Panama government finalizes changes to bearer share corporate regime

PANAMA CITY - Oct. 23, 2013 - PRLog -- The Panama Government printed a correction to Law 47 of 2013 in order for corporations to continue issuing bearer shares. The law adopts a custodial arrangement for shares issued to the bearer and the Government enacted it as legislation which seeks to preserve the image of Panama as country cooperating in the fight against the misuse of its financial services, and which puts the Nation up to date with trends in international law.

The Ministry of Finance pointed out previously in a press release that custody of the shares issued to the bearer will enable the Panamanian State to comply with the commitments made by previous administrations at the Global Forum on Transparency and exchange of information; also contributes to avoid the inclusion of Panama in discriminatory lists which may affect the competitiveness of the different sectors of the economy of the country.

However, according to a 2012 study by Australian university professor Jason Sharman before enactment of the law, "available evidence strongly suggests that Panama is significantly more compliant with international beneficial ownership standards than many OECD countries, especially the United States". At the time, 20 out of 34 OECD countries allowed bearer shares, and had not immobilised them, including important financial centers like the UK. This law - specially its provisions allowing foreign companies to serve as custodians - was deemed as detrimental to the financial center by the Panama Bar Association and the Panama chapter of the Inter-American Bar Association. Admiralty lawyers warned of competition by companies in other countries where bearer shares are still allowed without restrictions.

The new system does not change Law 32 of 1927, which regulates Panama corporation and is favored by investors worldwide. Instead, it requires that by 2016 bearer share certificates be held in custody by:

- a custodian authorized by the Superintendent of Banks,
- banks, trustees and securities clearinghouses authorized by their respective regulators,
- foreign banks and trustees from countries members of the Financial Action Task Force (FATF),
- attorneys subject to the control of the Fourth Chamber of General Affairs of the Supreme Court of Justice, in a special register.

A plan to allow resident agents to serve as custodians of the companies they incorporated was discarded in the approved version.

Custodians are still subject to privacy and confidentiality regulations in Panama laws and treaties. A breach by custodians of this duty of confidentiality can result in fines of up to US$12,500. However, fines of up to $5,000 may be imposed for non-compliance with other regulations of the law.

Alvaro Aguilar, partner of the Lombardi Aguilar Group (www.laglex.com) law firm, pointed out although the usefulness of bearer shares has decreased in international finance as most banks will not do business with issuers of said shares, a number of investors - even holders of registered shares - like the fact that Panama law allowed unrestricted bearer shares. "The compulsory immobilization of bearer shares creates a double standard when compared to other entities in other Organization of Economic Cooperation and Development (OECD) members states which allow bearer shares", said Aguilar when referring to Wyoming bearer scrip and England bearer warrants.

The law enters into force on August 6, 2015. Bearer shares issued by corporations already formed by the date of enactment of the law of must be handed over to a custodian by August 6, 2016. "Bearer shareholders should consult with their resident agents for options such as a deed of trust or alternative shareholding companies to preserve corporate control and their right to privacy under the new corporate regime", said Aguilar.

Mr. Aguilar is a graduate of Universidad Santa Maria la Antigua (LLB) and Washington College of Law at The American University (LLM) International Trade & Banking program. Previously he has been selected by the Central American business weekly Capital Financiero as one of the "40 under 40" acknowledging his achievements as a young legal professional. He specializes in corporation law and trust & estates matters.

About Lombardi Aguilar Group

Lombardi Aguilar Group is a partnership of consultants created as an alternative for clients worldwide who seek fast, innovative and effective solutions to their legal problems. The firm currently provides services to individual and corporate clients in Panama as well in the Americas, Europe and Asia. Its partners maintain a commitment with professional ethics and social responsibility by participating in the board of directors of groups such as the Panama Bar Association, the Alliance Francaise, the German and the American Chambers of Commerce (AMCHAM) of Panama, and the Association of Chinese-Panamanian Professionals (APROCHIPA).

The firm centers its law practice in private client services and asset protection (Private Interest Foundations, Trusts), business structures (Offshore Corporations), tax planning, real estate and e-commerce. It also advices in areas of Law such as Corporate, Commercial, Intellectual Property, Maritime, Tax, Environmental and Immigration Law as well as related litigation.

For more information, contact +507 340-6444, e-mail info (at) laglex.com, or see: Lombardi Aguilar Group http://www.laglawyers.com/