VZCZCXYZ0000
OO RUEHWEB

DE RUEHZP #0293/01 0981412
ZNR UUUUU ZZH
O 081412Z APR 09
FM AMEMBASSY PANAMA
TO RUEHC/SECSTATE WASHDC IMMEDIATE 3245
INFO RUEKJCS/SECDEF WASHDC IMMEDIATE
RUCPDOC/DEPT OF COMMERCE WASHDC IMMEDIATE
RHMFISS/CDR USSOUTHCOM MIAMI FL IMMEDIATE
RUEABND/DEA WASHDC IMMEDIATE
RHMFIUU/DEPT OF HOMELAND SECURITY WASHINGTON DC IMMEDIATE
RHMFIUU/DEPT OF JUSTICE WASHINGTON DC IMMEDIATE
RUEATRS/DEPT OF TREASURY WASHDC IMMEDIATE
RHEHAAA/NSC WASHDC IMMEDIATE

UNCLAS PANAMA 000293 
 
SENSITIVE 
SIPDIS 
 
WHSR PLEASE PASS TO USTR - DAVID OLIVER 
 
E.O. 12958: N/A 
TAGS: ECON EFIN SNAR PREL PGOV PM
SUBJECT: PANAMA ANNOUNCES KEY TAX HAVEN SOLUTION - A PATH 
TO BEARER SHARES IMMOBILIZATION 
 
REF: PANAMA 255 
 
¶1. (SBU) Summary. The GOP announced on April 7 that it 
intends to regulate bearer shares.  This breakthrough, when 
fully executed, will solve Panama's most pressing 
transparency issue, fulfill the USG's most prominent 
financial crimes regulatory recommendation, and remedy 
Panama's sole grave remaining anti-money 
laundering/counter-terrorism finance (AML/CFT) deficiency - 
lack of access to beneficial ownership and control 
information. How important is this step? Bearer shares serve 
as an extremely powerful 'cloaking device'for financial 
crimes. Held anonymously by "the bearer," these instruments 
allow the persons possessing them to store and transfer funds 
with little risk of detection. Without their effective 
regulation through immobilization (registration), disclosures 
under any future Tax Information Exchange Agreement (TIEA) 
will remain incomplete - blocked by the secrecy of beneficial 
ownership of the corporation. Immobilization requires the 
registration of the beneficial owners of those shares -- as 
opposed to mere disclosure of directors and resident agents 
of anonymous corporations issuing the shares. The GOP's 
statement does not specifically mention immobilization. 
However it telegraphs this measure by mandating formation of 
a "working team" to "propose concrete actions" to "increase 
levels of responsibility and transparency with respect to the 
titling of anonymous societies." End summary. 
 
------------------------------------ 
Lawyers vs. Bankers on Bearer Shares 
------------------------------------ 
 
¶2. (SBU) Panama's announcement resulted from concerns 
publicly expressed by Chairman Rangel and Representative 
Levin, placement of Panama on the G20/OECD tax haven "grey 
list' of countries committed to yet not implementing reforms, 
and - most importantly - recognition by Panamanians that they 
must undertake this step in order to retain their 
competitiveness and continue to attract direct foreign 
investment. Ambassador Stephenson has urged key GOP and 
private sector interlocutors to address this issue 
proactively, both as a matter of necessary reform and as a 
means of avoiding the risk of derailing FTA consideration in 
Congress. In order to arrive at this announcement, the GOP 
overruled objections of powerful constituencies, most 
prominently lawyers, who enjoy the sole right under 
Panamanian law to establish corporations and collect annual 
corporate maintenance fees (reftel). Given the estimated 
existence of 400,000 anonymous corporations, the GOP 
presumably impacted a substantial stream of revenue. In its 
September 2006 Financial Sector Assessment of Panama, the IMF 
notes that lawyers "are not subject to any AML/CFT 
requirement even when acting as company service providers." 
By mandating a "working team" to "propose concrete actions" 
to "increase levels of responsibility and transparency with 
respect to the titling of anonymous societies," the GOP has 
taken aim at the lawyers holding out for the status quo. 
 
¶3. (SBU) On the other hand, bankers in Panama are subject to 
an array of AML/CFT requirements and have little use for 
anonymous corporations. Panama's generally well-regulated 
banking sector views them as an impediment to "know thy 
customer" requirements. In a recent meeting with Ambassador 
Stephenson, Citibank Panama's General Manager Marcelo Gorrini 
echoed the sentiments of all the bankers we have spoken with 
- the risk of accepting anonymous corporate accounts and 
associated bearer shares without knowing the beneficial 
owners is unacceptable - from an AML/CFT compliance 
standpoint and a risk analysis standpoint. As President 
Torrijos noted to Codel Hoyer on April 5, banks in Panama are 
in the business of legitimate lending for projects and 
businesses that grow the economy. However, banks in other 
jurisdictions might not have the same scruples in accepting 
bearer bonds that are issued in Panama. When looking at 
offshore deposits, other "tax havens" dwarf Panama. Indeed, 
in 2002, domestic deposits overtook foreign deposits and have 
remained larger through today. 
 
-------------------------- 
Combating Money Laundering 
-------------------------- 
 
¶4. (SBU) The authors of the 2006 IMF report grade Panama on 
the Financial Action Task Force (FATF) 40 9 recommendations. 
In 39 of those recommendations, Panama scores as compliant or 
largely compliant; in 9 recommendations Panama is rated as 
partially compliant. Panama fails ("non-compliant") only 
Recommendation 33: "Legal Persons-Access to beneficial 
ownership and control information." The report notes that 
"disclosure is made of the identity of directors and resident 
agents only," in the Public Registry, "while disclosure of 
the identity of shareholders is not required." Various 
Treasury Department officials have expressed concern over 
bearer shares, which they have characterized as the key 
outstanding issue in Panama's path toward quality. The State 
Department's 2009 International Control of Narcotics Strategy 
Report (INCSR) cites "commendable efforts to enhance Panama's 
ability to prevent, detect, investigate, and prosecute 
financial crimes, including money laundering and terrorist 
financing." However, it emphasizes that, "The issuance of 
bearer shares are of concern and the GOP should take adequate 
steps (such as immobilization) to assure that these 
instruments are not used for money laundering." 
 
 
How Bearer Bonds Relate to Tax Haven Status and Tax 
Information Exchange - Non-Panamanians Use Them to Hide Income 
 
 
¶5. (SBU) Most importantly, obstacles to identifying 
beneficial owners in the case of bearer share companies 
emerge not with Panamanians, but rather with foreign 
residents or companies domiciled abroad. According to the 
IMF, this phenomenon occurs because Panamanian lawyers often 
only deal with foreign lawyers and company service providers, 
but not the real owner of the company being incorporated. Our 
law enforcement representatives at Post tell us that bearer 
shares impede their investigations. When they ask to 
interview the resident agent (attorney) for an anonymous 
corporation, the attorney has no obligation to know - and 
hence disclose - the beneficial owners. When they interview 
the director of a suspect anonymous corporation, they often 
end up interviewing a maid or taxi driver, while the 
beneficial owners of the shares - and hence the firm - remain 
undiscovered. This phenomenon occurs despite extensive rights 
granted under the U.S.-Panama Mutual Legal Assistance Treaty 
(MLAT) and the deep cooperation of Panamanian law enforcement 
agencies. Thus, even if a Tax Information Exchange Agreemet 
were in force between the United States and Panama, it would 
not result in the complete exchange of information without 
immobilization of bearer shares. 
 
¶6. (SBU) On February 26, 54 members of Congress signed a 
letter accusing Panama of being a tax haven based on a 
December 2008 GAO Report titled, "Large U.S. Corporations and 
Federal Contractors with Subsidiaries in Jurisdictions listed 
as Tax Havens or Financial Privacy Jurisdictions." Concerning 
Panama, it contains a crucial flaw: the vast majority of U.S. 
corporations listed therein have NOT/NOT established 
subsidiaries in Panama with a primary purpose to evade U.S. 
taxation. Instead, they are using Panama as a platform to 
expand market share throughout Latin America - additional 
market share that often creates jobs in the United States. 
For instance, on March 26, Caterpillar broke ground on a $30 
million sales and training center on the former Howard Air 
Base. Dell employs 1,800 people at its logistics center, also 
at Howard - where it joins, among others, 3M and Singapore 
Aerospace Technologies. Procter & Gamble moved its regional 
operations from Caracas and is rapidly ramping up to 400 
employees. Merck also conducts regional operations from 
Panama. As Deloitte's Barsallo notes, Panama solicits 
physical presence - the opposite of a conventionally held 
view of a tax haven as solely a jurisdiction to file articles 
of incorporation. Panama attracted $2.4 billion in FDI in 
¶2008. It has embarked on a $5.25 Canal expansion project; its 
privatized ports handled 3.3 billion TEU's in 2008 (up from 
250,000 TEU's in 1997). Tourist arrivals reached 1.6 million 
last year, up from 600,000 in 2000. Copa Airlines has 
expanded dramatically in recent years, offering service to 
nearly every major city in Latin America. U.S.-based Kansas 
City Southern and MiJack Industries operate the railroad 
paralleling the Canal. The bottom line: Panama's principal 
 
economic activity is decidedly not encouraging tax evasion. 
 
------- 
COMMENT 
------- 
 
¶7. (SBU) Comment: In making today's announcement, the GOP 
took a gutsy, proactive stance - and also a whole lot of heat 
from a powerful, well-connected domestic constituency (two 
former Panamanian Ambassadors to Washington head law firms 
issuing bearer shares). The GOP, at our urging, has cast this 
as a Panamanian decision to do the right thing to ensure 
Panama's future as a quality destination for financial 
services and foreign investment. We have worked 
behind-the-scenes with the President and Vice President to 
reduce the impression of gringo arm-twisting (which 
unhelpfully fuels the sovereignty defense - poor Panama being 
beat up by the gringos again-the lawyers are trying to 
obscure the real issues, namely that Panama's economy gains 
almost no benefit from rich lawyers issuing bearer shares). 
While acknowledging Congressional concerns and their impact 
on bringing the FTA to a vote, we have downplayed the 
connection to the FTA to the extent possible to avoid fueling 
the argument that the gringos keep moving the goal posts on 
the FTA and really have no intention of ever approving it. We 
have focused instead on the enormous downside of remaining on 
the OECD grey list (or slipping to the OECD black list) and 
shared our view that, with the playing field shifting as 
rapidly as it is, it is inevitable that Panama will address 
these tax haven issues. The only question is whether they do 
it with grace and style and in time to help get the FTA 
approved, or kicking and screaming later. End Comment. 
STEPHENSON