The Republic of Panama is one of the oldest and best-known

tax haven A tax is a compulsory financial charge or some other type of levy imposed on a taxpayer (an individual or legal entity) by a governmental organization in order to fund government spending and various public expenditures (regional, local, or n ...

s in

the Caribbean The Caribbean (, ) ( es, El Caribe; french: la Caraïbe; ht, Karayib; nl, De Caraïben) is a region of the Americas that consists of the Caribbean Sea, its islands (some surrounded by the Caribbean Sea and some bordering both the Caribbean Se ...

, as well as one of the most established in the region. Panama has had a reputation for

tax avoidance Tax avoidance is the legal usage of the tax regime in a single territory to one's own advantage to reduce the amount of tax that is payable by means that are within the law. A tax shelter is one type of tax avoidance, and tax havens are jurisdi ...

since the early 20th century, and Panama has been cited repeatedly in recent years as a jurisdiction which does not cooperate with international tax transparency initiatives. Panama's offshore sector is intimately tied to the

Panama canal The Panama Canal ( es, Canal de Panamá, link=no) is an artificial waterway in Panama that connects the Atlantic Ocean with the Pacific Ocean and divides North and South America. The canal cuts across the Isthmus of Panama and is a condui ...

, which has made it a gateway and ''

entrepôt An ''entrepôt'' (; ) or transshipment port is a port, city, or trading post where merchandise may be imported, stored, or traded, usually to be exported again. Such cities often sprang up and such ports and trading posts often developed into c ...

'' for international trade. There are strong similarities between Panama and other leading tax havens like Hong Kong, Singapore and Dubai. On paper at least, Panama has the largest shipping fleet in the world, greater than those of the US and China combined, according to the

Tax Justice Network The Tax Justice Network (or TJN) is an advocacy group consisting of a coalition of researchers and activists with a shared concern about tax avoidance, tax competition, and tax havens. Empirical results The TJN has reported on the OECD Base ...

Background (1910s–1970s)

A 2014 investigation by journalist

Ken Silverstein Ken Silverstein is an American journalist who worked for the '' Los Angeles Times'' as an investigative reporter, for The Associated Press in Brazil, and has written for ''Mother Jones'', ''Washington Monthly'', '' The Nation'', ''Slate'', ...

published in ''

Vice Magazine ''Vice'' (stylized in all caps) is a Canadian-American magazine focused on lifestyle, arts, culture, and news/politics. Founded in 1994 in Montreal as an alternative punk magazine, the founders later launched the youth media company Vice Media, ...

'' explains how Panama came into being, with US help:

In 1903, the administration of Theodore Roosevelt created the country after bullying Colombia to hand over what was then the province of Panama. Roosevelt acted at the behest of various banking groups, among them J. P. Morgan & Co., which was appointed as the country's official "fiscal agent".

The Roosevelt administration sought to foment armed rebellion by Panamanian nationalists, forcing Panama away from a politically fragile Colombia. Roosevelt achieved this goal with the help of William Nelson Cromwell, a well-connected US Republican lawyer and also legal counsel for JP Morgan's railroad interests. The administration's key objective was allegedly to install a pro-US Panamanian government that would secure US rights over the

Panama Canal The Panama Canal ( es, Canal de Panamá, link=no) is an artificial waterway in Panama that connects the Atlantic Ocean with the Pacific Ocean and divides North and South America. The canal cuts across the Isthmus of Panama and is a condui ...

. The

Hay–Bunau-Varilla Treaty The Hay–Bunau-Varilla Treaty ( es, Tratado Hay-Bunau Varilla) was a treaty signed on November 18, 1903, by the United States and Panama, which established the Panama Canal Zone and the subsequent construction of the Panama Canal. It was named ...

resulted, establishing permanent U.S. rights to a

Panama Canal Zone The Panama Canal Zone ( es, Zona del Canal de Panamá), also simply known as the Canal Zone, was an unincorporated territory of the United States, located in the Isthmus of Panama, that existed from 1903 to 1979. It was located within the ter ...

several miles wide, across the neck of the isthmus. Panama became independent from Colombia the same month, and the Panama Canal opened in 1914. According to a 2013 academic study published by the Norwegian Center for Taxation, Panama's reputation as a

began in the year 1919, when it began registering foreign ships in order to help

Standard Oil Standard Oil Company, Inc., was an American oil production, transportation, refining, and marketing company that operated from 1870 to 1911. At its height, Standard Oil was the largest petroleum company in the world, and its success made its co- ...

avoid US taxes and regulations; other US ship owners followed, some seeking to avoid the higher wages and better working conditions imposed by US legislation such as the Seaman's Act and safety standards for sea vessels. Also, during the

Prohibition era Prohibition is the act or practice of forbidding something by law; more particularly the term refers to the banning of the manufacture, storage (whether in barrels or in bottles), transportation, sale, possession, and consumption of alcoholic be ...

, US passenger ships were allowed to serve alcohol to their customers without breaking the law if they had Panamanian registration. Within a few years, Panama extended its minimalist approach to taxation, regulation and financial disclosure requirements to the world of offshore finance. According to the study, "Wall Street interests helped Panama introduce lax company incorporation laws, which let anyone start tax-free, anonymous corporations, with few questions asked".

Background (1970s–present)

For decades, offshore finance had a relatively modest profile in Panama, but it took off in the 1970s as world oil prices surged. During this time, the Republic of Panama passed legislation "entrenching corporate and individual financial secrecy". By 1982, partly attracted by business opportunities deriving from the Panama Canal and its free trade zone, more than 100 international banks had offices in Panama City. According to ''

Investopedia Investopedia is a financial media website headquartered in New York City. Founded in 1999, Investopedia provides investment dictionaries, advice, reviews, ratings, and comparisons of financial products such as securities accounts. Investopedia h ...

'': "Panama's offshore jurisdiction offers a wide array of excellent financial services, including offshore banking, the incorporation of offshore companies, registration of ships and the formation of Panama trusts and foundations." In Panama, no taxes are imposed on offshore companies which engage in business solely outside of the jurisdiction; therefore, the companies which are incorporated in the Republic of Panama and the owners of these companies are exempt from

corporate taxes A corporate tax, also called corporation tax or company tax, is a direct tax imposed on the income or capital of corporations or analogous legal entities. Many countries impose such taxes at the national level, and a similar tax may be imposed ...

withholding tax Tax withholding, also known as tax retention, Pay-as-You-Go, Pay-as-You-Earn, Tax deduction at source or a ''Prélèvement à la source'', is income tax paid to the government by the payer of the income rather than by the recipient of the incom ...

es,

capital gains tax A capital gains tax (CGT) is the tax on profits realized on the sale of a non-inventory asset. The most common capital gains are realized from the sale of stocks, bonds, precious metals, real estate, and property. Not all countries impose a c ...

local taxes A comparison of tax rates by countries is difficult and somewhat subjective, as tax laws in most countries are extremely complex and the tax burden falls differently on different groups in each country and sub-national unit. The list focuses on ...

estate taxes An inheritance tax is a tax paid by a person who inherits money or property of a person who has died, whereas an estate tax is a levy on the estate (money and property) of a person who has died. International tax law distinguishes between an es ...

and

inheritance tax An inheritance tax is a tax paid by a person who inherits money or property of a person who has died, whereas an estate tax is a levy on the estate (money and property) of a person who has died. International tax law distinguishes between an e ...

. However, businesses within Panama itself are permitted to conduct business there so long as the company pays its local taxes. Panama has been cited repeatedly in recent years by the

State Department The United States Department of State (DOS), or State Department, is an executive department of the U.S. federal government responsible for the country's foreign policy and relations. Equivalent to the ministry of foreign affairs of other na ...

of the

United States The United States of America (U.S.A. or USA), commonly known as the United States (U.S. or US) or America, is a country Continental United States, primarily located in North America. It consists of 50 U.S. state, states, a Washington, D.C., ...

and the

International Monetary Fund The International Monetary Fund (IMF) is a major financial agency of the United Nations, and an international financial institution, headquartered in Washington, D.C., consisting of 190 countries. Its stated mission is "working to foster glo ...

(IMF) as a jurisdiction which does not cooperate with international tax transparency initiatives due to the legislation which regulates the country's offshore jurisdiction and financial services. Panama has over 350,000 international business companies (IBCs) registered, the third largest number in the world after

Hong Kong Hong Kong ( (US) or (UK); , ), officially the Hong Kong Special Administrative Region of the People's Republic of China (abbr. Hong Kong SAR or HKSAR), is a List of cities in China, city and Special administrative regions of China, special ...

and the

Virgin Islands The Virgin Islands ( es, Islas Vírgenes) are an archipelago in the Caribbean Sea. They are geologically and biogeographically the easternmost part of the Greater Antilles, the northern islands belonging to the Puerto Rico Trench and St. Cro ...

. Alongside incorporation of IBCs, Panama is active in forming tax-evading foundations and trusts, insurance, and boat and shipping registration, according to the

Financial privacy

Countries implicated in the Panama Papers

An extensive amount of legislation currently exists in the Republic of Panama to protect corporate and financial privacy. However, organisations such as the

and other

advocacy groups Advocacy groups, also known as interest groups, special interest groups, lobbying groups or pressure groups use various forms of advocacy in order to influence public opinion and ultimately policy. They play an important role in the developm ...

and

non-governmental organisations A non-governmental organization (NGO) or non-governmental organisation (see spelling differences) is an organization that generally is formed independent from government. They are typically nonprofit entities, and many of them are active in ...

state that the main intention of these laws is financial secrecy, as opposed to privacy. The names of

shareholders A shareholder (in the United States often referred to as stockholder) of a corporation is an individual or legal entity (such as another corporation, a body politic, a trust or partnership) that is registered by the corporation as the legal ...

of Panamanian corporations, trusts and foundations are still not required by law to be publicly registered. Panama has no

exchange controls Foreign exchange controls are various forms of controls imposed by a government on the purchase/sale of foreign currencies by residents, on the purchase/sale of local currency by nonresidents, or the transfers of any currency across national bor ...

: this means that for individual clients of Panama's offshore banking, as well as for offshore business entities incorporated in Panama, there are no limits or reporting requirements on money transfers into or out of the country. Panama also has very strict banking secrecy laws: for example, it is forbidden for Panamanian banks to share any information about offshore bank accounts or account holders, except under special circumstances instigated by the Panamanian authorities. Such regulation has made it difficult to investigate the true extent of the

Panama Papers The Panama Papers ( es, Papeles de Panamá) are 11.5 million leaked documents (or 2.6 terabytes of data) that were published beginning on April 3, 2016. The papers detail financial and attorney–client information for more than 214,488 ...

leak, as severe criminal penalties are enacted to individuals who breach confidentiality. Despite this, Panama does not appear on the

's top ten list for financial secrecy, with Alex Cobham of Tax Justice Network saying "There is a double standard: many developed countries host or support jurisdictions where there is an absence of financial transparency".

Accusations

Pascal Saint Amans, Director of the

Centre for Tax Policy and Administration The Centre for Tax Policy and Administration is part of the Secretariat of the Organisation for Economic Co-operation and Development in France. Pascal Saint-Amans serves as the director of the Centre. Among its initiative have been : * Base eros ...

in the

OECD The Organisation for Economic Co-operation and Development (OECD; french: Organisation de coopération et de développement économiques, ''OCDE'') is an intergovernmental organisation with 38 member countries, founded in 1961 to stimulate ...

said: "From the standpoint of reputation, Panama is still the only place where people still believe they can hide their money." Writing for

VICE News Vice News (stylized as VICE News) is Vice Media's current affairs channel, producing daily documentary essays and video through its website and YouTube channel. It promotes itself on its coverage of "under-reported stories". Vice News was create ...

explained the

Mossack Fonseca Mossack Fonseca & Co. () was a Panamanian law firm and corporate service provider.Ferdinand Marcos Ferdinand Emmanuel Edralin Marcos Sr. ( , , ; September 11, 1917 – September 28, 1989) was a Filipino politician, lawyer, dictator, and kleptocrat who was the 10th president of the Philippines from 1965 to 1986. He ruled under martial ...

, 'Baby Doc' Duvalier, and

Augusto Pinochet Augusto José Ramón Pinochet Ugarte (, , , ; 25 November 1915 – 10 December 2006) was a Chilean general who ruled Chile from 1973 to 1990, first as the leader of the Military Junta of Chile from 1973 to 1981, being declared President of ...

. When

Manuel Noriega Manuel Antonio Noriega Moreno (; February 11, 1934 – May 29, 2017) was a Panamanian dictator, politician and military officer who was the ''de facto'' ruler of Panama from 1983 to 1989. An authoritarian ruler who amassed a personal f ...

, commander of the Panama Defence Forces, took power in Panama in 1983, Silverstein said, Noriega essentially nationalised the money-laundering business; he partnered with the Medellin drug cartel and gave it free rein to operate in the country." In the

United Kingdom The United Kingdom of Great Britain and Northern Ireland, commonly known as the United Kingdom (UK) or Britain, is a country in Europe, off the north-western coast of the continental mainland. It comprises England, Scotland, Wales and ...

, ''

Private Eye ''Private Eye'' is a British fortnightly satirical and current affairs news magazine, founded in 1961. It is published in London and has been edited by Ian Hislop since 1986. The publication is widely recognised for its prominent critici ...

'' used data collected from the

Land Registry Land registration is any of various systems by which matters concerning ownership, possession, or other rights in land are formally recorded (usually with a government agency or department) to provide evidence of title, facilitate transactions, ...

to create "an easily searchable online map ... of properties in England and Wales owned by offshore companies. It reveals for the first time the extent of the British property interests held by companies based in tax havens." Most of these properties are tax avoidance vehicles and in some cases also to conceal wealth of dubious origin." A 2003 examination of tax havens by

Jeffrey Robinson Jeffrey Robinson (born October 19, 1945) is an American author of 30 books. Early life Born in Long Beach, New York, Robinson is a graduate of Temple University in Philadelphia (1967). While still at school, he wrote for television and radio, ...

quotes a US Customs official as saying:

anamais filled with dishonest lawyers, dishonest bankers, dishonest company formation agents and dishonest companies registered there by those dishonest lawyers so that they can deposit dirty money into their dishonest banks. The
Free Trade Zone A free-trade zone (FTZ) is a class of special economic zone. It is a geographic area where goods may be imported, stored, handled, manufactured, or reconfigured and re-exported under specific customs regulation and generally not subject to cu ...
is the black hole through which Panama has become one of the filthiest money laundering sinks in the world.

Tax Justice Network

The

advocacy group Advocacy groups, also known as interest groups, special interest groups, lobbying groups or pressure groups use various forms of advocacy in order to influence public opinion and ultimately policy. They play an important role in the develop ...

the

has described

Panama Panama ( , ; es, link=no, Panamá ), officially the Republic of Panama ( es, República de Panamá), is a transcontinental country spanning the southern part of North America and the northern part of South America. It is bordered by Co ...

as "the recipient of drugs money from Latin America, plus ample other sources of dirty money from the US and elsewhere". It said "now is a good moment to draw attention to how Panama developed as a secrecy jurisdiction and how it continues to provide full service – wash, rinse and dry – to crooks and money launderers from around the world."

Response

Ramón Fonseca Mora, the co-founder of

Mossack Fonseca Mossack Fonseca & Co. () was a Panamanian law firm and corporate service provider.New York Times ''The New York Times'' (''the Times'', ''NYT'', or the Gray Lady) is a daily newspaper based in New York City with a worldwide readership reported in 2020 to comprise a declining 840,000 paid print subscribers, and a growing 6 million paid ...

'': "I assure you there is more dirty money in New York, Miami and London than there is in Panama". The United States is an alleged tax haven despite the

Foreign Account Tax Compliance Act The Foreign Account Tax Compliance Act (FATCA) is a 2010 United States federal law requiring all non-U.S. foreign financial institutions (FFIs) to search their records for customers with indicia of a connection to the U.S., including indication ...

. The US has refused the

Common Reporting Standard The Common Reporting Standard (CRS) is an information standard for the Automatic Exchange Of Information (AEOI) regarding financial accounts on a global level, between tax authorities, which the Organisation for Economic Co-operation and Develop ...

set up by the

Organisation for Economic Co-operation and Development The Organisation for Economic Co-operation and Development (OECD; french: Organisation de coopération et de développement économiques, ''OCDE'') is an intergovernmental organisation with 38 member countries, founded in 1961 to stimulate ...

. This means the US receives tax and asset information for American assets and income abroad, but does not share information about what happens in the United States with other countries; in other words, the US has become attractive as a

References

{{Reflist, 30em Economy of Panama Money laundering Offshore finance Banking legislation Tax avoidance Whistleblowing International taxation