Central America: Panama moves against illicit finance
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Central America: Panama moves against illicit finance

Correspondent banking relationships strained; Venezuelan currency crisis adds to headwinds.

Panama is taking action to get off an international anti-money laundering grey list, says a senior government figure, as a semi-annual review approaches in late October. Panama remains on a list of countries with ‘strategic deficiencies’ for the second year in a row in the June review of the Financial Action Task Force on Money Laundering (FATF). That list includes war-torn nations such as Afghanistan, Syria, Sudan and Yemen. 

Meliton Arrocha-160x186

 What we need to assure is that […] people will be brought to justice

Meliton Arrocha,
trade minister

Panama’s presence on the Parisian multilateral’s grey list has forced other states to tell their banks to make additional checks on Panama-linked transactions, the IMF said in August. International trade and banking on the isthmus could suffer, as maintaining correspondent relationships with foreign banks has become harder, according to the IMF.

Meliton Arrocha, Panama’s minister of trade and industry, says increased regulatory scrutiny over transactions with Panama has not been a constraint on day-to-day commerce. Nevertheless, he says the fear of greater disruption to sectors that are central to the country’s development ambitions means the government has prioritized work with multilaterals to ease international concern about Panama’s financial sector.


“Not important talk, but important facts are now happening in Panama,” he says, speaking during an investor promotion trip to London in late September. “The country has been putting a lot of attention on due diligence, transparency, on not allowing people outside the law to misuse the financial sector, so the reputation of Panama as a major financial player is not only intact, but also will improve over the coming years.”

Arrocha, previously vice minister of the presidency, points to the passing of legislation to bolster the country’s anti-money laundering tools.

Indeed, the FATF and IMF welcomed an anti-money laundering law passed through the National Assembly in late April, and Panama’s steps to widen the scope of punishable activities, as well as its efforts to improve reporting standards and cooperation between relevant domestic and international agencies. The budget allocation to Panama’s Financial Intelligence Unit has tripled this year, according to the IMF.

But the FATF’s June report said more needs to be done if Panama is to follow countries such as Kuwait, Nicaragua, Pakistan and most recently Indonesia, which have managed to exit the grey list in the past 12 months. It pointed, in particular, to reform needed to the framework for freezing terrorist assets, customer due diligence, and making sure the Financial Intelligence Unit was “fully operational and effective”.

Arrocha agrees the country must continue to develop an internationally respected system to dissuade criminality in Panama’s financial sector. “What we need to assure is that […] people will be brought to justice if they decide to not fully comply with Panamanian law,” he says. 

Off grey

Getting off the grey list is particularly pressing for Panama, as Arrocha highlights how much it has to lose as an international financial centre, if foreign banks struggle to deal with the country. 

“Panama is becoming a regional supplier of financial services, and we have a large presence of international banks,” he says. He says Panama shares a similar status in central America and the Caribbean and the northern part of South America, as London has in Europe. 

Preventing the country from becoming a hub for illicit finance is therefore all the more urgent. “We will continue to work very diligently in that direction,” he says. “There are challenges. The important thing is that we have knowledge that they exist and we need to work on them. […] Panama is not turning its back on those challenges.”

A financial sector with strong international links is also fundamental to Panama’s goals to develop as a trade and logistics hub, particularly after its multi-billion dollar canal expansion. 

Arrocha says the government is working on new laws to encourage foreign investors to set up manufacturing plants in Panama, taking advantage of infrastructure which includes a busy international airport whose latest expansion is also reaching completion.

According to Arrocha, Panama’s economy is growing at almost 6%, which is around 10 times faster than the regional average this year. But the minister acknowledges the impact in nearby states such as Colombia, Ecuador and Venezuela of the drop in commodities prices could be another hindrance to the development of trade in Panama. “If the macro economy is not working in any of these countries, then the amount of re-exports from the Colon Free Zone to those markets is going to be less important,” he says.


Venezuela’s foreign exchange drought, exacerbated by the oil price fall, is particularly problematic. Arrocha says one of his jobs as trade minister and chairman of the Colon Free Zone’s board of directors has been to visit Venezuela, to try to persuade his Venezuelan peers to release foreign exchange needed to pay for around $1 billion of arrears to companies operating in the zone and to Panama-based Copa Airlines, one of Latin America’s biggest carriers.

After initially making proposals to the Venezuelan government a year ago, he says the issue remains unresolved: “Not being able to have this currency exchange happen means trade between both countries now runs at a slower pace.”

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