Kenneth Rijock

Kenneth Rijock

Friday, February 13, 2015

HAS PANAMA NOW BECOME A HIGH-RISK JURISDICTION FOR FOREIGN BANKS ?


This week, the Citibank branch in Panama posted a notice to its customers: kindly find another financial institution for your business, as Citibank is closing. We knew this was coming several months ago, when Citibank announced in October that it was exiting consumer banking in Panama, as well as in Costa Rica, Nicaragua, El Salvador & Guatemala. At the time of the announcement, Panama was rife with rumors that US regulators were pushing Citigroup out of Central America, due to the inability of local regulators and law enforcement agencies to combat rampant money laundering.

It gets worse; last year, sources inside Panama reported that then-President Ricardo Martinelli was warned that, if Panama did not clean up money laundering in the Republic, that the Federal Reserve would cease to process Panamanian transactions. Panama, which has no central bank, depends on the Fed for a variety of financial services. Also, remember, Panama's currency, nominally the Balboa, is actually the US Dollar. If Panama was shut out of direct contact with the US financial structure, its economy would collapse immediately, causing not only financial chaos, but a total disruption of the economy. All the foreign banks resident in Panama would be cut off from the American banking network.

When foreign banks start to pull out of Panama, look out, for this is a sign that: (1) things are only going to get worse with the Panamanian economy, (2) major criminal indictments from the United States are expected, and (3) Panama has lost its appeal as an offshore financial center, due to massive corruption, a dysfunctional court system, organized crime influence, and the inability of government to maintain sufficient cash flow to pay its expenses.   

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