Memorandún para la Asociación Bancaria de Panamá

MEMORANDUM

FROM           :     EDUARDO MORGAN, JR.

TO                  :     PANAMANIAN BANKING ASSOCIATION [ASOCIACIÓN BANCARIA DE PANAMA]

DATE           :     MAY 3, 2012

SUBJECT   :     BEARER SHARES

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With regard to Bearer Shares, there was a delay in the disclosure of the IMF’s and OECD’s requirements. It was actually throughout the entire process that culminated with Law 2 of February 1, 2011 –a complement to and development of Executive Decree No. 468 of September 8, 1994 which reinforced the Resident Agent’s obligation to “Know Your Customer” and document their identity– that we managed to gather information on what these organizations required. This resulted in the INTERNATIONAL LAWYERS ASSOCIATION being convinced that there is no need to modify Law 32 insofar as Bearer Shares are concerned, because our system already more than meets the international requirement to “Know Your Customer” and document who they are.  This brought about the unanimous approval of the General Assembly on December 5, 2011 and the letter from the National Government dated January 5, 2012 (Attached hereto).

I transcribe below from the 2006 Evaluation of Panama by the International Monetary Fund and also the Global Forum’s Terms of Reference. Both deal with bearer shares and define what are considered to be the internationally accepted principles for knowing the shareholder in the case of Legal Entities.  As we shall see, our system meets these standards.

INTERNATIONAL MONETARY FUND

Preventive Measures: Non-financial activities and professions designated

vi) As has already been said, the identity of shareholders is not disclosed in the Public Registry.

In practice, the information available in the Public Registry and in the resident agents’ files is not sufficiently useful to determine the true ownership and control structure of legal entities, especially of bearer share corporations.

The Panamanian authorities have not given any indication of any plan to address this issue. Given the country’s specialization as a service provider for the setting up of offshore companies, this constitutes a significant deficiency in its AML/CTF system, unless there is sufficient evidence that the judicial and investigative authorities have been successful in identifying the companies’ beneficial owners”.

The following quote comes from the Global Forum’s “TERMS OF REFERENCE”:

“A. Availability of Information – Essential Elements

A.1 Jurisdictions should ensure that ownership and identity information for all relevant entities and arrangements is available to their competent authorities.

A.1.1. Jurisdictions should ensure that information is available to their competent authorities that identifies the owners of companies and any bodies corporate. Owners include legal owners, and, in any case where a legal owner acts on behalf of any other person as a nominee or under a similar arrangement, that other person, as well as persons in an ownership chain.

A.1.2. Where jurisdictions permit the issuance of bearer shares they should have appropriate mechanisms in place that allow the owners of such shares to be identified. One possibility among others is a custodial arrangement with a recognized custodian or other similar arrangement to immobilize such shares”.The most effective “mechanism”, much more so than that of custodian or immobilization, is the one that Panama has in place: a Resident Agent identified in the Public Registry and in the Supreme Court of Justice and subject, moreover, to the legal obligation of knowing the client and documenting their identity. This is precisely the end result that ever since 2006 and to this day, Senator Carl Levin has sought in vain to achieve with his Incorporation Transparency and Law Enforcement Assistance Act bill, the preamble whereof I quoted at the Round Table of the National Lawyers Association held this past Thursday, February 2 and which I made available, together with other documents, to the participants in said Round Table. (May be consulted on Senator Levin’s website). (Included as an attachment hereto)

As final proof of the compliance with the “Principles” indicated by both the IMF and the GL (the OECD), we have the certification wherein the Attorney General of the Nation, Panama’s highest investigative authority, at the request of our association and by means of   DPG-085-2010 Note of July 19, 2010, certified the following:

“It should be pointed out that the Panamanian system that makes known who the directors, officers and resident agent of any corporation are, through the public registry, allows the authorities to have ways of investigating who is the ultimate beneficial owner of a corporation in Panama, even if bearer shares were issued. An example of the foregoing are the cases in which, through the resident agent, we have been able to locate the ultimate beneficial owner of these companies, given said agent’s “know your customer” obligation, based on the provisions of Executive Decree No. 468 of September 8, 1994”.

Subsequent to this certification, Law 2 of February 2, 2011 was approved and enacted, which reinforces the “know your customer” obligation and establishes sanctions for those who fail to fulfill this obligation.

It is important that our government, with our association’s assistance, makes it clear to the Global Forum, the OECD and the IMF that our system of identifying the directors and officers of Legal Entities is the most appropriate system and the one that should be imitated by other countries. This system is precisely the one pursued by the bill proposed by Senator Levin. In the case of the U.S., since they do not have our Resident Agent-lawyer system, his bill proposes that the States be the ones that establish the mechanisms for documenting knowledge of the client. As may be evidenced from the bill’s preamble and from the hearings that have been held to discussed it, the States’ opposition to the bill lies in the cost that it would represent to them. In Panama, this cost is being borne by us lawyers without any contribution from the National Government.

As for the Banking sector’s position of not doing business with Bearer share corporations, the flexibility of our law, which permits the prohibition of the issuance of said shares, is used to satisfy the banking policy. It is also used in those cases where the selection for concessions or contracts with government entities is conditioned upon the company not being able to issue them. This is also the case for companies engaged in the business of banking, insurance, security brokerage and the like.

It is clear that our institutions, which are pillars of our international services economy, including banking, legal entities (Corporations and Foundations), Ship Registry, are an example for the international community and serve as a model for and are copied by other jurisdictions and countries.