Identifier
Created
Classification
Origin
06PANAMA1820
2006-09-15 17:33:00
UNCLASSIFIED
Embassy Panama
Cable title:  

BENEFICIARIES OF PANAMA'S OFF SHORE CORPORATION

Tags:  ECON EFIN EINV ETRK KCRM PTER PM 
pdf how-to read a cable
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RR RUEHWEB

DE RUEHZP #1820/01 2581733
ZNR UUUUU ZZH
R 151733Z SEP 06
FM AMEMBASSY PANAMA
TO RUEHC/SECSTATE WASHDC 8963
INFO RUCNSTF/TERRORISM FINANCE PRE NOTIFICATION COLLECTIVE
RUEHZA/WHA CENTRAL AMERICAN COLLECTIVE
RUEAIIA/CIA WASHDC
RHEFDIA/DIA WASHDC
RUEATRS/DEPT OF TREASURY WASH DC
UNCLAS PANAMA 001820 

SIPDIS

SIPDIS

E.O. 12958: N/A
TAGS: ECON EFIN EINV ETRK KCRM PTER PM
SUBJECT: BENEFICIARIES OF PANAMA'S OFF SHORE CORPORATION
INDUSTRY

REF: A. PANAMA 1793

B. PANAMA 1586

C. PANAMA 610

D. 2005PANAMA2292

E. 2005PANAMA1976

F. 2005PANAMA848

G. PANAMA 1187

H. STATE 231006

I. PANAMA 202

J. PANAMA 280

This is Part II of a two part series on Panama's
off-shore corporation scheme. Part I (Ref A) described
the incorporation process. Part II discusses who
benefits and how.

UNCLAS PANAMA 001820

SIPDIS

SIPDIS

E.O. 12958: N/A
TAGS: ECON EFIN EINV ETRK KCRM PTER PM
SUBJECT: BENEFICIARIES OF PANAMA'S OFF SHORE CORPORATION
INDUSTRY

REF: A. PANAMA 1793

B. PANAMA 1586

C. PANAMA 610

D. 2005PANAMA2292

E. 2005PANAMA1976

F. 2005PANAMA848

G. PANAMA 1187

H. STATE 231006

I. PANAMA 202

J. PANAMA 280

This is Part II of a two part series on Panama's
off-shore corporation scheme. Part I (Ref A) described
the incorporation process. Part II discusses who
benefits and how.


1. (SBU) SUMMARY. Panama is the second most popular
jurisdiction for forming offshore corporations
(sociedad anonimas or anonymous societies) after Hong
Kong. Offshore corporations can be used for asset
protection, diversification, tax and currency control
evasion, money laundering and terrorist financing.
The establishment and maintenance of offshore
corporations generate significant revenue to the
legal industry and the GOP. Panama's corporation
law is modeled on Delaware and presents the same
challenges to determining the ultimate beneficiaries
of the anonymous society. END SUMMARY

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WHO USES OFFSHORE CORPORATIONS
--------------


2. (U) Many wealthy individuals establish offshore
corporations to avoid taxes, diversify their holdings
avoid potential government confiscation in times of
political uncertainty (e.g., Venezuela),evade
currency controls (e.g., Colombia) and/or asset
protection (e.g., anyone going through a divorce).
Money management for wealthy individuals or private
client services is a lucrative business for banks,
generating profit margins of 50%. As of 2006, assets
under management for wealthy individuals worldwide
was approximately $36 trillion. Citibank is the
industry's largest private client banker with
over $100 billion under management for wealthy
individuals.


3. (U) In virtually all brochures offering
private client banking services, confidentiality
is a significant selling point. Two prominent
Panamanian attorneys told EconOff that law firms
are typically requested by banks outside of Panama
to establish Panamanian corporations. Since the
request originates from a bank, the law firms view

the bank as the client and do no further
investigation, especially when the requesting bank
is a large, well-known, international institution.

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WHO MISUSES OFFSHORE CORPORATIONS
--------------


4. (U) The structures and procedures established
to hide assets and income for tax evasion,
risk diversification, political uncertainty, or
other reasons are ideal for the laundering of
proceeds from illegal activity. Two significant
examples of Panama's attraction for money laundering
are the cases of former Nicaraguan President Arnaldo
Aleman (Refs B through F) and Colombian Rayo Montanyo
(Ref G).


5. (SBU) Panama's structures and procedures can
potentially be used for terrorist financing.
Post's attempts to investigate the Panamanian
activities of Ahmed Idris Nasreddin (Refs H through
J) ended with the law firms that established his
Panamanian corporations. Nasreddin's off-shore
corporations were set up by a Panamanian law firm
at the request of a European law firm. Both firms
denied any knowledge of the company's directors or
shareholders.

--------------
"FIRST, KILL ALL THE LAWYERS"
--------------


6. (U) Approximately 39,000 corporations were formed
in Panama during 2005. With a price range of $500 to
$2000, a minimum of $19.5 million in fees went to
the Panamanian legal industry. Additional
fees ranging from a few hundred to several thousand
dollars are earned from drafting ancillary documents
such as voting trusts, shareholder agreements, and asset
protection trusts. Many law firms serve as the resident
agent and/or supply nominee directors for annual fees
between $150 - $300. If only 150,000 of the approximately
350,000 Panamanian corporations pay for resident agent
services, the minimum annual revenue comes to $22.5
million.


7. (U) The GOP Attorney General's office told
EconOff that resident agents and subscribers are
usually protected from criminal or civil liability
arising from the operations of a corporation provided
they limit their conduct to forming the corporation
and certain administrative functions, such as paying
the annual franchise fees. The attorneys with whom
Emboff spoke, said disreputable law firms will use
clerical and support staff to serve as nominee
directors and officers.


8. (U) Panama undertook a number of reforms in 2001
to remove its FATF and other black listing.
Although originally part of the reform package,
the elimination of bearer certificates and the
prohibition against lawyers serving as directors of
a corporation were dropped in the face of
opposition by the Panamanian legal community and
the International Lawyer's Association.

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THE PUBLIC TROUGH
--------------


9. (U) Panamanian corporations pay an annual
corporate franchise fee of $250 for the first
year and $300 thereafter. During 2005, the Public
Registry received $30 million in incorporation
and annual franchise fees, of which the GOP received
approximately $17.5 million or 0.5% of its total
2005 budget of $3.426 billion.

-------------- --------------
ULTIMATELY, PANAMA'S CORPORATION LAW DIFFERS LITTLE
FROM THE U.S.
-------------- --------------


10. (U) According to local attorneys, the creation
of a Panamanian corporation is governed by the
Panamanian General Corporation Law of 1927 and
modeled after Delaware's corporation law. The
creation and governance of a Panamanian
corporation and a U.S. corporation is virtually
identical. All state corporation laws provide for
resident agents, or registered agents, who serve
as the point of contact between the state and the
corporation. Most states, particularly the most
popular states of incorporation such as Delaware
and Nevada, have no provisions which mandate the
disclosure of shareholders.


11. (U) Legal contacts in Panama and the U.S. told
Econoff registered agents in the U.S. many times
do not have contact with the actual shareholders.
Their principal contact is usually a law firm or
a nominee incorporation service. In Delaware,
many registered agents advertise that share
ownership is kept confidential. Delaware does
not require registered agents to maintain any
information on shareholders. Delaware has
considered laws requiring registered agents to
maintain certain client information such as the name
and address of a director, officer or shareholder.
To date there have been no obligations imposed on
registered agents in the U.S. "to know their clients."

--------------
COMMENT
--------------


12. (SBU) Post's interagency Illicit Finance Task Force
coordinates the Mission's anti-money laundering
activities. While no agency at post has identified
terrorist finance activity in Panama, it is difficult

to determine what activities a Panamanian registered
company is undertaking outside of Panama. Post is
increasingly focused on the vulnerabilities posed by
offshore corporations. We would welcome Washington's
input regarding the U.S. experience in addressing
this issue and how we might share useful lessons
learned with the GOP to reduce Panama's vulnerability
to money laundering and/or potential terrorist
financing through offshore corporations.
ARREAGA