PANAMA CITY — PANAMA is rapidly recovering as an offshore banking center, but critics charge illegal activities are fueling the boom.
Panama's banking industry was virtually destroyed during the 1988-90 United States economic embargo against the Noriega regime. Since the US invasion two years ago, banks have once again prospered and deposits have jumped by 50 percent.
But some observers say that the increase stems largely from foreigners engaging in illegal activities: evasion of currency controls, cheating on taxes, or laundering drug money. Bankers strongly dispute the charge.
Miguel Antonio Bernal, a law professor at the University of Panama, remains skeptical of the bankers' protestations. "It's very hard for me to believe," says Mr. Bernal, "that bankers are going to say no to someone who appears in their office with $1 million and says he wants to make a deposit."
For many years prior to the US invasion, Panama had grown as a stable offshore banking center. With a population of only 2.5 million, bank deposits reached from $35 billion to $38 billion in 1986, according to Paulino Garcia, president of the Panamanian Banking Association. After the US imposed an economic embargo in 1988, the government of Panama froze all deposits for 18 months to prevent runs against the banks. That freeze "almost ruined the banking industry," says Mr. Garcia. The new government of Pr esident Guillermo Endara lifted the freeze four months after it came to power. Bank deposits jumped from $11.4 billion in December 1990 to $17.1 billion at the end of last year.
"Confidence is back," Garcia says. He says deposits in Panama's 105 banks come from the booming economies of countries such as Ecuador and Argentina, and from increased trade in the country's tax-free Colon Free Trade Zone. He agrees that some businessmen use Panama's banks to avoid taxes. "That's what offshore banking is for," he says, "not just tax evasion, but for legitimately not paying taxes."
But Garcia says that Panama has cracked down on drug-money laundering. A law enacted in 1990 requires all persons depositing $5,000 or more to sign a declaration that the bank must forward to the government. In addition, banks require proof of identity and banking references. Garcia points to the booming construction industry as a more likely outlet for laundered money because everyone from the architect to the hod carriers is paid in cash.
Panama's second vice president, Guillermo Ford, concurs with Garcia's overall assessment. He acknowledges that some foreign businessmen arrive in Colon with suitcases full of cash in order to evade their countries' currency-control laws. Panama's laws "are as tough" as those in the US, Mr. Ford says. A US government official in Panama City agrees that the Panamanians have been taking positive steps, but that stopping money laundering "is a very complex problem." Currently, the government fails to compile
and analyze the data from the currency deposit declaration forms. The official also suggests that Panama should establish controls on importation of cash across the border, such as the US law requiring registration of $10,000 or more.
The US has focused on trying to eliminate drug-money laundering and has quietly dropped efforts to fight tax evasion using Panamanian banks. In April 1991, the US and Panama signed the Mutual Legal Assistance Treaty (MLAT). The MLAT, which has not been ratified by the US Congress, covers only crimes illegal in both countries. And US tax evasion is not a crime in Panama.