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New KYC Law for Offshore Lawyers in Panama


     By Me. Ivan Pierre Julia Alonso


This law is a normative framework which aims to improve the image of the Republic of Panama as a country cooperation in the fight against criminal and unlawful tax practices, thinking that in turn should make it so the country more attractive to foreign investment, by proposing a framework consistent with international standards of the OECD, and thereby ensuring the safety of international investors in Panama.

To leave the list of non-tax cooperation countries established by the OECD, Panama has begun a policy of signing treaties for the exchange of tax information and take appropriate action for application of these international instruments into domestic law. However, Panama still refuses to remove from its corporation’s law from 1927, the provisions relating to bearer shares. Panama's arguments are based mainly in that it is possible to identify the beneficial owner of an offshore entity using the information that the lawyer must have registered as resident legal person.

However, this reasoning has its limits when the corporation issues shares in bearer form, they can legally transfer by mere delivery of the title without bond on the books of the company. It remains difficult for the Panamanian lawyer to know in the precise moment who is the real beneficiary of the corporation under investigation. Panama is trying to reconcile the interests of the offshore sector, professional secrecy and transparency requirements with requirement of the OECD. Panama considers that with the information provided by lawyers Panamanian national or international investigators have sufficient elements to start a prosecution procedure.

In this sense, Panama passed a new Act [Act No. 2 of 1 February 2011 published in Official Gazette No. 26713-C] on the measures to be taken by lawyers to know their clients and this law will be applied from August 2011; the measures relate to all lawyers and law firms admitted to practice in Panama that offer their services as agents of registration of corporations, trusts, private foundations and corporations incorporated under the laws of the Republic of Panama which are recorded in the Public Registry of Panama. This law aims at developing rules of "reasonable foresight" as required for the registered agent to collaborate in the fight against money laundering, terrorist financing but also, and it is here that the appearance totally innovative of the new law, the lawyer must now work together in the fight against domestic and international tax fraud, in the framework of international agreements on exchange of information in tax matters.

This law is meant to be a sufficiently effective legal support to minimize illegal practices and tax avoidance through corporate laws of Panama. In addition, this law is a normative framework which aims to improve the image of the Republic of Panama as a country cooperation in the fight against criminal and unlawful tax practices, thinking that in turn should make it so the country more attractive to foreign investment, by proposing a framework consistent with international standards of the OECD, and thereby ensuring the safety international investors in Panama.

The entities of the new legal regime are essentially four:
- The lawyer or law firm conducting the clearance and incorporating the corporation to his client.
- The client can act on its own behalf or as agent that asks the lawyer setting up a corporation or legal entity under the provisions of Panamanian law;
- The lawyer must provide the information required by the Competent Authority of the Republic of Panama.
- Lawyers in breach of standards for disclosure will be sanctioned by the House of General Affairs of the Supreme Court of Panama.

Under the new law, a lawyer is a professional with a certificate of competency issued by the Fourth Chamber of General Affairs of the Supreme Court of the Republic of Panama, which holds the legal profession individually or through civil society constituted under the law. Therefore, an agent clearance and registration (resident agents) is the lawyer or lawyers firms listed in the Court table and practice of his profession in Panama who must hold the records provided by the law of identity of the client when it established legal by persons or legal entities under the laws of the Republic of Panama.

The lawyer, as registered agent, must be able to provide the competent authority of the Republic of Panama, the information required by the latter for customer identification. The new law is innovative as regards the definition of competent authority of the Republic of Panama. To date, the competent authorities to request information to the registered agent were the prosecution and the judiciary for prosecution for money laundering, terrorist financing and other illegal activities under the laws of the Republic of Panama for illegal activities committed in Panama or abroad. However, the tax component was specifically excluded, in addition, for offenses committed abroad, and in the absence of legal assistance treaty, foreign authorities must first seek permission from the Supreme Court through Diplomatic Embassies. Now, as regards tax crimes, the General Directorate of Revenues of the Ministry of Economy and Finance is empowered to require information directly to the lawyers for the application of treaties or international agreements ratified by the Republic of Panama for tax purposes.

I will first give details of the measures to be taken by the lawyer to know the identity of his client (I) and then reflect on the management by the lawyer of the information it holds on the identity of client applicants to public authorities but also against the confidentiality that characterizes his profession. (II)

I-Actions taken by the lawyer to know the identity of his client.

Action by the lawyer to know the identity of the client differ depending on whether the client is entitled to be final beneficial owner of Panamanian corporation, if the client is a third agent of the beneficiary of the corporation, and finally the case of officers belonging to professional body whose conduct, practices internal to their countries force them to adopt and maintain professional and ethical standards for the prevention of unlawful conduct.

A) When the client is itself the beneficiary.

For the purposes of the new law, action by the lawyer to his client information includes the following tasks:
1. Identify and verify the customer's identity from the documents, data or information obtained from reliable and independent sources.
2. Getting customer order for which the legal entity is created.
3. Make available the information to the competent authorities according to terms established in the new law in order to fight against money laundering, financing of terrorist activities and any other illegal activity under the laws and treated ratified by the Republic of Panama to identify customers suspected or having committed illegal acts.

But the law tempers the obligation of counsel to the limited duty of inquiry when the Constitution but not afterwards.
The agent clearance is not required to take any action or proactive audit of the information the customer provides the activity that will focus on the corporation, and it fulfills its obligation under the new law by obtaining client information when opening the delivery of services. However, counsel is obliged to know if the client has transferred, directly or indirectly interests on other legal entity and must maintain sufficient documentation to that effect.

B) When the customer is an agent acting on behalf of the beneficial owner.

Under the new law, each registered agent is required to provide satisfactory proof of identity third agent, and when the certificates representing shares of the corporation are issued to bearer, shall be provided satisfactory proof of identity of holders of such shares.
In accordance with the provisions of this section, the resident agent shall obtain and maintain in its files, at least the following information:
l. When the client or third party on whose behalf the customer is a person or entity shall obtain from each of them:
a. Full Name.
b. Physical Address.
c. Mailing address if different from street address.
d. Phone number.
e. E. Mobile Phone Number, if available.
f. Fax number, if applicable.
g. E-mail, if available.
h. principal activity to which it is dedicated.
i. Copy of a national identity document or passport.
j. statement to the customer of the activity for which the use of legal entity.
This information should be requested for each legal entity to which the client in his capacity as third party agents will require services of domiciliary agent.
k. Coordinates of a natural person or legal entity that can provide
bank references or commercial third-party agents but also the beneficiary for whom it acts.

C) When the customer is an agent of the beneficiary, but agents belong to an organization or a profession where local law requires them to ethical and professional conduct for the prevention of unlawful acts.

The law here refers to law firms, banks, trust companies, insurance companies, securities firms etc..
In those cases, the resident agent must obtain and keep on file, at least the following information:
- Full name
- Place and date of incorporation.
- Physical Address.
- Mailing address, if different from physical address.
- Telephone.
- Fax number, if applicable.
- Name of legal representative or person responsible for its administration.
- E-mail address of the legal representative or person responsible
Administration.
- The principal activity to which it is dedicated.
- Proof of legal existence.
- Reporting on customer activity that is requested for the use of legal entity. This information should be requested for each legal entity to which the client needs services of domiciliation agent.
- Confirmation that the customer representative:
a. Maintain a business relationship with the person with the recipient.
b. take practical steps to know your customer, which will require it to obtain information on the identity of others whose services were required, even if stock certificates are issued to bearer.
c. If the Panamanian lawyer requests, the client agent must provide information regarding the identity of the client on whose behalf it acts, in accordance with the requirements and procedures set out in law of the jurisdiction where they operate.

Generally when a lawyer is unable to obtain the information required under the new law within a month he should refrain from executing any transaction requested related to an entity for which the customer is in default.

II - Managing information held by counsel to the requesting authorities is compatible with the professional confidentiality?

The lawyer should provide information on request of the competent authorities, but this requirement is applicable only if the legal procedures are followed. Provide information on the identity of the client when legal procedures are followed is not a violation of professional confidentiality. Violators of the obligation to provide competent authorities with information on the identity of the client will undergo disciplinary proceedings before the Supreme Court Justice of Panama.

A) The request for information by the Competent Authority.

1) A reserve duty.

The information provided by clients to the registered agent under the new law must be strictly confidential and cannot be provided to the competent authorities in strict compliance with procedures and formalities for these purposes.
Officials of the State and individuals or corporations in the private sector due to their functions have access to information resulting from the application of new legislation will be required to keep adequate reserves, even when they cease their functions, unless the information is recorded in official records based on public access.
Violations of these provisions will be punished by a fine of up to one thousand dollars (U.S. $ 1,000) to twenty-five thousand dollars (U.S. $ 25,000 00) for the offender, without prejudice to civil or criminal penalties that may apply. We note that currently the Criminal Code section on reserve duty counsel has been repealed and that the new Criminal Code does not provide penalties therefore.

2) Shelf Life Information

The information needed to respond to the measures required by law must be updated by the attorney authorized in writing by any means or technology during a period of at least five years from the date of termination of professional relationship.

It is assumed that the professional relationship is de facto from the moment the client has not been in contact with the Panamanian lawyer for a maximum period of three years and has stopped payment for the services of registered agent. In this case, counsel has an obligation to keep information for a period of two years from the date of such termination de facto.

3) The procedure for requesting information.

The competent authority may require the registered agent - lawyer, having implemented the rules, requirements and legal procedures required by the Republic of Panama for this purpose and have
After being notified in proper form:
- Provide information about a customer stored in compliance with the new law, or
- Provide all information about the client regardless of their conservation mode.
The request for information or documents on the client's identity by the competent authority must meet the following requirements:
- The application must state the reasons for which the competent authority requires information or documents to be submitted.
- The period during which such information or documents must be submitted by the agent clearance, which must not be less than five working days from the date of notification of the inquiry.
- The office of the competent authority in which the information or documents to be delivered.

B) The lawyers’ confidentiality against the high interests of the Republic.

Because of the confidentiality that binds the lawyer to his client, counsel is not required to provide documents or information that are not strictly required by its obligations set by law on measures to know the identity of the client .
The right to require information or documents by the competent authority is not regarded as an authorization to search the offices of lawyers - registered agent, or seize documents or media files, such as computers and databases. These measures must be taken by the competent authority in accordance with the ordinary laws of Panama, that is to say, after authorization from the criminal court in a criminal case.

Under the new law, provide information or documents requested by the competent authority is not considered a breach of privilege of counsel to his client or conduct contrary to professional ethics due to high Interests of the Republic of Panama.

The law, however, leaves a very wide discretion to the lawyer because he is not obliged to provide information at the request of the competent authority if it considers that the application does not meet the requirements and procedures established by the law of Panama, or when the application is based on information obtained by any national authority or International, by unlawful means or unlawful under the provisions of Republic of Panama.

Another measure to protect the legal profession is contained in Article 17 of the new law. The resident agent for the mere fact of having served as an officer of domicile or registration of its client should not be regarded as a perpetrator or accomplice to the unlawful act complained that his client, even if the client is found guilty of misconduct or violation of administrative, civil, criminal or tax.

The court competent to know the non-compliance under the new law must be Fourth Chamber of General Affairs of the Supreme Court Justice. Disciplinary action within two years from the date on which the lawyer has failed to comply with the requirements of the new law, the filing of the complaint before the Fourth Chamber of General Affairs of the Supreme Court stop limitation period.

The lawyer who failed to comply with its obligations under the new law will be punished as follows:
- Warning.
- Fine not exceeding five thousand dollars (U.S. $ .5 OOO).
- Temporary suspension of the capacity of lawyer or law firm to provide services officer for clearance of new legal entities for a period of not less than three months but not exceeding three years.

Conclusions:

The new law is part of a legal arsenal under the direction of Ministry of Economy and Finance who is concerned about the deteriorating image of Panama as a center of international affairs. He notes before Panama was defended by the United States in international fora like the OECD. Monaco and Andorra are defended by France, the British Virgin Islands, Jersey are defended by Britain etc. Without the support of a great powers is Panama is alone in international negotiations where it's hard to maintain a consistent position. Indeed, the power of large law firms have made their fortunes in offshore product sales is important, but the Panama realize that direct investment in OECD countries are ultimately more beneficial to the country's development activities that purely offshore islands or islets in the Caribbean or the English Channel.

ABOUT THE AUTHOR: Ivan Pierre Julia Alonso
The law firm of Me. Ivan Pierre Julia Alonso is an independent multicultural and multilingual Panamanian firm. Our Law Office provides thorough and effective legal representation and personalized service in the areas of Business Law, Immigration Law, Real Estate Law, Corporate Law & Shareholders Rights, Admiralty and Maritime Law, Intellectual Property, Non-profit Organizations Law at the City of Knowledge (Clayton), International Private Law, International Public Law & Diplomatic Law.

Copyright Me. Ivan Pierre Julia Alonso

Disclaimer: While every effort has been made to ensure the accuracy of this publication, it is not intended to provide legal advice as individual situations will differ and should be discussed with an expert and/or lawyer. For specific technical or legal advice on the information provided and related topics, please contact the author.



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