Opening a bank account in a Tax Haven is supposed to be easy. All hush hush, sly winks, funny bank account numbers. Or as the British might say - "Nudge, nudge, wink, wink, say no more, say no more". I would not say that was my expectation when opening a bank account in Panama, but I certainly was not ready for the level of Customer Due Diligence, KYC (Know Your Customer) and AML (Anti-Money Laundering) checks that were required. And here I were thinking, I'll hand over some cash and we'll open a bank account.
Still the (new) bank insisted the checks they insisted on making were completely normal, and that there had been no change in their process. The printed and many-times photocopied forms certainly appeared to support their position. This in contrast to my experience opening a bank account in the UK with nothing more than a Belgian identify card. I walked in, sat down, handed over my Belgian identify card and a letter from my employer (which, frankly, I could have typed and printed from my own computer). With little other than asking me for my address, I had a UK bank account, with a debit card in the mail.
At this stage let me say that this was all above-board, as we were in the process of actually moving to Panama from the UK. I'll also confess that this was a month after the world wide splash of the "Panama Papers" and the sudden spotlight that this had shown on Panama in general, and on banking and legal services in particular.
Opening a bank account is one great example of just how the stereotypes of Panama simply are not accurate. Not only did they require identification (and a Belgian identify card was not sufficient, thank you), they required a letter of introduction from our UK bank. A letter that could never touch my hands, but that had to be sent from Bank to Bank. Imagine the humor when I asked for a letter of introduction from my bank. The conversation went something like:
There is little question that the Panama Papers scandal has been a trauma for the country and the legal and financial services industry. Regardless of how many times people are reminded that "offshore havens" are rife, and that certain US States effectively replicate the functions of offshore tax shelters and money laundering havens, the stigma now sticks to Panama. A recent estimate says that 10% of global GDP is held in "off-shore" havens. Trust me, that money is not in Panama.
The Panama Papers have already toppled the government of Iceland, and last month, the Prime Minister of Pakistan was dismissed by the Supreme Court on the grounds of corruption exposed by the papers. numerous politicians and celebrities have been exposed as having "businesses" in off-shore havens, not all in Panama, but all exposed by the release (hacked theft or internal theft, this still remains to be confirmed one way or the other) of files from Mossack Fonseca, a Panamanian law firm that operated in at least 9 countries at the time.
Multi-national corporations with regional headquarters in Panama have considered relocating, and at least one appears to be on the brink of doing so. While that organization does not have significant operations in Panama, it is the Latin America and Caribbean administrative hub.
Meanwhile, Panama has, over the past decade, maked real, tangible progress in the area of Corporate Governance, lead by the IGCP (Instituto de Gobierno Corporativo-Panamá) and various financial supervisory regulators, and the OECD. The first Corporate Governance Code was introduced in 2010, and is enshrined in the Corporate Law.
In relation to the effectiveness of banking supervision, in 2006 the IMF reported: "Panama is largely compliant with the majority of FATF Recommendations for anti-money laundering and countering the financing of terrorism (AML/CFT), reflecting the efforts of the authorities and industry to put in place an effective AML system. Nevertheless, staff makes several recommendations..." Panama has since updated its legislation in line with the IMF recommendations.
In the associated area of Risk Management, the Panamanian banking supervisor requires all banks to provide a statement that they have an effective system of Risk Management. Further, this statement must be signed by the Board of Directors. This is included in the detailed in Chapter IV of Rule 7-2014 (August 2014).
So while Panama has been making serious progress on corporate governance, anti-corruption and banking supervision for many years, still the country has a bad reputation. Having the previous president sitting in a US jail awaiting extradition for corruption does not help. Nor does a culture in which the police regularly request bribes, and in fact give lessons on how to pay those bribes.
Clearly there is a long way to go, both in actual implementation of effective corporate governance, and in inculcating a culture that rejects corruption at the grass-roots level as well as at the most senior levels of government. But the country is not the Wild West, and if anything can be learned from the Panama Papers, it is a reminder that reputation made in years, but destroyed in seconds. Panama has been spending the years demonstrating that it plays by the international rules, and in fact enshrines those rules in law.
Going through the processes of getting a bank letter of introduction was not the end of their due diligence. My employer in the UK received a telephone call from the bank in Panama. Do I actually exist, and do I really work for this company? Could they confirm by email please, from a company email address?
Remember that this is required by a bank in an off-shore tax haven. All I can do is quote the UK bank service representative: "Really?"
Still the (new) bank insisted the checks they insisted on making were completely normal, and that there had been no change in their process. The printed and many-times photocopied forms certainly appeared to support their position. This in contrast to my experience opening a bank account in the UK with nothing more than a Belgian identify card. I walked in, sat down, handed over my Belgian identify card and a letter from my employer (which, frankly, I could have typed and printed from my own computer). With little other than asking me for my address, I had a UK bank account, with a debit card in the mail.
At this stage let me say that this was all above-board, as we were in the process of actually moving to Panama from the UK. I'll also confess that this was a month after the world wide splash of the "Panama Papers" and the sudden spotlight that this had shown on Panama in general, and on banking and legal services in particular.
Opening a bank account is one great example of just how the stereotypes of Panama simply are not accurate. Not only did they require identification (and a Belgian identify card was not sufficient, thank you), they required a letter of introduction from our UK bank. A letter that could never touch my hands, but that had to be sent from Bank to Bank. Imagine the humor when I asked for a letter of introduction from my bank. The conversation went something like:
"I need a letter of introduction for my new bank."
"We don't usually issue those."
"This isn't a UK bank."
"Oh, okay, in what country?" said as the service representative was looking up the procedure online.
"Umm, Panama."
Big smile from the service representative "Really? Panama, like, the Papers?" Big smile.
"Yes, really. You didn't need one, but they do."
"Really?"
"Yes, really, and it must go directly from this bank to that bank."
"Oh, so I can't just print it and give it to you?"
“No, and it must be mailed to them, on UK bank’s letterhead, and from the bank’s office. I cannot touch the letter.”
There is little question that the Panama Papers scandal has been a trauma for the country and the legal and financial services industry. Regardless of how many times people are reminded that "offshore havens" are rife, and that certain US States effectively replicate the functions of offshore tax shelters and money laundering havens, the stigma now sticks to Panama. A recent estimate says that 10% of global GDP is held in "off-shore" havens. Trust me, that money is not in Panama.
The Panama Papers have already toppled the government of Iceland, and last month, the Prime Minister of Pakistan was dismissed by the Supreme Court on the grounds of corruption exposed by the papers. numerous politicians and celebrities have been exposed as having "businesses" in off-shore havens, not all in Panama, but all exposed by the release (hacked theft or internal theft, this still remains to be confirmed one way or the other) of files from Mossack Fonseca, a Panamanian law firm that operated in at least 9 countries at the time.
Multi-national corporations with regional headquarters in Panama have considered relocating, and at least one appears to be on the brink of doing so. While that organization does not have significant operations in Panama, it is the Latin America and Caribbean administrative hub.
Meanwhile, Panama has, over the past decade, maked real, tangible progress in the area of Corporate Governance, lead by the IGCP (Instituto de Gobierno Corporativo-Panamá) and various financial supervisory regulators, and the OECD. The first Corporate Governance Code was introduced in 2010, and is enshrined in the Corporate Law.
In relation to the effectiveness of banking supervision, in 2006 the IMF reported: "Panama is largely compliant with the majority of FATF Recommendations for anti-money laundering and countering the financing of terrorism (AML/CFT), reflecting the efforts of the authorities and industry to put in place an effective AML system. Nevertheless, staff makes several recommendations..." Panama has since updated its legislation in line with the IMF recommendations.
In the associated area of Risk Management, the Panamanian banking supervisor requires all banks to provide a statement that they have an effective system of Risk Management. Further, this statement must be signed by the Board of Directors. This is included in the detailed in Chapter IV of Rule 7-2014 (August 2014).
So while Panama has been making serious progress on corporate governance, anti-corruption and banking supervision for many years, still the country has a bad reputation. Having the previous president sitting in a US jail awaiting extradition for corruption does not help. Nor does a culture in which the police regularly request bribes, and in fact give lessons on how to pay those bribes.
Clearly there is a long way to go, both in actual implementation of effective corporate governance, and in inculcating a culture that rejects corruption at the grass-roots level as well as at the most senior levels of government. But the country is not the Wild West, and if anything can be learned from the Panama Papers, it is a reminder that reputation made in years, but destroyed in seconds. Panama has been spending the years demonstrating that it plays by the international rules, and in fact enshrines those rules in law.
Going through the processes of getting a bank letter of introduction was not the end of their due diligence. My employer in the UK received a telephone call from the bank in Panama. Do I actually exist, and do I really work for this company? Could they confirm by email please, from a company email address?
Remember that this is required by a bank in an off-shore tax haven. All I can do is quote the UK bank service representative: "Really?"
