Panama: Offshore Business Sectors
The Panamanian banking industry grew during the last quarter of the 20th century into a regional banking centre for Latin American and the Caribbean, due to a variety of factors including the absence of exchange controls, the rapidly increasing volume of trade being conducted through the country (and through the Colon Free Zone in particular), liberal banking legislation and tight secrecy provisions. At the end of 1997 more than 100 banks were licensed in Panama, from more than 20 countries and with assets of about US$23bn; however the country responded to international pressure by tightening up on banking regulation, and a number of banks closed their offices in 2000 and 2001. By mid-2005, 80 licensed banks remained, of which 30 had international licences. Assets amounted to US$7bn.
By 2007, the banking sector had rationalised further as foreign giants sought a piece of Panama's fast-growing services economy. Four deals at the latter end of 2006 had a major impact on the competitive environment of Panama's banking industry; these included HSBC's acquisition of Banco del Istmo - Panama's largest bank - for US$1.8 billion, and Citibank's purchase of Grupo Financiera Uno, Latin America’s largest credit card issuer, for US$1.1 billion. By the end of 2012 total consolidated assets in the banking sector reached over US$89bn. The majority of assets are domestic - as opposed to offshore - as demand by wealthy expats, particularly from the US, for loans on second homes increases seemingly unabated.
Panama introduced a new and comprehensive banking law (which covers local trust companies as well) in February, 1999, replacing one that had been in place since the 1960s. The National Banking Commission that previously issued licenses has been replaced by a Superintendency which comprises a Board of 5 Directors and a Superintendent. In addition to increased investigative powers, the new law has tightened general controls and regulations and brought the country’s supervision more in line with the regulatory standards found in European and American banking centres.
There are three types of banking license:
- General Licences permit trading both in and outside Panama, and can be issued to Panamanian or foreign banks; minimum capital is US$10m.
- International ('Restricted') licences allow offshore banking to be conducted from an office in Panama; minimum capital is US$3m.
- Representation Licences are issued to foreign banks and permit a local office but no local trading. Activities must be be limited to contacting third parties interested in carrying out operations with the Head Office. Representative Offices are not authorized to carry out any kind of operations from or within Panama.
- Combined General and International licences are available. Licence fees are, approximately, US$5,000 and up to US$50,000 depending upon the jurisdiction and the type of licence required.
Branches of major international banks are particularly welcome as they will be able to offer not only traditional retail banking, but also services such as investment management, back-to-back loans and documentary credit facilities, credit card services and trust management.
The 1999 law uses the guidelines of the Basle Committee on Banking Supervision. The Superintendent oversees the soundness and efficiency of the banking system and endeavours to strengthen it as part of the continuing development of Panama not only as a regional, but as an international, banking centre. The Superintendent, whose office is independent of central government, has wide powers of examination and investigation, but that authority is subject at all times to strict compliance with the country’s firm rules of confidentiality. Heavy criminal and civil sanctions can be imposed on bankers as well as the Superintendent for wrongful disclosures.
Although confidentiality is enshrined in the new law, a prima facie case proving funds are illicit will open criminals to exposure. Banks must conform with stringent monitoring and vetting procedures; each bank has a compliance officer who is responsible for ensuring that controls are applied.
Three additional laws passed in 2003 have increased Panama's defences against financial crimes, money laundering and terrorism.
Only banks with General Licenses will have any tax liability, and then only in respect of Panamanian income. See Offshore Legal and Tax Regimes for further details; and see Law of Offshore for details of the licensing and supervisory regimes.