April 13, 2013
Hold The Presses!
Last week I said that Panama was off the Organization for Economic Cooperation and Development’s (OECD) grey list and was now on its white list.
This was because Panama had promised to reveal the real owners of Panama corporation bearer shares.
Proposed Bill 568 did just that.
Then, 3 days ago, on April 10th, President Martinelli froze debate on Bill 568 in the legislature.
Was it because of the recent leak of 1000s of bank accounts owners in tax havens, such as Panama? Most likely. The publication of these names was probably the straw that broke the camel’s back.
This bearer share bill was controversial from the get go. Many lawyers and business people are against it, while many banks favor it. Of course, it was extremely unpopular with those using bearer shares to conceal illicit activity.
FYI: Bank accounts are involved because the real owners these corporations open bank accounts under the name of the corporation Of course, the real names of the owners of the bank account, and the corporation, are kept secret via the anonymity of the corporation’s bearer shares.
The recent leak reveals the details of 1000s of offshore holdings by people and companies in more than 170 countries, including Panama. The majorityof the secret accounts whose owners are now “outted” are in banks located in the British Virgin Islands, the Cook Islands and Singapore. For more info on this topic, see this New York Times article and The International Consortium of Investigative Journalists
However, even without freezing the bill, its passage may not have kept Panama out of trouble with the OECD.
At the last minute, Section 27 was added to bearer share bill. Section 27 states that the share holder names would not be revealed for 2 years after the bill’s passage into law.
No surprise there. There are lots of people, some in high places, who are hiding behind these bearer shares for various reasons:
- Avoid income and capital gain taxes
- Hide from child support payments and/or divorce settlements
- Conceal money gained illicitly
- Limit liability in a legal and innocent manner (i.e., not everyone with this type of corporation is a scoundrel.)
The 2 year delay allows those who are actively trying to hide their assets to move them around so they can retain their anonymity. For instance, I have heard lawyers recommend those who currently own such corporations to transfer their assets into Private Panama Foundations. The OECD – and the USA’s IRS – are probably pretty unhappy with that and other possibilities.
FYI: Bearer shares are anonymous negotiable instruments that confer shares of ownership in a Panamanian corporation whose owners and manager are not required to be disclosed anywhere on a public record.
Bearer shares have been part of Panamanian corporate law since 1927. It is one of the reasons there are so many ships that register Panama as their home port. By doing so, ships can change ownership without any government knowing about it.
In addition, instead of directly declaring and publicly registering the owners names of the corporation in a sworn document there will be an intermediary custodian. This custodian, which can be a lawyer or bank, will theoretically be held personally responsible for any criminal activities of those who have Beneficial Ownership and therefore control of the corporation.
Panama is not the only country to go the custodian route. However, it is a method that can be corrupted so that the true owners names may still never come to light.
Martinelli has been promising to end the anonymity of corporate bearer shares for a while. His motivations:
- Get off of OECD’s list of tax havens
- Secure passage of the US-Panama Trade Promotion Agreement (aka, the free trade pact).
I am unsure the effects of not passing Bill 568 will be for Panama and its financial sector.
I’ll let you know when I learn more.