Panama and the OECD

“We are very concerned with what’s happening in Panama, or to put it another way, what’s not happening.”

— Jeffrey Owens, director of the OECD Centre for Tax Policy and Administration

Earlier this month, a group of tax commissioners, finance ministers, and NGO representatives descended upon Los Cabos, Mexico for the 5th annual “Global Forum on Transparency and Exchange of Information” sponsored by our friends at the OECD.

You will likely recall that the OECD published its ‘black list’ and ‘gray list’ of non-compliant financial centers, coinciding with the G20 summit in London this past April.  Offending nations ranging from Uruguay to Switzerland immediately scrambled to have their names stricken from the list.

The OECD called this month’s forum in Mexico to make sure that remaining tax havens have either already stepped into line, or are breaking their necks to get there.

The primary regulation in question is the OECD’s controversial standard for information exchange, known as “Article 26.”  This is the standard which requires countries to exchange information with other nations for the purposes of tax reporting, regardless of domestic bank secrecy laws.

Austria, Belgium, Luxembourg, and Switzerland were the last of the OECD members to hold out on Article 26, but each has recently caved to pressure and acquiesced to violating their own laws for the sake of international tax information exchange.

With a united OECD standing against them, smaller countries who were holding out against Article 26 compliance have no remaining support, and you can be sure that each of them will fall into line: this is evidenced by the spate of “Tax Information Exchange Agreements” signed by smaller countries in the last month.

29 exchange agreements have been minted this month alone by countries like Gibraltar, San Marino, Andorra, Liechtenstein, Monaco, Aruba, Anguilla, and Nevis.  Conspicuously missing from the list?


In the introduction to this missive, I quote the venerable Mr. Owens as he responded to a reporter’s question in Mexico– why does Panama attract such little scrutiny since it has not signed any tax information exchange agreements?

Panama was placed on the OECD’s “gray list” in April as a “jurisdiction that has committed but not yet substantially implemented the internationally agreed tax standard.”  In order to be taken off the list, gray list jurisdictions must sign exchange agreements with at least 12 other jurisdictions.

Apparently Mr. Owens’ remarks lit a fire under the Martinelli administration in Panama; the country recently announced that it would begin sharing tax information and is close to inking deals with Spain and Mexico already.

You can expect deals with the United Kingdom, United States and Canada to be close behind.

So does this spell the end of Panama as a financial center?  No. Likely it means the survival of Panama as a financial center because noncompliance will threaten its financial infrastructure.

BNP Paribas, for example, which is one of France’s largest banks, recently announced that it would close all branches in non-compliant countries, including Panama.  Similar announcements by other banks will likely be forthcoming.

Consequently, if Panama does not want to lose the integrity of its financial center, compliance is a must.

The unfortunate reality of the global financial system is that traditional tax havens like Panama, Hong Kong, BVI were specifically designed to hide money; this veil of secrecy has now been ripped to shreds by the OECD, and privacy is no longer a reason to hold money offshore.

Governments are scrambling to become compliant, and sooner or later every bank in every jurisdiction will be coughing up depositor information to foreign tax authorities.

That’s the bad news.

The good news is that banking offshore still provides substantial benefits for consumers and their after-tax income, namely:

  • Many overseas banks are stronger, more liquid, and better capitalized than western banks, and they don’t depend on an insolvent organization to guarantee deposits
  • Overseas banking provides opportunities for currency diversification
  • When western countries begin imposing capital controls (we know they’re coming), your money will be safe in a foreign bank, allowing you to freely withdraw, transfer, and invest your capital as you see fit without asking permission from the government.

Despite the OECD’s actions, I still believe that banking overseas is a smart move for everyone… just be sure that you personally comply with your reporting obligations. US Citizens, for instance, must report overseas bank accounts to Uncle Sam every year, and if you received a penny of interest, it must be reported on your tax return.

About the author

James Hickman (aka Simon Black) is an international investor, entrepreneur, and founder of Sovereign Man. His free daily e-letter Notes from the Field is about using the experiences from his life and travels to help you achieve more freedom, make more money, keep more of it, and protect it all from bankrupt governments.

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