusion for 
these firms, up the ante on making transparency improvements. 
Ironically, the physical presence of these corporations via 
employees and bricks and mortar - using Panama as a platform 
to expand market share - contradicts one of the elements 
commonly cited as a factor in a tax haven - lack of physical 
presence. 
 
¶6. (C) Comment.  The Torrijos government is highly motivated 
to avoid OECD opprobrium and to leave on July 1 having 
fulfilled all of its major goals. It understands that too 
much in the Panamanian economy is now at stake, including 
strong outcries against the pending FTA with the United 
States, should their efforts fail with the OECD.  Thus far, 
the tax haven issue has been debated in a Panama vs. OECD 
framework.  This government also understands that shifting 
the debate to a Panama vs. United States framework would be 
especially counterproductive.  The incoming government - be 
it Balbina Herrera or the more likely Ricardo Martinelli - 
offers much more uncertainty.  Finally, should the GOP agree 
to immobilize bearer shares and/or regulate anonymous 
corporations, it would address their single area of FATF 40 9 
non-compliance in the 2006 IMF/FATF Financial Sector Review 
and represent a significant step forward in achieving greater 
transparency.  End Comment. 
GILMOUR