Panama Banking Industry Given 15 Days to Open Its Books

Executive Summary - As we have predicting for some two months now Panama has been given a deadline by the OECD to open up its banking records. The deadline was 15 days. This article first appeared in La Prensa Newspaper (Panama Largest Newspaper) on July 19, 2009. A reprint of the article and the link can be found below. We are focusing on the exchange of tax information. The double taxation issues do not concern 99% of you and a double taxation treaty will not benefit 99% of you since you do not move physical goods in and out of Panama. The laws will allow for information sharing amongst 82 countries working in and with the OECD. While requests are supposed to be individualized we can look at the request for information on 52,000 bank accounts recently made by the USA to UBS a Swiss bank. This will give us the true impact of the magnitude of what is to be expected. The 52,000 request was just one request. Since it was before the Swiss actually signed the new treaty with the USA (yes they already signed the new treaty already) it is being fought out in court.

If Panama does not comply and satisfy the OECD then it faces sanctions and blacklisting. Blacklisting can cause the loss of correspondent banks. The correspondent banks of the world are all in OECD compliant nations. Without correspondent banks Panama will not be able to send or receive wires. They will also be unable to cash or write checks. Essentially Panama would be isolated from the world economically and they would suffer from such sanctions big time. Read article here: http://mensual.prensa.com/mensual/contenido/2009/07/19/hoy/english/economy_373.asp

Capital Flight from the Panama Banks as a Possibility - The new increased transparency in banking and information sharing for tax reasons causing a certain amount of capital to leave the Panama banks is of course something an astute investor needs to consider. How much? You can guess at this just like me. My opinion is that it will be significant. As one of our readers you are by far way more informed than 98% of the people using Panama Banks. In our conservative opinion there is a risk of this capital flight causing some banks to become illiquid and go into liquidation. Combined with the economic downturn in Panama, declining Panama real estate values and incomplete failed real estate projects, job losses and high unemployment, declining tourism evidenced by low hotel occupancy rates and high debt capital flight could have a significant impact on the Panama Banking sector (again our conservative opinion). Please do not shoot the messenger.

Non Offshore Tax Havens for Banking - We have been advocating that one should move their banking to a jurisdiction that is not located in a tax haven country. We are using Costa Rica, Ecuador, Mexico, and Guatemala for banking. None of these countries tax any offshore-derived income. All the tax haven jurisdictions can be in trouble from the new tax treaties calling for information sharing on a suspicion of tax evasion with loose standards for the information request. To avoid any impact on the banks from capital flight we are only using non tax haven jurisdictions where there should be no appreciable capital flight.

International Trust Agreement Banking - We are using this approach to banking to keep our clients safe, secure and private. The details can be found here:

International Trust Agreement Banking

Warning Close Accounts Before the Treaties are in Effect - It is advisable to close your accounts before any tax treaties are entered into. Hong Kong has taken to treating any sudden account closures and/or sudden withdrawals of large amounts of funds as suspicious transactions and are freezing the accounts pending an investigation. What these investigations entail or how long they take will vary from country to country and bank to bank. We cannot say for certain that every country will be doing this but it is a reasonably sound speculative conclusion. We tend to stay conservative in the way we approach these matters and assume the worst so we can have our clients prepared if it does occur. If your account is closed at the bank before the new tax treaties go into effect then the treaty should not cover any previously closed account and the bank records would be safe under the old bank secrecy laws. Retroactive laws are as a rule not allowed in almost every country.

Addendum - The below information was added on July 20, 2009.

Double Taxation Agreements and Tax Information Sharing Agreements - There seems to be some sites on the Internet that are confused about the new OECD tax treaties. There are basically two areas of concern. The sharing of information regarding suspected tax evasion. On this front the OECD is not flexible and is threatening sanctions and blacklisting. The other front which appears to fall more into the optional category is double taxation agreements. No source I ever read including the OECD and the FATF websites ever said that a double taxation treaty could be signed instead of a tax information sharing agreement. They are after bank transparency for tax information sharing purposes.

Aurelia Masterson is an associate of Panama Legal law firm (http://www.panamalaw.org). She has years of experience in the field and now shares her observations of current events, politics, and law with the Internet community. She can be contacted at: aurelia@panamalaw.org.