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Panama - Corruption

In the most recent edition (2016) of the Transparency International Corruption Perceptions Index, Panama ranked 87 out of 176 countries measured. In the 2015 edition Panama had ranked 94 out of 175 countries measured. The Panamanian judicial system continues to pose a problem for investors due to poorly trained personnel, case backlogs, and a lack of independence from political influence. Supreme Court judges are typically nominated to 10-year terms on the basis of political considerations.

While petty corruption is fairly widespread in Panama, it is grand corruption in the fonn of large bribes, state capture and buying of legislators that causes the greatest concern in the country. Levels of petty corruption are perceived to be lower since there are administrative avenues to denounce it, and the relatively low levels of income of the average citizen makes this less lucrative. Thus the risks begin to outweigh the potential benefits. Corruption at sub-national levels is also seen as less pervasive and damaging because both the resources and political power at this level are extremely limited.

Random corruption exists in areas like contracting, but systemic corruption is also evidenced, particularly in political circles and among legislators and higher-level government officials. Bribery and the misuse of state funds and goods are common throughout the bureaucracy and regularly denounced in the press. In addition, corrupt patronage and abuse of power are also extremely widespread. The use of patronage by political parties as the currency of vote buying is extremely common.

On 10 February 2017, Panamanian police raided the head office of Mossack-Fonseca, the law firm at the heart of an international tax evasion scheme, as its founding partner accused Panamas president of accepting bribes in the ever-widening Odebrecht corruption scandal. Ramon Fonseca Mora founder of the controversial Mossack-Fonseca law firm and a friend and former advisor to Panamas president Juan Carlos Varela told reporters that Varela had confessed to him about receiving money from the Brazilian construction firm Odebrecht. "President Varela told me may lightning strike me if I lie that he had accepted donations from Odebrecht because he couldn't fight everyone," Fonseca told reporters as he arrived for questioning at the attorney generals office.

In the past decade, Odebrecht has become the largest government contractor in Panama, with contracts totaling upwards of US$500 million, including one for the construction of a subway line in Panama City. In December 2016, the massive Brazilian construction company agreed to pay a record US$3.5 billion fine after admitting to paying millions in bribes in 12 countries to win government contracts.

President Varela had campaigned on a pledge to eliminate corruption in the government, increase transparency, and prosecute corrupt officials. His government has filed charges against several high ranking officials of the previous government, including the former head of the Supreme Court who was sentenced to five years in prison for corruption. The former President, Ricardo Martinelli campaigned on a similar promise in 2009 but he and his administration are adjudged by Panamanians to have been the most corrupt administration since the return to democracy in 1990. There are a number of Martinelli administration figures in jail or under investigation for alleged acts of official corruption.

Under Panamanian law, only the National Assembly may initiate corruption investigations against Supreme Court judges and only the Supreme Court may initiate investigations against members of the National Assembly, thereby encouraging, in effect, a non-aggression pact between these two branches of government.

The fight against corruption is also hampered by the GOPs refusal to dismantle Panama's dictatorship-era libel and contempt laws, which can be used to punish whistleblowers, while those accused of acts of corruption are seldom prosecuted and almost never jailed.

Panamas history of client secrecy and its developed offshore banking and corporate services sector was exposed in April 2016 when one of its top law firms was the target of a massive hack and data dump. This occurred just after Panama was removed from FATFs Grey List in recognition of a number of steps it had taken to strengthen its anti-money laundering regime, to include eliminating the use of bearer shares, passing strong AML legislation in 2015 and constituting an empowered and capable Financial Intelligence Unit (Unidad de Analysis Financiero).

In April 2016, the Panama Papers exposed significant vulnerabilities related to lack of financial transparency and the use of shell companies to launder money, commit tax fraud, and evade U.S. sanctions. The Papers also highlighted inadequate supervision of both the financial and non-financial sectors (particularly lawyers and corporate service providers). These vulnerabilities were further highlighted by the U.S. Treasury Departments designation, in May 2016, of the Waked Money Laundering Organization (Waked MLO) for providing material support, via money laundering and other services, to designated narcotics traffickers. The action highlighted the Waked MLOs use of the formal banking sector, bulk cash smuggling, real estate, and TBML to launder funds.

Money laundered in Panama primarily comes from drug trafficking proceeds due to its location along major trafficking routes. Numerous factors hinder the fight against money laundering, including the need for increased collaboration among government agencies, inexperience with money laundering investigations and prosecutions, tipping off of criminals, inconsistent enforcement of laws and regulations, corruption, and an under-resourced judicial system.

Criminals launder money via bulk cash smuggling and trade at airports, seaports, and the FTZs, and through shell companies, which exploit regulatory gaps. Criminals also use the formal banking system to hide and move the proceeds of illicit activity. Panama has 18 FTZs, including the Colon Free Zone (CFZ), the second-largest FTZ in the world. Bulk cash is easily introduced into the country by declaring it is for use in the CFZ, but no official verification process exists to confirm its end use in lawful business in the zone.

Corruption remains a concern throughout the security services, customs, and justice sector. Drug trafficking organizations have penetrated the security services, and Panamanian authorities detained several security-service members involved in trafficking in 2016. Panamanian authorities recognize the threat, and respond favorably to U.S. requests to polygraph security service members. The government actively investigates officials for corruption, though successfully prosecutes few. In April, the government announced the formation of the Interagency Anti-Corruption Group (GIA), a welcomed development to help combat this insidious problem. Based on GIA investigations, Panamanian authorities arrested security sector officials in Coln and Panama City, including police and SENAN officials suspected of corruption.

The law provides criminal penalties for corruption by officials, and the government generally implemented these laws effectively; however, there were allegations that government officials and members of the previous government administration engaged in corrupt practices with impunity. Corruption remained a problem in the executive, judicial, and legislative branches as well as in the security forces. Anticorruption mechanisms such as asset forfeiture, whistleblower, and witness protection, plea bargaining, and professional conflict-of-interest rules exist.

The National Authority for Transparency and Access to Public Information (ANTAI) combats and investigates government corruption. During the year 2016 there were several credible allegations of corruption against current or former members of the government. In March 2016 the government established the High Level Secretariat to Prevent Corruption (SEPRECO) to improve transparency. As a pilot program under ANTAIs authority, SEPRECO was tasked with preventing corruption in public bids and payment of bribes and protecting foreign investment. In April 2016, the Tenth District Penal judge sentenced a former Social Security Fund finance and managing director, Alberto Maggiori, to eight years in prison for embezzlement in awarding two linked companies contracts of more than two million dollars in 2011 and 2012. Maggiori also faced criminal charges in a different corruption case.

The anticorruption prosecutor continued the investigation of Panama Canal Authority board member Lourdes Castillo, her business partner Samuel Israel, and his wife Alexandra de Israel, for alleged payment of bribes in 2014 in exchange for a contract with the Panama Maritime Authority (AMP). Former president Martinelli approved a contract for Pele System without its participation in the bidding process. The new administration filed a complaint based on an alleged overpayment of 12 million balboas ($12 million) to Pele System. The anticorruption prosecutors investigation found that Pele System made payments to Castillo and the Israel couples businesses incorporated in the British Virgin Islands.

Corruption and a lack of accountability among the police continued to be a problem, though the government took steps to address violations. Thirty-two agents were dismissed on corruption grounds in 2016 and were under investigation by the Public Ministry. The agents included a police captain and a lieutenant arrested in August along with 11 others for allegedly falsifying prisoners records and altering criminal sentences as well as former civilian agents from the penitentiary system who allegedly charged up to 70,000 balboas ($70,000) to assist gang members to leave prison early.

To address police corruption at the prisons, the 2015 PNP policy requiring members of the PNP who serve as prison guards to rotate to other police functions after two years continued. The policy aims to reduce corrupt behavior by preventing PNP guards from remaining at one prison for an extended period; the PNP also began to provide a monthly bonus of 35 balboas ($35) for each agent assigned to the prisons to reduce incentives for corruption. The case against former minister of labor Alma Cortes related to charges of illicit enrichment continued. The prosecutor claimed Cortes could not justify how she accrued two million dollars in assets and bank accounts while serving as minister of labor. Cortes was detained in August 2016.

In August 2016, ANTAI opened an investigation regarding AMP Director General Jorge Barakats alleged receipt of basketball game tickets valued at more than 1,000 balboas ($1,000) from an AMP contractor; he attended the game during an official trip. In August the former Agriculture Institute director general under the current administration, Edwin Cardenas, was detained under charges of mismanagement of more than six million dollars of public funds. The fourth anticorruption prosecutor charged Cardenas for wrongdoings from July 2014 through April 2015.

Panama remains a major transshipment crossroads for illicit drug trafficking due to its location and logistics infrastructure. Panama does not produce significant amounts of drugs destined for the United States market, though limited cannabis cultivation occurs in remote regions for local consumption. Transnational drug trafficking organizations, including Mexican and Colombian groups, move illegal contraband through Panamas remote Darin region and along its coastline and littoral zones. Drug traffickers also exploit Panamas transportation infrastructure, including the second largest free trade zone in the world, four major container seaports, airports, and the Pan-American Highway.

The National Border Service (SENAFRONT) remains the operational mainstay in Darin province, performing humanitarian assistance and community policing missions alongside its other duties. Although the Revolutionary Armed Forces of Colombia (FARC) no longer operates in the Darin, SENAFRONT confronts criminal gangs moving drug shipments through the region. A surge in irregular migration through the Darin has largely matched historic drug-trafficking routes. Through the Regional Border Protection Training Program, the United States provides training to SENAFRONT and other regional security services on border security operations at and between ports of entry. Thanks to train-the-trainer cooperation with the United States and Colombia, SENAFRONT now conducts advanced training on its own and to an increasing number of students from regional partners, including Costa Rica, Belize, Guatemala, and Honduras.

As of September 2016 the National Border Protection Force (SENAFRONT) had apprehended 17,306 irregular migrants in the Darien region. While still historically high, apprehensions were down from 31,749 individuals in 2015. Cuban nationals accounted for 5,083 of the migrants. An executive decree allows Cubans who arrive lawfully to receive transit visas without being detained; however, emergency shelters in Paso Canoas housed approximately 3,168 Cuban migrants when Costa Rica closed its border with Panama in February and April. On both occasions, Panama and Mexico reached an agreement to facilitate an air bridge for Cuban migrants to fly to Mexico. Cuban migration overland through Panama nearly ended after the government closed its border with Colombia in May.

As of September 2016 SENAFRONT also apprehended 7,352 undocumented migrants claiming Congolese nationality whom the government suspected of being Haitian nationals. The government managed camps in the Darien region to provide food, shelter, and medical assistance to the migrants. The government reported continued migrations of persons from South Asia and Africa. Migration authorities opened two new emergency camps in addition to a Roman Catholic-run shelter, where migrants were held for biometric registration before being transferred to the Costa Rica border.

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