Determination: In Place But Needs Improvement
Panama’s domestic legislative framework is in place and contains many of the key aspects of the CRS and its Commentary requiring Reporting Financial Institutions to conduct the due diligence and reporting procedures, but it needs improvement in relation to the scope of Reporting Financial Institutions required to report information (SR 1.1), the due diligence procedures that must be applied to Financial Accounts (SR 1.2) and the framework to enforce the requirements (SR 1.4). Most significantly, Panama provides for two Non-Reporting Financial Institutions that do not meet the requirements. Furthermore, Panama does not fully incorporate some of the due diligence procedures, and there is a deficiency in Panama’s enforcement framework.
SR 1.1 Jurisdictions should define the scope of Reporting Financial Institutions consistently with the CRS.
Panama has defined the scope of Reporting Financial Institutions in its domestic legislative framework in a manner that is largely consistent with the CRS and its Commentary. However, deficiencies have been identified. Most significantly, Panama does not fully incorporate the category of Exempt Collective Investment Vehicle as a Non-Reporting Financial Institution and provides for a jurisdiction-specific Non-Reporting Financial Institution that is not in accordance with the requirements. The scope of Reporting Financial Institutions, including the provision of Non-Reporting Financial Institutions, is material to the proper functioning of the AEOI Standard.
Recommendations:
Panama should amend its domestic legislative framework to prevent Exempt Collective Investment Vehicles from issuing bearer shares from a specified date in order to be treated as Non-Reporting Financial Institutions.
Panama should amend its domestic legislative framework to remove Fideicomisos (trusts) that serve solely as escrow for a debt or purchase obligation of a settlor from its jurisdiction-specific list of Non-Reporting Financial Institutions as this type of Entity is a Non-Financial Entity so should be treated as such under the AEOI Standard.
Panama should amend its domestic legislative framework to fully incorporate the term “managed by” in relation to the definition of Investment Entity.
SR 1.2 Jurisdictions should define the scope of Financial Accounts and Reportable Accounts consistently with the CRS and incorporate the due diligence procedures to identify them.
Panama has defined the scope of the Financial Accounts that are required to be reported in its domestic legislative framework and incorporated the due diligence procedures that must be applied to identify them in a manner that is largely consistent with the CRS and its Commentary. However, deficiencies have been identified. More specifically, Panama’s legal framework:
does not specify that Reporting Financial Institutions may only rely on a self-certification for the purposes of determining whether a Controlling Person of a Passive NFE is a Reportable Person;
does not incorporate all the elements related to the residence address test for the purposes of identifying Reportable Accounts among Preexisting Individual Lower Value Accounts; and
sets a threshold for the identification of Controlling Persons that differs from the one defined in its AML law.
These elements of the due diligence procedures are material to the proper functioning of the AEOI Standard.
Recommendations:
Panama should amend its domestic legislative framework to specify that, for New Entity Accounts, Reporting Financial Institutions may only rely on a self-certification provided by a Passive NFE Account Holder or its Controlling Person to determine whether the Controlling Person is a Reportable Person.
Panama should amend its domestic legislative framework to require Reporting Financial Institutions to use only a “current” residence address when applying the residence address test, in particular by specifying that if mail has been returned as undeliverable, then the address cannot be considered as “current”.
Panama’s should amend its domestic legislative framework to require Reporting Financial Institutions to apply the specified procedures if there is a change of circumstance relating to the cases where the residence address test was used.
Panama should amend its domestic legislative framework to ensure that the approach to determine Controlling Persons under the AEOI Standard is aligned to its approach to determine beneficial owners under its domestic AML/KYC procedures, by including a 10% threshold with respect to financial entities and a 25% threshold in relation to non-financial entities.
SR 1.3 Jurisdictions should incorporate the reporting requirements contained in Section I of the CRS into their domestic legislative framework.
Panama has incorporated the reporting requirements in its domestic legislative framework in accordance with the CRS and its Commentary.
Recommendations:
No recommendations made.
SR 1.4 Jurisdictions should have a legislative framework in place that allows for the enforcement of the requirements of the CRS in practice.
Panama has a legislative framework in place to enforce the requirements in a manner that is largely consistent with the CRS and its Commentary. However, a deficiency has been identified. More specifically, Panama’s domestic legal framework does not include sufficient rules to prevent Financial Institutions, persons or intermediaries from adopting practices intended to circumvent the reporting and due diligence procedures as required. This is a key element of the required enforcement framework and is therefore material to the proper functioning of the AEOI Standard.
Recommendations:
Panama should amend its domestic legislative framework to include rules to prevent all Financial Institutions, persons and intermediaries from adopting practices intended to circumvent the due diligence and reporting procedures, rather than only Financial Institutions, persons and intermediaries located within the territory of Panama.
