Central America

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 States supported the Torrijos government and provided economic aid to Panama. As part of the aid package, the U.S. Agency for International Development sponsored a study that Panama had all of the prerequisites to become an important international banking center. The country possessed excellent communications facilities, it was a transportation hub, and it used U.S. dollars. In response to the U.S. recommendation, the Torrijos government passed legislation that opened the country to foreign banks and allowed for a great degree of secrecy and anonymity. The new banking laws allowed the offshore banking center in Panama to take off.

This system permits secret accounts to be held by both individuals and corporations. Furthermore, Panama's banking system permits tax-free interest income, attracting account holders from around the world. Also, companies can be organized with no public disclosure of the principals. These bearer's share companies are “owned” by whoever holds the physical certificate. Often, “strawmen” do the incorporation[Page 151] and are the initial shareholders. They then give the certificates to the true owners. The process is often carried out by lawyers who do not even know the real owners. There is little that foreign authorities can do, allowing Panama to become a leader in laundering money from the international drug trade. After passing through Panama, such funds are easily wired to other countries.

Geography and the role of the United States have also contributed to Panama's role as a moneylaundering center. The country's proximity to the United States and its location between drug production in South America and drug consumption in North America make it an ideal place for laundering narcotics profits. The construction of the Panama Canal, the subsequent “dollarization” of the economy, and the presence and spending of the U.S. military in the Canal Zone also made Panama a favorable spot for processing funds earned from illicit activities. In addition, Panama has been relatively conflict-free compared to many of its Central American neighbors, providing a more stable environment for financial activity.