Offshore Asset Protection BLOG - Bob Bauman

Interesting Treaty News from Panama

O.K. amigos -- you knew it would happen, what with all the leftist welfare state tax collectors and the OECD clamoring for blacklists and boycotts aimed at one of the last nations with enough political courage and guts to stand up for financial privacy and banking secrecy -- our friends in Panama.

Yes, Panamanian President Ricardo Martinelli (left) and his Mexican counterpart, Felipe Calderón (far left) signed a "tax information exchange" treaty a few weeks ago at the Summit of Latin American and Caribbean Unity -- but this treaty is NOT what you may think of when you hear the dreaded "tax information exchange."

Article 26 Again

That phrase has taken on the meaning generally assigned to it by the loud, anti-tax haven advocates of Article 26 of the OECD model tax treaty.

Of course what these radicals really want is automatic tax and financial information exchange, and they are still working feverishly for that goal. (France has even adopted its own arbitrary blacklist of tax havens and imposed a huge tax on French transactions with the named places).

 
But generally "tax information exchange" is understood to mean negotiating and signing bilateral treaties between nations providing a specific method to be followed when one nation formally asks another nation for financial information about one of their citizens. Such requests are governed in each case by the specific terms of the bilateral treaty.

Bank Secrecy Takes a Hit

Some nations with (until now) strict banking secrecy, such as Switzerland and Austria, have publicly insisted that such treaty requests must name a specific person and a specific bank or other financial account, providing at least prima face evidence of a possible violation of the requesting nation's tax laws. No "fishing expeditions" allowed, they insist.

Panama's La Prensa report that the two leaders described the new treaty as "an agreement to avoid double taxation and to prevent tax evasion on income tax." In a political pas de deux, Mexican President Calderón said that with the signing of the agreement Mexico can promote Panama internationally as a country that meets OECD and international standards on tax and fiscal matters.

Panama's Martinelli added that the agreement was part of several actions his government is taking "to promote better transparency and competitiveness."

Devil in the Details

I have not seen the specific treaty terms, but our Panamanian sources say the agreement embodies Martinelli's strategy to avoid Panama being classified as a rogue nation or uncooperative tax haven by negotiating and signing bilateral information sharing double taxation agreements with like-minded nations.

These observers say that while the United States government wants to force Panama to "open it's books" in what the U.S. calls "information sharing," in fact the U.S. doesn't have any information Panama wants.

Territorial Taxes

Panama has a sensible "territorial tax system" which does not tax earnings outside its borders, so it does not need to know what Panamanians or foreign nationals earn elsewhere. Thus all information would flow one way, from Panama to the United States, negating the country's financial privacy laws.

Panama is one of many sovereign nations that share the view that the OECD and the United States have no right to twist their arms or force them to provide information on domestic corporations, trusts, family foundations and bank accounts, even if they are held by foreign nationals.

Traditional and Limited

What Panama and Mexico signed, (and what Panama is negotiating with other countries), are traditional bilateral agreements to avoid "double taxation" on an individual's offshore income -- and that does not include tax information exchange beyond what is required to avoid that double taxation.

Meanwhile Panama can and does point to and proclaim that the country is being responsible internationally by signing such traditionaly limited treaties.

 
SPECIAL PANAMA NOTICE

* I invite you to join me, April 17-20th, at the Intercontinental Playa Bonita at Kobbe Beach, Panama (see above) for International Living’s 2010 Live & Invest in Panama Seminar, April 18-20. Click here for information. Prior to the seminar there will be a Panama Profit Expedition real estate tour, April 9-16th. Check out tour details here.

Solution to Airport Security

As I have suggested to you before, one of the best places on the Internet to find out about Panama is the Panama Investor’s Bog authored by Sam Taliaferro, a leading American expat who lives and works in beautiful Boquete, Chiriqui province, on the western border with Costa Rica.

You can obtain your free subscription to Sam's Panama Investors Blog by clicking here.

Since this is a "casual Friday" and my daughter Victoria is visiting I'll take the easy way out and share one of Sam's recent dispatches with you, including his choice of illustrations.

 

 

Solution to Airport Security

After reading a number of stories about the new onerous air travel security measures being implemented   by the U.S. and other governments after this weeks attempt to bring down a plane, I have come up with a perfect low tech solution to the security issue. Just clamp everyone down to their seats. It would not be hard to quickly retrofit aircraft seats to clamp arms and legs such that movement is limited to squirming. For the most part airline seating is so restrictive that this would not be a big change.

Everyone should come to the plane with adult diapers on in the event they just can't hold it. You can still have TV and other entertainment on seat backs and have the channels changeable with passenger fingers. The flight attendants could charge a fee to scratch a passenger with a variably amount depending on the part of the body needing scratching and length of scratch time.

Flight attendants who feel verbally abused can just slap a complaining customer without fear of immediate retribution. No need for air marshals and really no need for any security checks or carry-on luggage. Only need to inspect checked baggage for explosives with timers or pressure sensors. Just think, no more humiliating removal of belts and shoes at the security check points.

With the money the airlines saves they can provide free drinks which can be dispensed through a straw coming from the seat in front. Of course this may add to the necessity for extra thick adult diapers which can be dispensed at airport check in for a fee. (Buy stock now in Depend and dump x-ray and metal detectors)

The beauty of this concept is that it requires no technology development or expensive and time consuming implementation. This can be operational in a few weeks at most. Passengers will readily comply as they know it is for their own safety and getting free drinks again will be nostalgic.

The Passport Book - 7th Edition

If you want you want to discover a new, freedom loving place in which to pitch your tent, deposit your cash or protect your assets, the seventh edition of my best-selling publication, The Passport Book, is now available. You can get your copy now. 

The Sovereign Society is a recognized voice in the complex offshore world.  Join the Sovereign Society and keep informed.

Obama, House Democrats Push Through Radical Plan to Curb Offshore Freedoms

The U.S. House of Representatives voted Wednesday to extend $31 billion in popular tax breaks allegedly to be financed with a tax increase on investment fund managers and, supposedly, with what one leftist congressman, Rep. Richard Neal, D-Mass., called "a crackdown on international tax cheats."

Six weeks after the bill's anti-offshore provisions were introduced as the "Foreign Account Tax Compliance Act" (without hearings or any chance for opponents to be heard), the legislation that I warned you about at the time, was passed by the House.

More Red Tape, Anti-American Reaction

The bill does not alter the fact that under U.S. law it is still legal to bank, invest and do business offshore. But it does add costly and cumbersome layers or new reporting requirements.

The greatest threat to offshore freedoms lies in the very real possibility that many more offshore banks and financial institutions will refuse to accept Americans as clients rather than submit to the highly unusual extension of U.S. laws to foreign financial businesses and advisors which in effect would force them to act as IRS spies.

Extremely Punitive

Under this extremely punitive bill, all foreign financial institutions, banks, foreign trusts, private foundations and foreign corporations could be forced into providing information about U.S. account holders, trust grantors, and American owners associated with these legal entities. As if they did not exist, the legislation totally ignores the current extensive reporting requirements of federal law that already apply to all such entities.

 
Wrapped in Popular Tax Cuts

The anti-offshore provisions were included in a bill that contains 45 tax deductions and credits for businesses and individuals that are scheduled to expire at year's end. The House voted 241-181 to extend them for a year, with only two Republicans voting in favor. The bill now goes to the Senate, which has rejected the tax increase on investment managers in the past.

Yesterday’s House action mirrors the House Democrat’s June 2008 sneaky legislative tactics when they included an onerous "exit tax " on Americans who expatriate as an alleged means to finance a veterans benefits bill.

The anti-offshore provisions were put into the bill allegedly to finance the cost of the continuing tax cuts. In what has to be viewed as pure fiction, the House bill sponsors claim it would raise an additional $7.7 billion from a crackdown on alleged offshore tax evasion by Americans, an issue President Obama has embraced with untruths and demagoguery, both in the White House and as a presidential candidate in 2008.

As it passed the House bill, H.R. 4213:

• Impose a 30% withholding tax on payments to foreign financial institutions and other entities unless they acknowledge the existence of offshore accounts to the IRS and disclose relevant information including account ownership, balances and amounts moving in and out of the accounts.
• Require individuals and entities to report offshore accounts with values of USD50,000 or more on their tax returns.
• Extend the statute of limitations to 6 years when offshore accounts are unreported or misreported (the current statute of limitations on tax audits is 3 years).
• Require advisors who help set up offshore accounts to disclose their activities or pay a penalty.
• Require electronic filing of information reports about withholding on transfers to foreign accounts to enable the IRS to better match reports to tax returns.
• Strengthen rules and penalties with regard to foreign trusts, including rules to determine whether distributions from foreign trusts are going to US beneficiaries and reporting requirements on US transfers to foreign trusts.
• Clarify the definition of outgoing US dividend payments that are received by foreign persons so they cannot be disguised as other types of distributions in an effort to avoid US taxes.

If you want to dig into the anti-offshore details of the bill, you find the text of the bill here and its technical description here. 

 

Offshore Reaction

As a result of numerous anti-offshore policies of the IRS and the Obama administration, as well as the UBS bank scandal, many Swiss and other offshore banks have closed existing accounts of Americans and have turned away new U.S. applicants. This bill may add to that number.

Switzerland's oldest bank, Bank Wegelin in Saint Gallen, was typical in not only confirming its "no Americans" policy, but in announcing it would not longer invest in American investments for itself or its clients.

Another Freedom Destroyed

One can only guess what may be the reaction of offshore bankers to the threat of a 30% tax to force release of client information that would clearly violate Swiss bank secrecy laws, as well as financial privacy laws in many other countries such as Panama, Austria, Singapore and Hong Kong.

If this bill becomes law, it may well block the ability of many Americans to bank offshore, simply because no offshore bank will put up with these unprecedented bullying tactics by the IRS. There are plenty of other people of wealth whose governments do not think they can impose their rule on the entire world.

Stay tuned for developments.

  You can learn all about "going offshore" and about legitimate and legal offshore financial centers in my just published 4th edition of Where to Stash Your Cash Legally: Offshore Financial Centers of the World. Find out how here.

The Sovereign Society is a recognized voice in the complex offshore world.  Join the Sovereign Society and keep informed.

Good News from Panama

I haven’t said much about developments in Panama recently, but one of the best English language sources for current news from the isthmus is Sam Taliaferro’s Panama Investor’s Blog that offers free subscriptions.

Echoing an established theme in the world press, (and here at the Sovereign Society), Panama again made Forbes magazine’s list of the World’s Best Retirement Havens. For those looking for quality of life and low cost of living, no place can beat Panama for retirement.

Martinelli In Action

Panamanian President Ricardo Martinelli (below) has been in office 6-months and he is managing Panama with, as one observers says "the same vision as when he ran the chain of supermarkets that made him one of the country's wealthiest men."

He really has cracked down on corruption and is pushing hard for business and tax reforms. His campaign proposal for a flat tax is to be taken up next year in the National Assembly.

He has also added to the $6 billion expansion of the Panama Canal, (he formerly headed the Canal Commission), many capital intensive public projects such as highway construction, a metro rail system for Panama City, and airport renovations.

Martinelli’s approval ratings are just about the highest in the western hemisphere at over 90%, compared with Barrack Obama's 53%, Hugo Chavez at 46%, and Argentina's Cristina Kirchner at 20%.

Leader in Latin American Growth

Panama is predicted to have the highest GDP growth (an average 6.1%) in Latin America in the five-year period starting in 2010, while Hugo Chavez socialistic Venezuela predictably will have the lowest, according to a Latin Business Chronicle analysis of new forecasts from the International Monetary Fund.

A perhaps more realistic assessment of Panama’s economy can be found in Eric Jackson’s Panama News, and the news is not all good in every sector.

Better Credit Rating

Panama’s debt rating was raised to "positive" by S&P, putting the country on the cusp of an investment-grade rating, as tax increases and faster economic growth help keep the budget deficit in check. This better rating easily allowed Panama to sell US$1 billion of bonds in 10-year notes, yielding 5.224% in overseas markets.

 
And over 17,000 new business corporations have been registered in Panama so far this year, continuing its status as second in the world (after Hong Kong) in total number of incorporations.

Cleaner Finances

Panama gets a bad (and false) rap from the American Left for supposed tax haven abuses, but according to the OECD’s highly demanding Financial Task Force (FATF), Panama is rated just behind the U.S. in compliance with international money laundering regulations. A November FATF report ranked Panama fourth in a list of 44 countries and jurisdictions participating in the evaluation, below only the U.S. Singapore and Belgium.

Meanwhile Banco General has been awarded the "Best Bank in Panama in 2009" status by the financial magazine Latin Finance.

No to Tax Information Exchange

In spite of all the progress, The Economist magazine still takes a dim view of Panama's financial industry. In an article last month they say there is an "unfinished job of cleaning up the country's financial reputation."

The magazine notes that Panama has refused to sign tax-information-exchange treaties. Panama rejects these agreements, arguing that they provide it with no benefit since it only taxes domestic income. Instead, president Martinelli, says he will sign treaties to eliminate double taxation, which both meet the OECD's information-sharing requirement and could attract foreign investment.

For some excellent material on Panama and the OECD, see senior attorney Eduardo Morgan’s views on the hypocrisy of the major nations on tax abuses. Morgan, of the law firm of Morgan and Morgan, has been at the forefront of the battle with the OECD and its attack on Panama as a financial center.

Real Estate

The several year long real estate boom in Panama is slowing, but, as one observers says "given the maturing economic growth engines and massive infrastructure development that is underway, the country is clearly on an upward trajectory. Martinelli's actions are keeping Panama on the right track, and I believe the country will remain a safe long-term bet for investors and residents..."

At a time when countries everywhere are hurting because of government stupidity, Panama is an international stand out, both economically andspolitically. With some satisfaction, after more than 10 years, we can say: "We told you so!"

You can read all about Panama and other legitimate and legal offshore financial centers in my just published 4th edition of Where to Stash Your Cash Legally: Offshore Financial Centers of the World. Find out how here.

The Sovereign Society is a recognized voice in the complex offshore world.  Join the Sovereign Society and keep informed.

Offshore Freedom

Cabo San Lucas, Baja California Sur, Mexico: That's from whence I am reporting today, the second day of the four day Sovereign Society Offshore Advantage Seminar at the Westin Resort & Spa (below).

Located at the southern very tip of Mexico's Baja Peninsula, our resort hotel enjoys a dramatic site at Land's End, high above where the Sea of Cortes meets the Pacific Ocean. Looking out over the blue-green ocean in the late afternoon we have seen huge whales leisurely swimming along with schools of dolphins as escorts. Deep sea fishing is a major sport here. 

Los Cabos, as it is known, is unique in its impressive desert landscapes of pinks, reds and browns, its very dry climate, with endless cactus plants framed by cinnamon colored mountains, and bordered by miles of white sandy beach and clear, deep azure waters.

If I sound as if I am an impressed tourist, that's because I am. I have visited other Mexican resorts, Cancun, Puerto Vallarta and Acapulco, but Los Cabos exceeds them all in beauty and unspoiled grandeur.

So much for the location.

Here for Business

There are over four hundred people attending our seminar, including 330 attendees, plus professional speakers and staff. During four days the attendees learn from experts about every aspect of offshore activities -- banking, trusts, family foundations, foreign residence and second passports, investing, currencies and asset protection -- as well as how to comply with U.S. offshore tax and reporting laws.

While many of the attendees are U.S. persons, there are people here from as far away as Switzerland, Denmark, Germany, the Isle of Man, Panama, New Zealand, Australia, Hong Kong, Canada, Austria and many other nations.

Unusual Zeal

Professionals in attendance, attorneys, investment managers, bankers, foreign citizenship advisors -- all have remarked on the palpable air of concern and determination shown by all the attendees. I have seen and heard it in many conversations I have had.

These good people share my fear about what is happening to the United States -- Obama's march to socialized medicine, the ignoring of the Constitution by Congress and the executive, the piling up of trillions in deficit spending -- and these people are determined, for safety's sake, to place some of their assets offshore, if not themselves.

Unparalleled Concern

In the more than 10 years of the existence of the Sovereign Society I have never before seen people at our meetings as determined as these folks are to follow a course of action toward financial and personal safety -- and they mean to act now.

Yesterday the chairman of the Sovereign Society, Jack Pugsley, (left) and I both delivered addresses describing the perilous state of America and the world. Believe me the people here understand the threats to, not just their wealth, but more importantly, to their freedom and the futures of their children and grandchildren.

We made clear once again that we believe that…

• Individual liberty is a prerequisite to prosperity.
• Liberty exists when every individual has the right to keep, control and dispose of his or her justly-acquired property.
• Individuals and their assets are not the property of government.

You Can See & Hear It All

Now, in the past we've made audio recordings available for a fee. But this year, we're doing something completely different.
The management has decided to give you the valuable content of this seminar in Los Cabos FREE… not just for the 2009 Academy - but for every future event we hold.

I have summed up the details in this attached letter. Give it a look. That way, if you're interested, you can get a video/audio copy of all that occurs here at Los Cabos soon after the conclusion of the Offshore Advantage Academy.

A Transformed Panama

I always enjoy my Panama travels, and the few days I spent there last week was no different. It's always good to see old friends and make new ones, and to gage the progress and growth this leading tax haven is making.

It is also good to know that the government of Panama is now under control of a new president, Ricardo Martinelli, (left) and his conservative Alliance Party in the National Assembly.

One change since may last visit in October 2008 is the massive redevelopment of the Panama City waterfront along Avenida Balboa, the major thoroughfare that crosses Panama City from its busy city center to the Casco Viejo, the oldest quarter that dates back to 1519.

On the Waterfront

In a period of less than a year the entire waterfront, formerly home to the worst traffic jams in the city, has been widened and improved with parks, recreation areas and parking, as well as 12 lanes of traffic where once there were only four. This massive project is called the Cinta Costera (coastal beltway) and stretches for about an impressive mile and a half.

This project literally gives Panama City's impressive skyline, dotted with scores of high rises, a highly complimentary Pacific Ocean front parkland and promenade that frames the down town in a dramatic way.

Highway, Canal Expansion

Equally impressive is the completion of the new multi-lane transcontinental highway linking Panama City on the Pacific with Colon on the Atlantic. This modern highway, built in parts over the last several years, replaces the old, narrow, winding two-lane road that was marked by treacherous curves and many accidents.

Along with the Panama Railway, travel from sea to sea can now be accomplished in about an hour, depending on traffic and the weather. (Panama's tropical rain storms can be fierce).

The other major project underway is the modernization of the Panama Canal, the first major overhaul and expansion since the U.S. built waterway opened in 1912. This $5.25 billion project, scheduled to open in 2014, will add a wider third lane to the ocean-linking waterway, doubling its vessel capacity and allowing for the first time transits by the world's largest cargo-carrying vessels.

A Gash in the Earth

"Under leaden skies, mammoth yellow vehicles prowl an enormous gash in the earth. Excavators, bulldozers and loaders relentlessly carve the rippled black and brown ground, reshaping nature's handiwork." That’s how an excellent and informative article in USA Today began last week, describing the Canal project.

When it opened in 1914, the canal revolutionized sea transport. For ships steaming between California and the East Coast of the U.S.A., the canal, linking the Caribbean Sea to the north with the Pacific Ocean to the south, turned a 15,000-mile journey around the tip southern tip of South America at Cape Horn into a relatively swift, 6,000-mile transcontinental jaunt.

Well before that, during the California Gold Rush of 1849, thousands of Americans trekked across Panama 's jungles on their way to the hunt for gold.

American Built

"The creation of the Panama Canal was far more than a vast, unprecedented feat of engineering...Apart from wars, it represented the largest, most costly single effort ever before mounted anywhere on earth," historian David McCullough wrote in his magisterial account of the canal, The Path Between the Seas.

The U.S. exclusively operated the canal and the surrounding Canal Zone as its own colonial fiefdom until 1977, when it agreed to return the area to Panamanian sovereignty. On New Year's Day 2000, Panama finally assumed full responsibility for canal operations, amid widespread American doubts about the abilities of local officials.

Another Panama Boon?

A recent Business Week headline reads: "Retirement: Why Panama is the new Florida" and continues, "Panama's quality health care, low costs, and proximity to the states are attracting American professionals as a retirement haven."

According to a report by the Migration Policy Institute, the number of Panama visas issued to U.S. citizens began to rise dramatically after 2003, and an estimated 25,000 U.S. expatriates live here today.

See Panama for Yourself

During my visit to Panama I witnessed a new wave of immigrants arriving in Panama -- exiles from Hugo Chavez' socialized Venezuelan police state, and North Americans seeking an escape from the recession. Panama City's condo and apartment supply is in major surplus and real bargains are available.

If you are interested in living or investing in Panama our associate, Opportunity Travel, will conduct a "Panama Profit Expedition," November 28-December 5, 2009. More information on this extensive tour of Panama is available here.

** To learn about the many offshore opportunities offered by the Republic of Panama, my book, Panama Money Secrets, is a helpful guide.

** The Sovereign Society is a recognized voice in the complex offshore world. Join the Sovereign Society and keep informed.

Panama Prepares to Do Battle with OECD

PANAMA CITY, PANAMA. I am writing today from the Playa Bonita Resort on the banks of the Panama Canal, just outside Panama City where I am a speaker at International Living’s “Live and Invest in Panama” seminar.

It is only a coincidence that the big news here in today’s edition of LaPrensa is that the new conservative government of President Ricardo Martinelli (left)) has decided to take a strong stand against the anti-tax haven bullying of the Organization for Economic and Community Development (OECD).

No to the OECD

And Panama will not agree to the automatic exchange tax information demanded by the OECD and that group’s high tax, G-20 nations sponsors. Currently Panamalaw makes it a crime to release any financial information unless under court order and action by the new conservative dominated National Assembly would be necessary to change that law.

At a meeting yesterday of a special commission charged with developing the strategy for dealing with the OECD it was determined that Panama will hold firm to it's financial privacy laws only doing that which is beneficial for Panama.

That means Panama will be pleased to negotiate double taxation treaties that will benefit companies doing business in Panama, but the government refuses to go along with wide open tax information agreements demanded by the OECD.

Not a Tax Haven

Panama also has defined its national strategy which aims to remove the label of "tax haven" that has been hung by the Organization for Economic Cooperation and Development (OECD).

Part of their strategy is to re-emphasize that Panama is not a “tax haven” in that, while it does tax all income produced within its borders, it does not tax income earned outside its borders by those who are based within Panama. That more equitable “territorial tax” system contrasts with the highly unfair U.S tax system that requires all U.S. persons to pay taxes no matter where they live or earn income.

National Priorities

The High Level Commission for the Defense of Financial Services International together with the Cabinet Council approved a policy that is grounded "on the basis of national priorities," and not on political demands by other countries.
 
The official policy goes even further, and restates the government’s intention to apply the existing “law of retaliation” to countries that discriminate against Panama on the basis that it is a tax haven. This law allows sanctions and trade restrictions for those countries that discriminate against Panama. Countries mentioned were Spain, Mexico, Argentina, Peru, Ecuador and Venezuela.

Not content to stop there, Panama will also file complaints with the World Trade Organization (WTO) against nations that place Panama on phony "blacklists" and also raise the issue at the International Monetary Fund.

International Campaign

The Panama Chamber of Commerce has come out in support of this new initiative. According to its chairman, Adolfo Linares, it is a first step "properly and sustained" in order to deal with the unjust OECD attacks on Panama. Linares advised "very seriously" and selectively applying Panama’s law of retaliation.

From all appearances, a very independent Panama, home to one of the world’s essential commercial waterways, is not going to allow the OECD and its high tax backers to walk all over them.

This should be quite a fight. May the best tax haven win!

Which Way Panama & the OECD?

If you had read yesterday's editions of La Prensa, one of Panama's leading newspapers, you might have been shocked by this headline: "Panama yields to pressure concerning its lax banking laws."

The article stated: "Panama said it would make certain adjustments to its banking system recommended by the Organization for the Cooperation and the Economic Development (OECD) and the G-20 Summit leaders, which have often criticized the country for being a tax haven."

Who Is "We"?

As turns out, the "Panama" that was the source for this startling news was Vice Minister of Finance and the Economy, Frank DeLima (left).

He claimed that the new Martinelli administration intends to demonstrate that the country is not a tax haven. But he also was quoted as saying: "We are conscious that we must make changes in one way or another."  

While admitting that there is no officially decided policy yet, DeLima, speaking as "we," suggested that "the path that we could take would be to follow the route Switzerland has taken through the negotiation of bi-lateral treaties providing for a more transparent exchange of tax information."

A Radical Change?

If indeed Panama's conservative new president was about to scrap the nation's established financial privacy laws and start signing tax information exchange agreements (TIEAs), that would be major news, distressing in the extreme to many in the offshore financial world. (Panama has no TIEAs with any country, although the U.S. has tried for years to get them even to talk about one).

Sr. DeLima contended that Panama can no longer risk being blacklisted or subjected to sanctions, as France and the United Kingdom have threatened. He also said that unnamed banks in Panama had consented to change their way of doing business.

Suspect Source

This is the same Frank DeLima who told Bloomberg News several weeks ago that then president-elect Ricardo Martinelli (left)  "...will refuse to give in to pressure from the U.S. to change the country's banking secrecy laws because Panama's economy would be hurt by scrapping laws keeping bank account information secret from other governments."

Strong Reactions

I have in the past commented on Sr. DeLima's proclivity for making sweeping policy statements that seem to vary widely from  expected Martinelli administration policies, based on the president's own pronounced free market conservatism.

The strong reactions to DeLima's statements came fast and furious.

One of Panama's senior attorneys, Edward Morgan, said that while he did not oppose international agreements to avoid double taxation, allowing exchange of tax information would be a mistake.

Emphasizing the importance of Panama's offshore financial sector he said: "It would be absurd and unworthy to sign a tax information exchange agreement that would have only one way benefit in which Panama gets nothing but loses a lot."

Chamber of Commerce President Aldolfo Linares, (left) said Panama should resist pressure to agree with the OECD to exchange tax information, that this would harm Panama's financial services industry.

Linares said that the government must send a "clear and convincing" message to the OECD that it will resist efforts to force it to comply with its demands and that Panama should also resist pressure from the United States which is seeking abolition of Panama's financial privacy laws as a condition to approving the pending U.S.-Panama free trade agreement.

The Minister Has Other Ideas

Our sources in Panama questioned seriously whether DeLima was speaking for anyone other then himself.

Within hours DeLima's boss, Alberto Vallarino Clement, (left) Minister for Finance and Economy, and a banker himself, was on national TV news denying that any "appease OECD policies" had been adopted by the new government.

Vallarino, one of the most conservative Martinelli cabinet members and a member of the rightist Panamanista Party, said creation of a commission to study the matter of changes in Panama's financial laws was likely, but that deliberation was needed before any changes would even be considered.

Currently Panama law makes it a crime to release any financial information unless under court order and action by a conservative dominated National Assembly would be necessary to change that law.

Both Vallarino and DeLima had been considered by President Martinelli to head this ministry and it appears DeLima has forgotten who is in charge.

Canal Billions Involved

Our Panama sources say that they don't expect any immediate changes in Panama's banking and financial secrecy laws, nor any TIEA signings. They point out that pressures from the OECD and its member countries may be tempered by a Panama law that bars countries that discriminates against Panama as a tax haven from participating in the lucrative contracts for expanding the Panama Canal.

A few days ago a consortium of companies, Grupo Unidos por el Canal, from Spain, Italy and the Netherlands won a $3.12 billion contract to build new locks for the Panama Canal. Another $2 billion more in contacts are pending bids.

Anti-Panama Attacks to Continue

There is no doubt that the tax hungry socialist governments including Mr. Obama's crowd, along with their puppets at the OECD, will continue to try to destroy Panama's financial privacy laws. If Switzerland can be made a major OECD target, no country can be considered safe.

These leftists are well aware of the historic reasons for Panama's enviable tax haven standing: 1) a territorial tax system that levies only on earnings within the country;  2) constantly modernized asset protection laws, dating from the 1920s; 3) an array of useful statutory legal entities (trusts, corporations, private foundations); 4) a host of qualified offshore professionals and bankers; and 5) some of the strongest financial privacy laws anywhere -- plus no tax information exchange treaties (TIEAs) with any other nation.

El Presidente Knows

These are the pillars of Panama's offshore establishment that are under attack.

President Ricardo Martinelli, president and founder of one of Panama's major banks, knows this better than most. It will be he, and not junior ministers, who make the decisions that will determine policies and Panama's future standing as one of the world leading tax havens.

I'll be in Panama next month and I'll be able to give you first hand reports on this leading tax haven and the new Martinelli government.

** To learn about the many offshore opportunities offered by the Republic of Panama, my book, Panama Money Secrets, is a helpful guide.

** The Sovereign Society is a recognized voice in the complex offshore world. Join the Sovereign Society and keep informed.

Panama Goes Slow on Tax Haven Status

Just as soon as Panama elected its new president, conservative businessman, Ricardo Martinelli, (left) one month ago, rumors started circulating.

The word was there was a deal that outgoing President Martin Torrijos and his defeated Revolutionary Democratic Party (PRD) majority in Congress might push through a tax information agreement with the United States before their terms end on July 1.

That rumor was reinforced on May 21st at a U.S. Senate Finance Committee hearing on the pending free trade agreement (FTA) between the United States and Panama. The Los Angeles Times reported that a White House negotiating team had visited Panama "...and successfully extracted concessions from the Panamanians on those issues, according to people familiar with the talks."

Everett Eissenstat, (left) Obama's assistant U.S. trade representative for Western Hemisphere affairs, emphasized that his office had been working closely with representatives of both Torrijos and Martinelli, and had made "great progress" on tax and labor issues. Eissenstat claimed that Torrijos's government had made "important commitments" and had accepted the "principles of transparency and exchange of tax information."

Our Sources Say "No"- Reuters Agrees

After checking with my Panama sources, I told you then that such a deal "appears highly unlikely." Now it looks as though those sources were right.

Reuters reported today (June 1), "Panama's ruling party is unlikely to pass tighter tax legislation seen as key for the signing of a U.S. free trade deal before President Martin Torrijos steps down on July 1."

Lawmakers from the ruling PRD, which controls the legislature until June 30, told Reuters, there were no plans to pass laws any time soon to repeal Panama's long standing laws guaranteeing strict financial privacy and bank secrecy.

Joint Statement

Concern about a last minute sellout to Washington by lame duck Torrijos (left) stirred instant opposition from professional associations. They warned the PRD government against making any hasty "...deals that affect the financial system and international services offered by Panama."

On May 25, Panama's most powerful business and professional associations told Torrijos, "...by no means can we accept that Panama be threaten with "retaliatory actions" to the detriment of its national economic interests, if it does not toe the line drawn by a given group of nations acting to protect their own interests."

The signers included the Banking Association of Panama, the Chamber of Commerce, Industries and Agriculture, the International Lawyers Association, the Maritime Law Association and the Association of Business Executives.

U.S. Unions Opposed

American labor unions and their U.S. congressional supporters had opposed the FTA, coming up with one excuse after another for defeating it. After the G-20 London meeting, the opponents started attacking the FTA on the grounds that (Horrors!) Panama is a secretive tax haven.

The White House itself was said to want the treaty. After all, how does one impose OECD sanctions on a country that can retaliate by closing down the Panama Canal?

Yankee Go Home -- Again!

These Washington pressure tactics have revived some of Panama's latent anti-Yankee passions, mostly still since the Canal was turned over to Panama by the U.S. in 2000. Now there is a visible opposition to bowing to U.S. demands on tax haven policy as a condition of trade treaty ratification.

"It is a struggle for the defense of the pillars of the Panamanian economy," the daily La Prensa said in an article on Friday. It quoted a former superintendent of Panama's bank regulator, Delia Cardenas, calling international pressure to change bank secrecy laws a "conspiracy."

Too Late Now

Most analysts believe the window of opportunity for passing tougher tax and transparency laws has already closed. Domingo Latorraca, a former vice minister of economy, noted such laws would be fiercely opposed by a small but powerful elite. "Martin Torrijos, politically, is already an ex-president," said veteran political commentator Edwin Cabrera.

Reuters concluded its report on this note: "As the global slowdown hurts government coffers, nations like Panama have come under international pressure to get themselves off the Organization for Economic Co-operation and Development's 'gray list' of perceived tax havens. Martinelli is widely expected to negotiate a tax information exchange agreement with the United States. 'Sooner or later Panama is going to have to do it anyway,' said Frank De Lima, who will be Martinelli's vice minister of economy."

Martinelli Knows

No doubt diplomacy and momentary Washington-Panama politics require statements such as Sr. De Lima made, but Ricardo Martinelli, one the richest men in Panama, is also a founder and director Global Bank, (headquarters left) the third largest in terms of assets among all Panamanian banks.

If anyone understands the tremendous value of Panama's financial privacy and other tax haven laws, it's Panama new president.

** The Sovereign Society is a recognized voice in the complex offshore world. Join the Sovereign Society and keep informed.

Rumors Fly in Washington and Panama

As the holiday weekend neared last week you probably didn't notice that on May 21st the U.S. Senate Finance Committee held a hearing on the pending free trade agreement (FTA) between the United States and the Republic of Panama.

Some confusion preceded the hearing, with U.S. labor leaders and radical anti-tax heaven Senator Carl Levin (D-MI) (left) calling for defeat of the Panama FTA, while U.S. business and agricultural groups issued statements of support.

As it turns out, even though he was a frequent critic of NAFTA and other trade pacts when he was preaching "change" on the 2008 campaign trail, President Obama, the Candidate of Change, has once again changed his mind.

Obama is now throwing his support behind the trade deal with Panama, courting a potential backlash from his labor union supporters. Obama now apparently views the Panama FTA as a strategic imperative.

The Panama pact has been bogged down in the Democrat-controlled Senate over hyped up concerns about Panama's alleged poor enforcement of labor rights and its well earned reputation as a leading offshore tax haven.

Panama a Major Latin Player

With the Panama Canal undergoing a major $6 billion expansion, its strategic location and importance and booming U.S. tourism and trade, Panama has taken on an important profile, said one person familiar with the Obama administration's thinking.

Panama is also a staunch ally in the U.S. war on drugs, U.S. counter-narcotics officials say. "If we alienate this country, it does matter," said the person. "For them, the free trade agreement is a sign of friendship."

One Washington source predicts: "The Panama deal, the smallest and least controversial treaty, will pass by July. Congress still wants some answers about Panama's tax and bank secrecy laws. But in the end, it'll approve the pact, opening up trade and investment opportunities tied to the expansion of the Panama Canal."

The irony of U.S. labor opposition is that the benefits of the Panama FTA largely go to the U.S. and will help create American jobs.

Panama exported $377 million to the United States last year and 96% of the goods from Panama already enter the U.S. duty free under existing trade preferences. By contrast, Panama currently applies tariffs ranging from 8% to 15% on most manufactured goods, with rates in the high double and even triple digits for U.S. agricultural products. Panama also bans the import of re-manufactured goods. That’s a potentially lucrative market for U.S. industrial and consumer exports, including cell phones, computers and earthmoving equipment.

Secret Concessions?

There may be a hidden reason for Obama's abrupt change of direction. The Los Angeles Times reported that last week a White House negotiating team visited Panama "...and successfully extracted concessions from the Panamanians on those issues, according to people familiar with the talks."

As I wrote on May 7th, after Panama elected its new president, conservative businessman Ricardo Martinelli (left): "A Panama City rumor has it that outgoing President Martin Torrejos and his losing PRD majority in Congress might attempt to reach some tax information agreement with the U.S. before leaving office, but that appears highly unlikely."

At the time, a Panama news report stated: "There is concern in various professional associations about the possibility that the current government might yield to these pressures and complete deals that affect the financial system and international services offered by Panama."

Since then these groups have been emphatic in their opposition to any quick agreement to change Panama's financial privacy laws that now make it a crime to reveal information unless done under court order.

Deal Now, or None Later  

At the May 21st Senate hearing, the Finance Committee chairman, Senator Max Baucus (D-MONT), (left) warned that it is doubtful that the new government of Panama's president-elect, Ricardo Martinelli, would make concessions to the United States in order to get approval of the FTA. He said that a deal with the outgoing president, Martín Torrijos, might be possible before he leaves the presidency on July 1st.

Martinelli has said that finalizing the trade pact with the United States will be a major goal once he is in office. He rejects accusations that Panama is a tax haven.

New Policy?

Shortly after the election on May 3rd, Frank De Lima, Martinelli's top economic adviser, told Reuters: "The perception that Panama is a tax haven is totally false," De Lima also said the new government will be open to sharing tax information with U.S. authorities.

That was hardly an encouraging sign for Panama's banking and offshore professional community for which banking secrecy is a major drawing card for business. Panama is a leader in the offshore financial world, and the leading banking center in Latin Americium south of Miami. Its financial privacy laws have played a major part in its success.

At the Senate hearing it also was claimed that the vice president-elect of Panama, Juan Carlos Varela (left), is already committed to support a treaty for the exchange of tax information demanded by both Washington and the Organization for Community and Economic Development (OECD), a claim my Panama sources seriously doubt.

Numbered Accounts & Bearer Shares

Representing the Obama administration, Everett Eissenstat, assistant U.S. trade representative for Western Hemisphere affairs, emphasized repeatedly that his office had been working closely with representatives of both Torrijos and Martinelli, and had made "great progress" on tax and labor issues.

  Eissenstat (left) claimed that Torrijos's government had made "important commitments, " saying they had accepted the "principles of transparency and exchange of tax information," will soon take steps to "deal with numbered accounts" and has appointed a commission to recommend how the Panama government can "immobilize bearer shares."

Apparently Eissenstat is ignorant of the fact that Panama has no "numbered accounts" and that Panama's anti-money laundering laws already require full "know your customer" identification of all bank account holders in Panama. My Panama sources tell me that most locals think that "bearer shares," (in which a change in corporate ownership can be achieved by transferring shares without revealing the identify of owners), probably have outlived their day.

Sharp Torrijos Response to OECD

In a letter to the OECD after the London G-20 meeting at which Panama arbitrarily, (along with Switzerland and a number of other respected offshore financial centers), was placed on a less than black list (the Grey List), President Martin Torrijos' (left)Minister of Commerce and Industry, made clear that his government would only go so far in exchanging tax information.

She condemned the G-20 and the OECD for "...discriminatorily affecting the good name and competitiveness of the international [financial] services offered by the Republic of Panama and that are the backbone of our economy."

The minister laid down these pre-conditions under which Panama only would exchange tax information: "1) The privacy of persons will continue to be protected and guaranteed against undue interference. 2) There shall be no automatic exchange of information. 3) There shall be no undue triangulation of information furnished among nations. 4) Any exchange of information shall be done based on individual requests supported by a specific and justified principle or law. 5) There shall be a reasonable transitional period with respect to any measure that must be implemented and that has an impact in the international services platform offered by the Republic of Panama, it being understood that the application of any measure shall occur at the same time as similar measures applied in each and every one of the states that are members or not of the OECD and that Panama considers to be competitors in the provision of international services."

Why Trust the U.S.?

As one long-time Panama offshore professional put it to me today: "After what the U.S. Department of Justice has done to the friendly government of Switzerland in the UBS bank case, why should any country trust a tax information exchange treaty with the United States?"

He was referring to the fact that U.S. prosecutors ignored the 1997 U.S.-Swiss tax treaty that provides liberally for tax information exchange in individual cases, instead demanding UBS release the names of an alleged 55,000 Americans who are said to have UBS accounts which the U.S. claims were used for tax evasion.

"That," my Panama friend said, "is the essence of a 'fishing expedition' which the treaty forbids."

He also doubted any tax information exchange deal could be finalized by the Torrijos government and the Obama administration before July 1st when Martinelli takes office.

Such a deal would require extensive legislative revision of Panama's financial privacy and bank secrecy laws, the Congress is not in session, and the new Martinelli-dominated congress takes office in five weeks.

Watch this space for further developments.

** To learn about the many current offshore opportunities offered by the Republic of Panama, my best-selling book, Where To Stash Your Cash: Tax Havens of the World, explains all. For greater detail, Panama Money Secrets, which I also wrote, is a good bet.

** The Sovereign Society is a recognized voice in the complex offshore world. Join the Sovereign Society and keep informed.