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The United States and Panama plan to create a new task force to fight money laundering and corruption. Here Panama City. (Photo: SERVTV)
Thursday, September 10, 2020

Latin America: The Money Laundering Challenge

Lack of proper training and regional cooperation weakens money laundering fight.

Inter-American Dialogue 

The United States and Panama agreed Aug. 14 to establish a new task force to fight money laundering and corruption. The task force will be comprised of Panamanian prosecutors, law enforcement and regulatory officials who will receive training from the U.S. Federal Bureau of Investigation, or FBI. What are the biggest obstacles authorities face in fighting money laundering in Panama and elsewhere in Latin America and the Caribbean? What are the biggest priorities for the joint U.S.-Panama task force? To what extent has the United States aided countries in the region in fighting money laundering and corruption, and should U.S. involvement be increased?

Aimeé Sentmat de Grimaldo, president of Banistmo in Panama City:  One of the biggest challenges authorities face in fighting money laundering in our countries is in developing adequate capabilities to understand complex money laundering networks, their operations and links to our countries and their financial systems.

The Panamanian economic model is open to foreign investment and revenue streams, which has been very favorable to its economic development and growth, but also poses challenges related to making the country and its financial system vulnerable to laundering illicit money and revenue streams placed and integrated abroad. To the extent this economic model is central to the country’s growth and development, and to the improvement of the well-being of its people, the task force should prioritize training and advisory efforts related to the country’s money laundering vulnerabilities that are closely linked to the distinctive aspects of the Panamanian economic model, as this would have a positive impact on its sustainability.

As for the aid and involvement of the United States in fighting money laundering and corruption, we believe international cooperation is a key feature for its effectiveness, and therefore should be sought, particularly with strategic and commercial partners, according to the Panamanian government’s international relations policy.

Alexandra Wrage, president and founder of TRACE International: This agreement between the United States and Panama reflects a broader commitment across U.S. agencies—including Justice, State and the Treasury—to provide training and to foster cross-border cooperation in the fight against transnational financial crime and corruption.

Efforts to fight money laundering benefit from the exchange of best practices. For Latin America, a top priority is expanding enforcement capacity and expertise beyond the drug trade to include the proceeds of public corruption and tax evasion. As a shipping hub, Panama faces distinct challenges related to cash smuggling and the exploitation of free trade zones, while its business-friendly legal regime and confidentiality laws are susceptible to global abuse, as demonstrated by the Panama Papers revelations. At the same time, Latin American countries are generally less attractive as destinations for laundered money than major financial and real estate markets in the United States or the United Kingdom.

Developing and maintaining a robust understanding of the interplay of money laundering mechanisms— placement, layering and integration— across these diverse jurisdictions is crucial to sustaining an effective coordinated response. Multinational companies and law enforcement authorities should be alert to how democratic backsliding and the continued circulation of extraordinary levels of illicit wealth can alter the political and regulatory environments that are meant to inhibit financial crime. The United States and Latin America have a great deal to learn from one another about confronting the challenges of money laundering and corruption.

Alexandra M. Solórzano, international trade specialist at Winston & Strawn:  Ever since the Panama Papers scandal occurred, Panama has been taking an active role in the fight against money laundering. One of the biggest steps the government has taken is making public its corporate registry. Other steps taken include the criminalization of various money laundering related activities such as tax fraud. However, these steps are not enough to stop criminals from abusing the country’s financial systems.

Sadly, a large obstacle authorities face in Latin America is the lack of proper training in money laundering and criminal typologies. This challenge places authorities in a reactive position instead of in a proactive stance.

Another challenge is the lack of regional cooperation. While many countries have taken bold regulatory steps, the absence of proper communication channels and ongoing communication prevents countries from stopping a criminal before he is able to enter the financial system. With organized crime gaining a stronger foothold in the region, this new task force is a great first step. The training from the FBI will help lay the foundations for proper investigations and identify any potential gaps the system may have.

Nevertheless, the Latin American countries that are committed to maintaining strong, healthy and crime-free economies will need to work together and establish networks of cooperation with the least amount of red tape to ensure fast and efficient actions.

These networks should be independent from any politics and should have the clear objective of preventing, identifying and stopping any kind of criminally derived proceeds and actors from entering the system.

Republished with permission from the Inter-American Dialogue's biweekly Financial Services Advisor



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