#PanamaProjects: Two Views on Progress after Panama Papers

Panama's New Direction

On 5 May 2015, Vice President and Foreign Relations Minister Isabel Saint Malo de Alvarado spoke at the Council on Foreign Relations in Washington, DC. In her remarks, Saint Malo emphasized two major themes: human development and transparency.

While she candidly acknowledged Panama’s history as an opaque and often corrupt steward of financial resources, she highlighted President Juan Carlos Varela’s determination to move quickly and decisively in a new direction. Regarding the so-called ‘Panama Papers,’ Saint Malo noted the publications referred to banks operating in 21 jurisdictions, none in Panama. She added that of the offshores revealed in the leak so far, 20 percent were registered in Panama, but 80 percent were registered elsewhere.

Under the Varela administration, former President Ricardo Martinelli is being prosecuted in multiple public corruption cases. Panama was removed from the Financial Action Task Force (FATF) grey list thanks to the implementation of new banking and legal regulations strengthening ‘know your customer’ and other anti-money laundering laws (InSight Crime). They had reached Phase 2 for peer review in the OECD process, and as of May 2016 agreed to adhere to the AEOI International Common Reporting Standard to deal with tax evasion (Deutsche Welle).

Yet, St. Malo wanted to remind her audience in Washington that all those transparency and banking initiatives cost money. Money that in Panama, a developing country, could be used for education or healthcare or other direly needed services. Saint Malo, who formerly worked for United Nations Development Programme (UNDP) in Panama, conveyed the message that Panama’s top priority is improving the lives of its own citizens, and especially those in poverty.
She indicated the increased revenue from the expanded Panama canal, which will be inaugurated on 26 June 2016, will go to reducing poverty. Panama is already executing re-forestation plans, but in the mid- to long-term she also expects new water and sanitation projects to both ensure water for the canal and a supply of clean drinking water.

Restrained Optimism

Over the past few years, Panama has negotiated bilateral treaties on tax information sharing (United States in 2010; France in 2011; and Colombia in 2016) and promised to comply with the OECD’s Automatic Exchange of Information standard, established in 2014. Along with Varela’s election on anti-corruption platform, it appeared Panama was moving in the correct direction. However, the leak of the Panama Papers tarnished Panama’s image, costing credibility on transparency, both domestically and internationally. While Varela, and especially his Foreign Relations Minister Isabel Saint Malo de Alvarado are pushing back with rhetoric and some policy changes, Panama is truly still deeply mired in corruption and opaque government policies.

Even prior to the release of the Panama Papers, Panama backpedaled from its initial agreement to comply with the OECD’s Standard on information exchange after a year, saying it could not meet all of the requirements. France, outraged by the leak, quickly added Panama back to its blacklist of uncooperative tax havens for not sharing information on its taxpayers, in violation of the 2011 agreement signed between the two treaties which had removed Panama from list (RFI, 12 April 2016). France’s Finance Ministry indicated it would seek to renegotiate the 2011 Convention. Only after Europe’s threat to crackdown on tax havens did Panama agreed to comply with the OECD’s international tax reporting standard (DW), but Panama may need to go farther to make up for its history of secrecy.

As if the blow from the Panama Papers was not enough, Varela’s Security Minister and Vice Minister resigned in early May, after it came to light the Vice Minister dressed as a State Border Police and handcuffed Security Ministry Payroll Director Carlos Lopez, demanding he sign documents of an illegal nature (La Prensa). Even though the two ministers resigned to avoid damaging the administration’s image (Panama America), it is still an embarrassment for Varela, as he is the one that selected his cabinet and touted an anti-corruption platform.

A recent Dichter & Neira survey indicated Varela’s government continues to struggle with the issue of transparency; in eleven months Varela’s approval has dropped from 66 to 46 percent between May 2015 and April 2016, and 76 percent of people think there is little to no government transparency under Varela. Economist Juan Jované went as far as to say that the administration is characterized by a lack of transparency, pointing out that Tocumen International Airport security improvements were contracted out to Assa, which is linked to Stanley Motta, a major donor to Varela’s campaign (Panama America).

Furthermore, Panama’s National Assembly rejected legislation, with 38 votes to 6 and 5 abstentions, that would terminate state contracts with foreign companies charged with corruption by a foreign government – now, only contracts with foreign companies charged with corruption by Panama will be canceled (La Prensa). While the legislation does call for the cancellation of contracts with business found corrupt by Panama -- a move in the correct direction -- Cámara de Comercio, Industrias y Agricultura President Jorge García Icaza said the rejection sends the wrong message internationally, implying some corruption is acceptable, as long as it did not happen in Panama (La Prensa).

As a result of the Panama Papers, Panama has been pushed into the spotlight and is making changes for the better. However, it is hard to be optimistic when the Varela’s administration has so much to do regarding corruption and transparency.