A new report demonstrates that although Panamanian authorities have made progress in combating money laundering, the country’s laws continue to make it an attractive destination to conceal revenue from illegal activities.

The report is based on the results of an investigation conducted by the Latin America Financial Action Task Force (Grupo de Acción Financiera de Latinoamérica – GAFILAT) after a visit to Panama in May 2017, during which investigators evaluated the current status of money laundering and terrorist financing in the country.

The GAFILAT concluded that Panama is more vulnerable to foreign illicit revenue streams than domestic ones. The group also found that drug trafficking, contraband and other illicit activities related to organized crime provide key sources of illicit revenue entering the country’s financial system.

In general, the report characterized Panamanian authorities anti-money laundering efforts as good. But the task force also highlighted that various deficiencies remain, including in preventing and investigating money laundering, as well as financial intelligence gathering.

With regards to prevention and investigation, the biggest challenge that authorities face is that tax crimes are not classified as predicate offenses for money laundering. In other words, the influx of large sums of money related to tax evasion is not taken into account during money laundering risk evaluations. This, in turn, affects the prevention and investigation of the crime because it inhibits the authorities’ ability to track and seize illicit revenue.

The GAFILAT stressed that the most vulnerable sectors to money laundering are free trade zones, real estate and banking and corporate services. Although Panama has taken steps to create transparency laws, evidence of their effectiveness remains scarce.

During its research, the task force identified nearly 730,000 Panamanian businesses considered to be at “high risk” of participating in money laundering. The group found that  supervision of these entities is low, and that most of them are still active.

In terms of financial intelligence, Panama’s Financial Analysis Unit (Unidad de Análisis Financiero de Panamá – UAF) is responsible for reporting suspicious activity to the Attorney General’s office (Ministerio Público – MP) and other relevant authorities. However, although the UAF has access to a wide range of information, the task force found the unit had issued few reports, and it was unclear if any had supported offical action.

InSight Crime Analysis

Panama has long served as a hub for money laundering in Latin America, serving criminal groups who inject dirty money into legitimate institutions as well as corrupt elites attempting to hide their wealth.

In 2014, Panama was added to the GAFILAT “gray list,” which includes countries whose efforts to combat money laundering are falling short. In 2015, the Panamanian government committed to taking steps to remove itself from the list and improve its reputation as a hotspot for dirty money. To achieve this, laws were created to supervise and control banking and to better report suspicious monetary activity. The government also incorporated various recommendations proposed by the GAFILAT at the time.

In 2016, Panama was taken off the list, but scandals like the “Panama Papers” revealed that the country still had a long way to go in combating money laundering. Last year, the GAFILAT threatened to add Panama back to the list if it did not fulfill certain requirements, such as the classification of tax evasion as a crime.

SEE ALSO: Coverage of Money Laundering

In spite of significant progress made by authorities in recent years, combating money laundering continues to be a difficult task for Panama. As InSight Crime has reported in previous years, this has to do, in part, with Panama’s economic model. The same factors that have contributed to economic growth — like loose financial regulations that allow for high levels of investment — also allow criminal groups to easily conceal the source of their illegal revenue.

As Orlando Pérez from the University of Millersville told InSight Crime in 2015, “Money laundering follows countries with fairly liberal or open banking systems. And Panama’s economic model is dependent on an open economy … and the ability of investors to bring their money in without a significant amount of regulations and barriers.”