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IN CENTRAL AMERICA, Panama has become notorious as a center of white-collar and organized crime, especially money laundering. Indeed, outside of the United States, Panama is the biggest money laundering center in the Western Hemisphere. More than 100 international banks operate in Panama's offshore banking system. Much of the money laundering is linked to the international drug trade. In 1993, the Paris-based Observatoire Geopolitique des Drogues (OGD) published a study on the connection of the drug trade and national security in which Panama was classified as a “narco-state” with high-level government officials implicated in illicit activity.

Much of this is due to the nature of the country's banking system. General Omar Torrijos, leader of the country's national guard, took power in a 1968 coup. The United ...

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