Panama must clean its image

PANAMA. An open letter from the U. S. association Public Citizen made a strong attack to the Free Trade Agreement between Panama and the United States.

It said that tax havens such as Panama came under intense scrutiny at the G-20 summit last week.

Focus on Panama's tax-haven and money-laundering problems intensified in March when U.S. Trade Representative Ron Kirk suggested at his confirmation hearing that the administration might consider bringing to Congress a controversial Bush-negotiated free trade agreement (FTA) with Panama.

The G-20 London Summit Communiqué committed "to take action against non-cooperative jurisdictions, including tax havens. We stand ready to deploy sanctions to protect our public finances and financial systems. The era of banking secrecy is over.”

Unfortunately, it would be predictable for Panamanian officials to attempt to sidestep the issue by imitating the recent announcements by the tax-haven nations of Andorra, Liechtenstein and Switzerland (ALS) that they will address certain tax and banking transparency concerns. Why would Panama, a country whose comparative advantage is providing a haven for foreign firms to avoid taxes, consider such an announcement? Because the plans that the other three secrecy jurisdictions rolled out are far from adequate, full of loopholes, and do not represent a meaningful way forward for them - or for Panama. Thus, Panama could try to quell the growing controversy without making serious changes to its excessive banking secrecy and policies that waive taxes for foreign firms.

Controversy about Panama's tax-haven practices was already heating up before the G-20 thanks to a recent New York Times story describing the attempts by bailed out insurance firm AIG to obtain repayment of $306 million in U.S. taxes related to activities of an AIG-affiliated Panamanian corporation, Starr International Company Inc (SICO).

AIG's US court filings include demands to retroactively deduct from its taxable U.S. income a stream of cash payments and shares of AIG stock paid as compensation to its employees by the Panama-registered corporation.

The OECD said on Tuesday that the four countries on a tax haven blacklist, published as part of agreements at last week's G20 summit, have committed to meeting international standards and will be removed from the list.