Panama Moving Slowly on Making Tax Haven Law Changes

By Sean Mattson | June 1, 2009

Panama’s ruling party is unlikely to pass tighter tax legislation seen as key for the signing of a U.S. free-trade deal before President Martin Torrijos steps down on July 1, legislators said this week.

A bilateral trade pact has been delayed by U.S. concerns over Panama’s labor laws and its status as a tax haven. Washington is keen to get a deal approved before a change of government in Panama holds it up even longer.

Lawmakers from the ruling Revolutionary Democratic Party, or PRD, which controls the legislature until June 30, told Reuters, however, there were no plans to pass laws any time soon to improve transparency and make tax evasion harder.

“Our bench is not very convinced. It wasn’t included in the negotiation process so people are asking why it’s being brought up now,” said PRD lawmaker Leandro Avila during a break at the Panama legislature. “The new government can deal with it.”

President Barack Obama’s administration had hoped for quick ratification of the Panama deal but mounting opposition from some Democratic lawmakers, unions and trade activists over Panama’s labor and fiscal standards has bogged it down.

Washington now wants Panama to pass legislation freezing the use of bearer shares — anonymous securities that can be used to hide illicit gains or avoid taxes.

Lawmakers in both countries see Torrijos as more willing to tackle the issue than President-Elect Ricardo Martinelli, a businessman with strong ties to a banking sector that would likely oppose losing secrecy laws.

Martinelli has called U.S. ratification of the trade pact a priority, but has so far deferred the prickly issue of bearer shares to Torrijos. Some PRD lawmakers say they back increased transparency but do not want to be pressured to rush through unpopular legislation.

A labor law facilitating workers’ access to unions, an earlier condition of the trade deal, would stir up some opposition but could still pass before the change of government, said lawmaker Miguel Aleman of the PRD, which has a majority in the legislative assembly.

A government spokesman said bills related to the trade deal could go to the legislature next week, but offered no details.

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Martinelli’s team has not said what it will do if it inherits U.S. pressure to deal with bearer shares.

“This is a situation that we have not thought about,” said Roberto Henriquez, who will be Martinelli’s commerce minister. Torrijos is taking care of the bearer share issue. … We have not thought nor discussed the possibility of the new government taking care of that.”

While not as prickly about U.S. influence as some of its Latin American neighbors, Panama is increasingly voicing opposition to bowing to U.S. pressure on its tax policy as a condition of treaty ratification.

“It is a struggle for the defense of the pillars of the Panamanian economy,” the daily La Prensa thundered in an article on Friday. It quoted a former superintendant of Panama’s bank regulator, Delia Cardenas, calling international pressure to change bank secrecy laws a “conspiracy.”

Foreign investors have long been attracted to Panama, which uses the U.S. dollar as its currency and has booming banking, insurance and tourism industries. However, the country’s secrecy laws also attract tax evaders and money launderers.

Most analysts believe the window of opportunity for passing tougher tax and transparency laws has already closed. Domingo Latorraca, a former vice minister of economy, noted such laws would be fiercely opposed by a small but powerful elite.

“Martin Torrijos, politically, is already an ex-president,” said veteran political commentator Edwin Cabrera.

As the global slowdown hurts government coffers, nations like Panama have come under international pressure to get themselves off the Organization for Economic Co-operation and Development’s “gray list” of perceived tax havens.

Martinelli is widely expected to negotiate a tax information exchange agreement with the United States.

“Sooner or later Panama is going to have to do it anyway,” said Frank De Lima, who will be Martinelli’s vice minister of economy.

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