Updated on May 5, 2020
Given the state of emergency declared by the Panamanian Government as a result of the COVID 19 pandemic, the stay at home orders issued by the health authorities and the social distancing that is essential to control the outbreak, the technological tools available for companies to operate remotely are vital.
Law 51 of July 22, 2008, regulated the use of electronic documents, electronic signatures, storage services for the electronic documents, the certification of electronic signatures and adopted other measures to develop e-commerce. Law 51 of 2008 was subsequently amended by Law 82 of November 9, 2012 and regulated through Executive Decree No. 684 of October 18, 2013.
Law 51 of 2008 defines “electronic signature” as the “technical method to identify a person and indicate that such person approves the information in data messages or electronic documents.”
Pursuant to Law 51 of 2008, electronic signatures are valid mechanisms in Panama to consent to agreements or sign documents or legal transactions, provided that the following two (2) conditions (established in article 8 of the law) are satisfied: (i) the availability of a method to identify the originator of the data message and indicate that the content is approved, and (ii) that such method is appropriate and reliable for the purpose for which the message was generated and communicated.
It is important to stress that electronic signatures are different from digitalized signatures, the latter being frequently used to share, through electronic means, Portable Document Format (PDF) versions of documents bearing handwritten signatures. In this sense, Law 51 of 2008 defines a digitalized or scanned signature as “an image of the drawing of a handwritten signature, meaning, the result of its scan. This type of signature is not, in any case, a qualified electronic signature.”
Not only does Law 51 of 2008 provide legal validity to an electronic signature – as opposed to a digitalized signature – as long as the two aforementioned conditions are satisfied, but, furthermore, it creates the possibility to elevate the standard of efficacy and legal effect given to the electronic signature ipso jure, by using the so called “qualified electronic signature.”
The aforementioned article 8 of Law 51 of 2008 establishes that the two conditions for the electronic signatures to be legally binding, shall be presumed ipso jure in case of a qualified electronic signature which is supported by a certificate issued by a certifying service provider duly authorized by the Electronic Signature National Authority (in Spanish, “Dirección Nacional de Firmas Electrónica”).
But what exactly is a “qualified electronic signature”?
Law 51 of 2008 defines it as an “electronic signature the validity of which is backed by a qualified electronic certificate that:
- Allows the identification of the signer and detect any subsequent change to the signed content.
- Is bound to the signer in a unique manner and to the data to which it refers.
- Has been created using secured devices for creating an electronic signature, which are exclusively in the control and possession of the signer.
- Has been created through the infrastructure of a certifying service provider registered with the Electronic Signature National Authority.
In order for a qualified electronic signature to be generated, an independent third party known as “Certifying Service Provider” must intervene. This third party will bind a device that generates an algorithm validating the identification of the signer and its consent, to the act to which the electronic signature is added. This independent third party must be registered with the regulator of all matters pertaining to electronic signatures in the Republic of Panama: the Electronic Signature National Authority which, pursuant to Law 82 of November 9, 2012, is part of the Public Registry of Panama.
Currently, a person interested in obtaining a qualified electronic signature in Panama can register such signature with the Electronic Signature National Authority which as regulating authority, has enabled this registry.
The qualified electronic signature, as previously defined, grants the highest level of legal certainty to the fact that the signer is the person indicated in the qualified certificate and that their consent was given through a data message. In this manner, Law 51 of 2008 deems such qualified electronic signature equal to a handwritten signature authenticated before a public notary, which for all purposes, certifies its genuineness. Notwithstanding the foregoing, a qualified electronic signature does not grant such certainty with respect to its date, unless it is stated through timestamping, provided by a registered certifying service provider. Timestamping is an online mechanism that evidences that certain data have been in existence and have not been altered, since a specific moment in time. In order to have certainty of the date in which an electronic document was signed, a timestamping mechanism must be incorporated, in addition to the qualified electronic signature, in order to simultaneously certify the date of its execution and delivery.
For companies that wish to obtain qualified electronic signatures allowing their employees to sign on behalf of the company, it is important to bear in mind article 15 of Law 51 of 2008, which establishes that “the electronic certificates of legal entities are requested for electronic devices used in a company, such as computers, servers, among others, and shall be requested by its management or duly authorized legal representative with sufficient capacity.” The company, however, can set restrictions and limitations as it deems convenient for the use of electronic signatures by each signer. It is also important to mention that Law 51 of 2008 expressly establishes that if a signer uses the electronic signature on behalf of the company in violation of the restrictions or limitations imposed by such company, the latter shall only be bound vis-à-vis third parties if it acknowledges or ratifies such act, or if it benefits from it. With respect to the legal responsibility of an individual that resorts to the use of electronic signature on behalf of the company, if such individual carries out any acts in violation of the limitations or restrictions imposed by the company in the use of the electronic signature and against the interests of the company, the effects of such act will be enforceable against the individual with access or in possession of the device for the creation of electronic signatures, who can, in turn, file legal actions against the third party that in fact misused the electronic signature of the company, if it was a person other than said employee.
Even though this law was enacted in 2008, there has been relatively little practical applications of it, as well as little to no judicial precedents from the Panamanian courts. It is likely that, due to such lack of judicial precedents, companies have been reluctant to implement the electronic signature as a method to sign legal documents, uncertain as to how the Panamanian judiciary will ultimately interpret the provisions of Law 51 of 2008. However, considering the current COVID-19-related circumstances, technological tools such as electronic signatures are without a doubt legally available options for increased efficiency and competitive advantage. Precisely for that reason, we believe that Panamanian authorities should, without delay, acknowledge and embrace the provisions and mechanisms created by Law 51 of 2008, in order to bring an environment of legal certainty with respect to the use of electronic signatures. This will allow market agents to implement the use thereof to help mitigate the effects of the health crisis currently confronting Panama and, in fact, the world.
Pablo Epifanio, senior associate, Morgan & Morgan
Panama, April 27, 2020.
On April 23, during a ceremony presided by South Korean President Moon Jae-In, among other South Korean authorities, was officially launched the “HMM ALGECIRAS” – the world’s biggest containership.
The new vessel is registered under the flag of the Republic of Panama, and we are pleased to share that the Ship Finance and Registration team of Morgan & Morgan participated as local counsel in the financing for a total amount of over US$1.75 billion for the acquisition of said ship by the shipping company HMM Co., Ltd. (formerly Hyundai Merchant Marine Co., Ltd.) and eleven (11) other container vessels of the same dimensions. Morgan & Morgan is also responsible for the flagging and representation before the Panama Maritime Authority as Resident Agent of these ships.
“It is a great distinction for Panama to have been chosen as flag registry for these twelve (12) mega container vessels with a capacity of 23,000 TEUs and more. As a law firm, we are very proud to have participated as Panama counsel in this process, which is already a landmark in the history of the Merchant Marine of our country”, said Jazmina Rovi, partner at Morgan & Morgan and head of the Ship Finance and Registration Department.
The HMM ALGECIRAS now joins the fleet of 18 Panama-flagged vessels amongst the 24 largest in the world (according to IHS Markit) and will be employed to connect the trade route between Asia and northern Europe.
Ricardo Alemán, Derecho Laboral, Socio de Morgan & Morgan
21 de abril de 2020
Mediante Gaceta Oficial No. 29003-A, fue promulgada la Ley 147 de 15 de abril de 2020 que concede el derecho de una licencia especial remunerada de hasta por 3 meses improrrogables a todo padre o madre que labore en el sector privado y tenga a su guarda o cuidado a un hijo menor de 16 años, que padezca de leucemia, cáncer o enfermedad degenerativa en estado grave o terminal. Durante este tiempo el trabajador no podrá laborar para otro empleador o por cuenta propia.
Para los efectos de la ley, se considera grave una enfermedad avanzada, progresiva e incurable, como resultado de diagnóstico de leucemia, cáncer, enfermedad crónica avanzada de un órgano, enfermedad degenerativa del sistema nervioso central, como evolucionado de causas diversas o cualquier otra enfermedad avanzada en fase evolutiva e irreversible.
También implica que el paciente esté, por lo menos, durante una noche en un hospital, una residencia para enfermos terminales, un centro de atención de salud residencial o cualquier otro tipo de centro médico.
Se trata de pacientes en riesgo de muerte, cuyo tratamiento, a criterio del médico tratante, requiere el concurso de los progenitores que ejercen patria potestad, el tutor, el curador y, en ausencia de éstos, el familiar más cercano del enfermo para su cuidado.
Requisitos del trabajador
El trabajador debe cumplir con los siguientes requisitos:
- Notificar al empleador el nombre, apellido y grado de parentesco de las personas que tengan a su cargo, aportando el certificado de nacimiento respectivo.
- Entregar al empleador un informe expedido por el médico del paciente que indique:
- Nombre completo del paciente, si el estado que se encuentra es grave o terminal y el tipo de enfermedad que padece.
- La justificación de la necesidad de acompañamiento continuo y permanente del paciente menor de 18 años.
La licencia especial será cancelada por el fallecimiento del paciente o por solicitud del propio trabajador o familiar a cargo.
En los casos en que se realice un tratamiento médico planificado o cirugía programada, el trabajador deberá notificar al empleador la decisión de hacer uso de la licencia con una antelación de 15 días. En los casos de urgencia o enfermedades intempestivas, el trabajador deberá en un plazo no mayor de 3 días hábiles desde que tenga conocimiento, notificar al empleador.
En los casos previstos en esta ley, el trabajador tendrá derecho a percibir su salario en un 100%, lo que será soportado por el empleador.
April 9, 2020.
At Morgan & Morgan we continue to look for ways to provide our services and continuity to the flow of information on changes in legislation in the different jurisdictions we have presence.
In light of the above, we are pleased to announce the launch of our podcast “Morgan Updates”.
This effort will feature key points on the latest legislations and developments relevant to our offshore jurisdictions.
In this first episode we will update you on the BVI Economic Substance Act (ESA), such as:
• All BVI companies are now required to comply with ESA, the BVI government has not extended the deadline.
• Key obligations to BVI companies you need to understand
• All BVI companies are obliged to file an annual report to the BVI competent authority this year
• We will guide you through the process so you can comply with the obligations
• We have worked on different and suitable solutions for your vehicles
Please contact at email@example.com so we can begin this process or to resolve any doubt or enquiries you may have.
María Eugenia Crespo, Associate, Morgan & Morgan
April 3, 2020. By Law 129 of 17 March 2020 (hereinafter, the “Law”) the Republic of Panama established the regulatory framework for a restricted database named “Sistema Privado y Único de Registro de Beneficiarios Finales de Personas Jurídicas” (in English, Private and Unique System of Beneficial Owners of Legal Persons and hereinafter, the “Registry”) to collect certain basic information of the beneficial owner(s) of trusts and legal entities incorporated and existing in accordance to the laws of the Republic of Panama.
The Registry shall have restricted access and the Law designates the Superintendence of Supervision of Non-Financial Subjects (the “Superintendence”) as the authority responsible for the same.
The Registry aims to facilitate access to certain information of such beneficial owners to assist competent authorities in the prevention of money laundering, the financing of terrorism and the proliferation of weapons of mass destruction, which are crimes under Panamanian legislation.
The Law imposes to resident agents of these legal entities and trusts the obligation to input and update such Registry. Accordingly, the Law creates a parallel resident agent registry. Only the attorneys and law firms that are validated in the last registry can enter information in the Registry.
The failure to feed and update the Registry by the resident agents derives in sanctions to both the agent and the legal entity for which information was not provided in compliance with the Law.
The Law includes a very extensive definition to determine who is considered as “beneficiario final” of a legal entity or a trust.
In short, such person(s) would be those that have “posesión, control o influencia” (in English, possession, control or influence) of the legal entity or trust.
It is important to note that the Law establishes that only the information to be recorded in the Registry is that of the beneficial owner “en última instancia” – i.e. the ‘ultimate’ beneficial owner; therefore, the information of corporate layers between that beneficial owner and the legal entity or trust controlled thereby are not required.
The Superintendence has a period of term of six (6) months to take the respective measures for the administration of the Registry and the resident agents shall have the next six (6) months to register in the resident agent registry and input in the Registry the required information of beneficial owners of the legal entities and trusts for which they provide resident agent services.
Regulatory framework for foreign investment
The Panamanian Constitution reserves “retail activities” for Panamanian nationals. Various statutes have limited the application of the prohibition to activities that involve the sale of goods to consumers.
By statute, the private sector (national or foreign) may not participate in water and sewage services; in other words, these services are reserved to the State. Likewise, electricity transmission services (as distinguished from generation and distribution) is also by statute reserved to the State.
Certain activities in Panama are reserved totally or partially for Panamanian nationals, based on constitutional provisions and regulated by statute. For example, commercial fishing in national waters is reserved for Panamanian nationals. Similarly, broadcast radio and television is reserved for Panamanians, but foreign persons may own up to 35% of corporations holding concessions for those activities.
Another type of restriction in Panamanian statutes prohibits foreign governments from owning land and participating in certain industries. For example, foreign corporates and entities controlled by foreign governments may not hold a majority stake in public service of telecommunications corporations. Similar restrictions are found in mining.
Foreign persons may not own real estate within 10 kilometers of the border with other countries.
Exchange control or currency regulations
The monetary unit in Panama is the Balboa. However, the U.S. Dollar (US$) is the legal tender of Panama and the same nominal value as the Balboa. There are no capital controls or foreign currency controls in Panama. Forced currency is prohibited in Panama’s Constitution and the parties may enter into obligations and establish payments in the currency they freely agree upon.
Grants or incentives
Investments (national or foreign) may qualify for incentives provided they are made in certain areas designated by law.
Individual employment contracts / Termination regulation
- Termination of employment contracts is regulated by the Labor Code, which grants special protection to employees.
- There is a process that can be followed before the Ministry of Labor to reduce personnel based on “economic grounds”, but companies normally carry out reductions without pursuing that process.
Capital gains in the sale of shares are taxed at 10%. The buyer must withhold 5% of the price paid and the seller may accept the amount so withheld as its definitive tax or file a return to obtain a credit for the difference between the amount withheld and the taxed caused by the gain realized in the transaction. In an asset transaction, the tax treatment will depend on the asset being transferred. For example, real estate is levied with two taxes: transfer tax (2%) and capital gains tax (10%). The buyer must withhold 3% of the purchase price, leaving the seller to accept the amount so withheld as its definitive capital gains tax or file a return to obtain a credit for the difference between the amount withheld and the capital gains taxed caused by the gain realized in the transaction. There are stamp taxes that may apply to the documentation granted. The issuance of shares does not cause any taxes.
Antitrust jurisdiction triggering events/thresholds
Corporate concentrations that affect competition will be subject to antitrust review. The threshold at which concentration may affect competition is 25%. Parties to a transaction that affects competition may submit a petition to the antitrust authority to review and approve, which approval may be granted without or with conditions. A concentration that is approved by the antitrust authority may not be reviewed by the authority or subject to judicial review. Without such approval, within three (3) years after perfected both the authority or a court (upon petition by a third party) may review the transaction and impose sanctions (including divestment) if found detrimental for competition.
Signing/closing meeting documents
Closings are ordinarily carried out through the delivery of documents set forth in definitive agreements, including share certificates duly endorsed in the case of share transactions. Payment is usually made through wire transfers.
In the case of asset deals, special documentation, formalities and filings depend on the type of asset. For example, real estate is only transferable through a public deed (“escritura pública”) granted before a notary public, which deed must then be submitted for registration and actually registered in the Panama Public Registry Office.
Gap requirements between signing and closing
In the case of share transactions, there are no such gaps required by law, except for tender offers of publicly traded shares. In the case of asset transactions involving real estate, for example, such gaps arise because registration of the public deed takes at least 24 hours.
Proof of identity and authority to sign
Corporate resolutions in the case of legal entities, accompanied by a good standing certificate of the jurisdiction of incorporation, and passport or other identification document for the person signing. All documents granted or executed outside Panama must be authenticated by a Panamanian Consul or through the Apostille (Hague Convention (1961) on legalization of document).
- Simple contracts are executed by written signature. Public deeds are granted by a Notary Public upon personal appearance and execution by signatories before the Notary Public.
- In the case of simple contracts, written signature by the persons signing on behalf of corporate parties thereof will suffice – ie, the parties validate whether the persons are duly authorized to enter into an agreement on behalf of the corporate party.
- Individuals with legal capacity may enter into contracts and grant deeds by written signature.
- In the case of foreign companies, it is customary to require powers of attorney duly legalized by a Panamanian Consul or through the Apostille.
Notary impact on transaction timetable
Authentication of signatures by notaries is viable and may be obtained during the execution ceremony, provided that signatories are physically present at such ceremony. Post execution authentication is viable, provided the signatory is in Panama and customary identification documents (eg, passport) is produced to the notary.
Changing of stockholders, officers and directors
Changes of stockholders in the books of the corporation may be regulated in its articles of incorporation and/or by-laws. In the absence of such regulation, it is usually accomplished through the Secretary of the corporation, who customarily requires the share certificate and its endorsement in order to make annotations in the share register.
Changes of directors and officers requires corporate resolutions to be submitted to a Notary Public for issuance of a public deed, which deed must then be filed and registered with the Panama Public Registry Office.
Private limited company
Transfer of title of shares is usually accomplished through the Secretary of the corporation, who customarily requires the share certificate and its endorsement.
Execute document in counterpart
It is customary to avoid counterparts in order to minimize stamp taxes, which are caused and payable with respect to each counterpart. Signature pages of contracts may be executed in different jurisdictions to be consolidated in a single counterpart, with each signature being authenticated in compliance with the law in the jurisdiction of execution, including legalization by “apostille”.
Strictly enforced undertakings
Strict enforcement of undertakings will be available soon, upon signing and promulgation (ie, publication in the Official Gazette) of recently adopted legislation that reinstated provisions of the Judicial Code that were repealed a few years ago.
Damages are available.
Required due executions legal opinions
None required by statute, but in cross border transactions (particularly for indebtedness) it is customary for legal opinions (debtor’s and creditors’ counsel) to be issued.
Panama, March 9, 2020. Partners Francisco Arias, Ricardo Arias, and associate Cristina De Roux contributed with Chambers & Partners, providing their professional insights into Panama’s legal securities market.
The online Panama chapter is available here.
Or a PDF version is available to download here.
Pablo Epifanio, Senior Associate, Morgan & Morgan
The stock market is undoubtedly one of the most important economic forces in the world. Every year, billions of dollars are moved through stock exchange operations, and year after year, in most jurisdictions, the stock market is promoted as a tool for financing or capturing capital for issuers and as an investment for thousands of participants seeking to place their funds in higher yield investments.
Thus, it is not unreasonable to foresee that although the stock market has had such a positive and important purpose, and in which transactions are increasingly sophisticated and complex, may be used for illicit purposes, particularly those related to financial crimes, including laundering of assets, financing of terrorist groups, among others.
This article succinctly analyzes the implications and scope of the compliance measures established in Agreement 6-2015 adopted by the Superintendency of the Securities Market of Panama, based on Law 23 of April 27, 2015, by which measures are being taken to prevent money laundering, financing of terrorism and financing of the proliferation of weapons of mass destruction (the “Compliance Act”).
Regulatory Framework for Compliance Measures in Panama
The Compliance Act approved in 2015, regulated by Executive Decree No. 363 of August 13, 2015, which adopts measures that allow entities regulated under it to prevent the use of their platforms and businesses for purposes related to the crimes of money laundering, financing of terrorism and financing of the proliferation of weapons of mass destruction.
The Compliance Act classifies those regulated entities: regulated non-financial entities, regulated financial entities and professional activities subject to supervision. The Compliance Act within the regulated financial entities includes the majority of the participants in the securities market, establishing that the provisions of the same apply to:
a) Self-regulated organizations;
b) Securities Firms;
c) Investment Managers;
d) Pension Fund Management;
e) Unemployment Fund Management;
f) Investment Companies;
g) Self-Managed Investment Companies;
h) Investment Advisers; and
i) Administrative Service Providers of the Securities Market.
An important fact to note is that the Compliance Act, Executive Decree 363 and Agreement 6-2015 do not include the issuers of securities registered with the Superintendency of the Securities Market within their scope of application. This is likely to be the case, since most of the essential intermediaries to carry out a public offering and issuance of securities are subject to regulations, including custodians, payment agents, brokerage firms and investment advisors, they are, in short, those that have a direct relationship with investors. At the same time, the issuer would unlikely be able to properly and efficiently apply due diligence measures to investors with whom it usually does not have direct contact.
The Compliance Act seeks more than anything to establish the regulatory framework applicable to regulated entities in order to facilitate the adequate identification of customers with a risk-based approach, detect funds of illicit origin, establish guidelines regarding the due diligence that regulated entities must applied to their customers, in terms of the application of the “know your customer” policy and encourage the adoption of risk policies.
For the purposes of accurately understanding the applicable legislation on compliance, it is important to keep in mind the definition of “customer” under the Compliance Act: “natural or legal person, as defined by the legal provisions that apply for each economic or professional activity indicated in the Law, with which the regulated financial entities, regulated non-financial entities and activities carried out by professionals subject to supervision establish, maintain or have maintained, in an usual or occasional manner, a contractual, professional or business relationship for the supply of any product or services inherent to its activity.”
Lastly, the Compliance Act empowers the respective regulatory authorities for the activities carried out by the different regulated entities to oversee the compliance with the Compliance Act and adopt regulations that adjust to the reality of each regulated activity.
- Sectoral Regulation Applicable to the Securities Market
The Superintendency of the Securities Market has adopted Agreement 6-2015 of August 19, 2015 (the “Agreement 6-2015”), through which it issued the provisions applicable to regulated financial entities supervised by the Superintendency of the Securities Market, to the prevention of the crimes of money laundering, financing of terrorism and financing of the proliferation of weapons of mass destruction.
The regulated financial entities supervised by the Superintendency of Securities Market under Agreement 6-2015 have the obligation to maintain due diligence and care in their operations in order to reasonably prevent such operations from being carried out with funds from activities related to the crimes of money laundering, financing of terrorism and financing of the proliferation of weapons of mass destruction.
Thus, the regulated entities under the supervision of the Superintendency of the Securities Market must have the mechanisms, policies and methodologies required to manage the risk of money laundering, financing of terrorism and financing of the proliferation of weapons of mass destruction, taking in consideration factors such as: the risk profile of the activity exercised by the regulated entity, the profile and types of customers of the regulated entitity, the products and services offered by the regulated entity, the distribution or commercialization channels used by the regulated entity, the location of the facilities of the regulated entity, of its customers and final beneficiaries, and the risk of the custodian or correspondent services of the regulated entity.
For the evaluation of the factors described above, regulated entities must apply a “risk-based approach”, which is nothing more than an understanding of the level of risk according to their nature, in order to focus their efforts effectively. Thus, regulated entities subject to supervision must classify their customers by applying a risk-based approach to: (i) high risk customers, (ii) moderate risk customers and (iii) low risk customers; and they should review this classification at least once a year. With this approach in mind, the regulation gives certain entities flexibility to assess the risks in the services they provide, so that they can apply reinforced measures against major risks, basic measures against usual risks and simplified measures against minor risks, managing and / or mitigating risks, as the case may be.
Agreement 6-2015 specifically establishes the minimum information and documentation that should be requested and verified from customers, both for natural and legal persons, as part of the simplified due diligence that regulated entities subject to supervision of the Superintendency of the Securities Market must apply, which include: complete general information, a copy of the customer’s identification, bank and commercial references, support of funds, detail of activities to which he / she is dedicated, among others.
For the purposes of simplified due diligence in the case of legal persons, Agreement 6-2015 seeks to fully identify the final beneficiary of the legal entity and imposes measures and requirements to be obtained from each customer that is a legal entity for that purpose. For the purposes of the final beneficiary, Agreement 6-2015 states that it shall be understood as such, any natural person who individually or by common agreement with other persons, directly or indirectly, is the owner or has the right to exercise the vote with respect to ten percent (10%) or more of the issued and outstanding shares of a legal entity. In addition to the foregoing, the following must also be fully identified: (i) in the case of companies: the administrators, representatives, attorneys-in-fact and signatories of the legal entity; (ii) in the case of private interest foundations: the members of the founding council, founder and protector; and in the case of trusts: the trustee and the trustor.
Agreement 6-2015 establishes that regulated entities under it will have to apply full-range or enhanced due diligence measures for their customers or activities that may represent a high risk, in order to deepen the information of this type of customers. The Superintendency of the Securities Market, as well as other regulators of activities under the Compliance Act, has issued a guide of indicators of suspicious operations and activities in order that the regulated entities can identify high risk customers and timely apply the measures of full-range due diligence.
Among the types of customers that should be subject to full-range or enhanced due diligence, we have, among others:
a) Natural or legal persons or related business persons with natural or legal persons domiciled or incorporated in jurisdictions considered high risk by national or foreign organizations;
b) Individuals or legal entities that appear in national or foreign lists related to the prevention of money laundering, financing of terrorism and financing of the proliferation of weapons of mass destruction;
c) Politically exposed persons (PEP), close relatives and close collaborators;
d) Legal persons that receive or offer the correspondent service, with special attention to those domiciled in jurisdictions that have not effectively implemented the recommendations regarding the prevention of money laundering, terrorist financing and financing of the proliferation of weapons of mass destruction;
e) Businesses with a high volume of operations in cash or quasi-cash; and
f) Businesses with a high volume of international transfers to and from countries and high-risk countries that have not implemented the recommendations regarding the prevention of money laundering crimes, financing of terrorism and financing the proliferation of weapons of mass destruction.
When applying full-range or enhanced due diligence measures, regulated entities supervised by the Superintendency of the Securities Market shall require the same information and minimum documentation established for simplified due diligence, and in addition shall: (i) obtain the approval of senior management at the beginning of the business relationship; (ii) update the records of information and documentation, at least one (1) time each semester; (iii) continuous intensified monitoring throughout the commercial relationship and / or (iv) apply any other measure determined by the senior management of the regulated entity.
Simplified due diligence is the most basic policy, procedures and measures defined in the Compliance Act that may be applied by regulated entities to their customers, and are only applicable if in accordance with the risk policies of the regulated entities, based on a risk approach, it is determined that the customers to apply it are of low risk.
Executive Decree No. 363, which regulates the Compliance Act, expressly establishes the simplified due diligence measures allowed to regulated entities:
a) Reduce the documentary review process;
b) Reduce the frequency of customer identification updates; and
c) Reduce the monitoring of the business relationship and the scrutiny of operations that do not exceed the minimum amount established by supervisory bodies.
Although it does not appear so, simplified measures significantly reduce the economic and managerial burden of due diligence measures for regulated entities, especially in cases where it is evident that the business relationship is not or can not be used for illicit purposes.
An important point to be highlighted is Article 28 of the Compliance Act that establishes that the regulated entities – whether they are intermediaries or not in the securities market – will apply simplified due diligence measures to their customers that are legal persons and are listed in a stock exchange recognized by the Superintendency of the Securities Market. That is, to the issuers of common shares or participation quotas, which are duly registered in the Superintendency of the Securities Market and listed on a stock exchange, simplified due diligence measures will be applied by law. Therefore, regulated intermediaries may apply their simplified due diligence measures to their issuing customers, provided that the before mentioned comply with the conditions established in Article 28 of the Compliance Act.
The main purpose of the compliance regulation in question is based more than anything on prevention, that is why in cases where a customer of a regulated entity does not facilitate compliance with the relevant measures of due diligence, the regulated entity may not open the account or start the business relationship or make the proposed transaction.
Agreement 6-2015 establishes that any new account or commercial relationship must comply with the evaluation of the financial and transactional profile of the customer, in order to measure the risk of the products or services offered. For these purposes, “financial profile” means “the result of the analysis of a set of socioeconomic and demographic characteristics and variables that are presented by a customer and verified by the regulated entity at the time of opening the account or beginning of the business relationship; and that it must be enriched with updated and historical information, with the purpose of establishing the common practice that the customer will maintain with the regulated entity.”
Basically, the analysis and processing of the financial documentation required in the course of the simplified or enhanced due diligence measures gives rise to the financial profile that the regulated entity must develop for each customer. On the other hand, the “transactional profile” refers to the “contrast between the financial profile and the frequency and capacity of a customer’s actual transaction in one or several periods of time.”
In conclusion, the obligation of each regulated entity supervised by the Superintendency of the Securities Market is to perform an analysis based on criteria in terms of capacity and financial transaction volume of each customer and then make the contrast between said analysis and the reality of each case.
Agreement 6-2015 establishes two important obligations in regards to the employees of the regulated entities supervised by the Superintendency of the Securities Market: the first obligation is to have a “Know Your Employee” policy, which seeks that regulated entities have personnel selection procedures and supervise the behaviour of their employees, especially those who perform positions related to customer management, fund management, control of information and other important controls. It is also important that regulated entities establish a profile of this type of employees, which shall be updated at least once a year.
The second obligation of the regulated entities in regards to their employees is the obligation to carry out continuous and specific trainings at least once a year, to the employees with roles related to the management, communication and handling of customer and supplier relationships, receipt of funds, transaction processing, product design and services, compliance, risk, human resources, technology and internal auditing in a way that allows them to be updated on the different types, cases and regulations of money laundering, terrorism financing and financing of the proliferation of weapons of mass destruction.
One of the most important tools that the Compliance Act and the Agreement 6-2015 gives to the regulated entities supervised by the Superintendency of the Securities Market are the Suspicious Operations Reports (ROS) and the Unusual Operations Reports (ROI) to the Financial Analysis Unit (UAF). Many times we tend to use these terms as synonyms when they are different and have different implications.
“Suspicious operation” is understood as an operation that can not be justified or sustained against the financial or transactional profile of the customer or that which may be related to illicit purposes. On the other hand, “unusual operation” is understood to be one that is not consistent with a financial or transactional profile declared by the customer or that exceeds the parameters set by the regulated entity in the due diligence process performed on the customer, and that consequently must be justified.
Thus, unusual operation means in short an alert for the regulated entity that the operation is not regular, based on the expected behavior of the customer or exceeds the criteria set for the customer in terms of financial capacity or volume of transactions, and the customer must be required to sustain the operation. Suspicious operation, on the other hand, is one that has no way to be justified or that can reasonably be considered to be linked to the crimes of money laundering, financing of terrorism and financing of the proliferation of weapons of mass destruction.
Executive Decree No. 363 that regulates the Compliance Act establishes that the regulated entities must have measures that allow the timely detection of unusual operations in order to analyze them and rule out or corroborate the unusual operation. Unusual operations that can not be corroborated or verified according to the customer’s profile may be reported by the regulated entity as suspicious transactions.
In addition, operations suspected of being related to the crimes of money laundering, financing of terrorism, financing of the proliferation of weapons of mass destruction shall be reported as suspicious transactions to the Financial Analysis Unit within 15 calendar days from the detection of the event, transaction, operation or control failure.
In addition, the regulated entities have the obligation to report transactions in cash or quasi-cash, for amounts exceeding the sum of Ten Thousand Dollars (US$10,000.00), legal currency of the United States of America, within the first 10 business days of each month. “Quasi-cash” means, for these purposes, cashier’s checks, travel checks, orders issued to bearer, multiple endorsements, blank endorsements, and other negotiable documents.
All reports to the Financial Analysis Unit must be made through the compliance officer, who will be the liaison person with said entity in regards to the regulated entities supervised by the Superintendency of the Securities Market.
Agreement 6-2015 establishes the obligation for regulated entities supervised by the Superintendency of the Securities Market to adopt, through its Board of Directors, a Prevention Manual that must be reviewed at least one (1) time a year and must contain at least:
1) Mechanism, policies and methodologies for administration and policies for mitigating the risk of money laundering, financing of terrorism and financing of the proliferation of weapons of mass destruction;
2) The classification of customers according to the risk-based approach;
3) The “Know Your Customer” policy;
4) The “Know Your Employee” policy;
5) The periodicity of the reviews and updating of the information and documentation of the customers;
6) Policies relating to correspondent relations;
7) Policies relating to customers or high-risk activities;
8) Policies regarding the confidentiality and protection of information;
9) Contingency plans for information retrieval in cases of disasters;
10) Internal control policies;
11) Norms of self-evaluation of the degree of risk and good practices for the prevention of the crimes of money laundering, financing of terrorism and financing of the proliferation of weapons of mass destruction;
12) Ethical norms and standards;
13) The liaison person with the Financial Analysis Unit;
14) Management of ROS and other reports to the Financial Analysis Unit;
15) Formation of the Ethics and Compliance Committee and the Audit Committee.
Regarding the Ethics and Compliance Committee, Agreement 6-2015 provides that all regulated entities supervised by the Superintendency of the Securities Market must have one to approve the opening of accounts or the commencement of business relations for customers or activities requiring full-range or enhanced due diligence measures to be carried out, and the follow-up to this type of high risk customers. This committee must be formed by at least three (3) members of the Board of Directors. The Ethics and Compliance Committee must also plan, coordinate and ensure compliance with current regulations on the prevention of money laundering, financing of terrorism and financing of the proliferation of weapons of mass destruction.
Likewise, Agreement 6-2015 provides that all regulated entities supervised by the Superintendency of the Securities Market must have an Audit Committee that is responsible for the execution, evaluation and effectiveness of the internal control systems of the regulated entity, in order to monitor the internal measures and softwares used in relation to the protection of information, prevention of unlawful acts and compliance with current regulations on the prevention of money laundering crimes, financing of terrorism and financing the proliferation of weapons of mass destruction.
All regulated entities supervised by the Superintendency of the Securities Market must update the information and documentation of their customers at least one (1) time per year for all customers and one (1) time per semester for customers subject to full-range or enhanced due diligence measures. At the same time, they must safeguard the information, documentation and records of the operations carried out, for a minimum period of five (5) years from the termination of the commercial relationship with the customer.
The Compliance Act classifies sanctions in two types: Generic Sanctions and Specific Sanctions. Generic sanctions are those established by said Law for breaches of the provisions of the Compliance Act or its sectoral regulations, including as such Agreement 6-2015, for which there is no specific sanction, which will consist of a fine of US$5,000.00 to US$1,000,000.00. Specific Sanctions are those applicable to specific breaches of the Compliance Act or its sectoral regulations, as regulated by the regulatory authority of the respective activity. The Superintendency of the Securities Market has not regulated the specific sanctions to date, for which generic sanctions (fines) will be applied pursuant to article 60 of the Compliance Act.
The fines imposed for breaches of the Compliance Act may be collected through the coercive jurisdiction of each supervisory body, or through the coercive collection process before the General Revenue Directorate. These fines are without prejudice to any civil or criminal liability that may arise.
Executive Decree No. 363 provides a clear picture in terms of the seriousness of the infractions, since it lists some breaches as infractions with minor severity, medium severity and maximum severity. This allows the regulated entity to identify the level of severity of the sanction for the non-compliances listed.
Finally, Executive Decree No. 363 gives the supervisory bodies of each activity the right to cancel, withdraw, restrict or remove licenses, Certificates of Competence or other authorizations from regulated entities that violate the provisions in force regarding compliance, subject to the verification of the sanctioning processes that correspond.
It is a true and lawful translation into English of the original document written in Spanish. Panama, March 12, 2018. Michelle Williams – Authorized Public Translator – Resolution No. 5775 of November 12, 2014, Republic of Panama.
Morgan & Morgan contributed to the first edition of the Latin American corporate investigations guide
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