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Panama has been working to shed its reputation as a hotspot for money laundering and tax avoidance following the Panama Papers scandal last year.
The country has made some progress to increase transparency but more needs to be done, according to Andres Knobel, a lawyer and analyst at international advocacy group the Tax Justice Network.
Knobel told BNamericas, in an emailed response, about what steps the country, which in recent days announced it would start sharing tax information with Argentina from next year, has been taking in terms of adopting OECD standards.
BNamericas: Argentina announced it would start swapping tax information with Panama from next year. What impact could this have on tax evasion and money laundering in Panama?
Knobel: Changes as of now, are not nearly enough – Panama is one of the five jurisdictions rated as 'non-compliant' [by the OECD] out of 113 jurisdictions. Its last assessment was published November 2016.
Panama ratified the Multilateral Tax Convention that allows exchange of information "on request", "spontaneous" and "automatically." However, the latter requires an additional agreement, e.g. the one with Argentina.
As regards global automatic exchange of information pursuant to OECD's Common Reporting Standard [CRS], 89 countries have already signed the Multilateral Competent Authority, or MCAA, that facilitates global implementation of the CRS. However, countries are still allowed to cherry-pick with whom to exchange information among all MCAA signatories. Panama could have chosen to sign the MCAA and then choose, under the MCAA's 'dating system' of Annex E, with whom to exchange information – Switzerland is doing this.
Instead of signing the MCAA, Panama is choosing the bilateral route, e.g. the agreement with Argentina, making it much harder for other countries, e.g. LatAm countries, to access banking information from Panama, because each of them would have to sign an agreement with Panama.
BNamericas: Why do you think Panama and Argentina have struck this agreement?
Knobel: I don't know why Panama agreed to sign an agreement with Argentina. Maybe because of the recent crisis that led to a WTO dispute between both countries.
BNamericas: Panama is advancing on a multilateral level with the OECD and on a bilateral level with Argentina. What is your view on this approach being adopted by Panama as a method to improve its reputation?
Knobel: Panama will only start exchanging information in 2018 - not in 2017 like Argentina and 50 other countries. This obviously postpones obtaining information but also has consequences, for instance, to exploit loopholes on pre-existing bank accounts – because it extends for one more year the day on which accounts are considered "pre-existing" instead of "new."
As for compliance with the upon request method to exchange information, the OECD's Global Forum on Panama [in 2016] gave some examples: "Panama received requests for bank information in approximately 25 cases ..., two peers indicated that bank information was not provided in 10 of the cases where they requested this type of information."
As for Panama's availability of ownership and accounting information (that could also be requested by Argentina) the OECD's Global Forum Peer Review on Panama, published November 2016, explained that there are many risks regarding availability of updated ownership data of private foundations and of holders of bearer shares of corporations (Panama was not always able to obtain updated ownership or accounting information requested by other countries) and the same would likely happen regarding more than 500,000 inactive corporations and foundations.
About Andres Knobel
Based in Buenos Aires, Andres Knobel is a lawyer and researcher at the Tax Justice Network, focused on the areas of beneficial ownership registration, automatic exchange of information (FATCA/CRS) and trust law abusive regimes.
About the company
The Tax Justice Network is an independent international network launched in 2003. It is dedicated to research, analysis and advocacy in the area of international tax and the international aspects of financial regulation. Funded by donors, the Tax Justice Network is a British registered company. It produces the Financial Secrecy Index, which assesses jurisdictions' transparency legal frameworks.