One of the things that I think speaks volumes to this idea is the consistent inflow of foreign investment capital. In another of my articles, I discuss the details of how and why foreign capital flows into Panama. I think an investment of $6.2B (US) by U.S. companies alone in 2007 is strong proof of credibility.

Mercer Multinational Consultants reported on quality of life and personal safety in 215 cities worldwide. Panama City, the national capital, was ranked 96th, which places it above all other Central American cities. Mercer created these ranking by analyzing social, political and economic environment, health, education and transportation factors for each city.

A major consideration in making the choice to do business in Panama is quality of life. Panama City is cosmopolitan and offers excellent living conditions. Office, commercial, industrial and housing spaces are available, as are skilled, multilingual employees. Panama City is 5th in Latin America behind San Juan, Montevideo, Buenos Aires and Santiago de Chile. Panama City is first in Central America, 12 places above San Jose, Costa Rica.

With an index of 91.4, Panama City is the third safest city in Latin America, only behind San Juan, Puerto Rico and Santo Domingo, Dominican Republic according to a report by International Scope.

With an 8% increase in GDP, Panama was the leader in economic growth in Latin America during 2008. Much of this due to the fact that Panama has a US dollar-based economy, low inflation and little foreign exchange risk, an absence of exchange controls, favorable and equal tax treatment of foreign and local citizens.

Panama has a stable Constitutional government with a keen understanding of its reliance on international trade. The Economic Freedom Index for 2009, a joint publication of The Heritage Foundation and the Wall Street Journal, ranked Panama 55th of 157 countries. Citizens and expatriates alike have freedom to make their own decisions for their benefit and for the benefit of their families.

You may argue that some of these are not indications of ‘credibility’ per se, but they are certainly evidence that something special is going on here in Panama; something worthy of international attention. Something worthy of your attention.

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One strategy that clients have been asking about a lot lately is the Panamanian Private Interest Foundation.  (For ease, we are just going to call it a Panama Foundation, if that’s ok with you).  You have probably searched websites and read articles about Panama Foundations.  The terms can be a little confusing.  Those articles are often written by internet marketers who have not studied Panamanian law, which is closer to the continental European legal systems, or by Panamanian lawyers, whose first language usually is not English, and who are unfamiliar with Anglo-American common law.  In both cases, something goes missing in the translation.

Many people don’t really understand the key difference between a Panama Foundation and the more familiar Anglo-American Trust.  While that lack of knowledge by others is probably a benefit for those of us using Panama Foundations, how can you decide to use something when you don’t properly understand what it does for you?  Recently, a client was interested in the possibility of using a Panama Foundation based on what he knew, but he wanted to make he understood exactly.  So, I set out to explain the Panama Foundation concept in plain English.
A brief answer to the question, “What are the key differences between a Panama Foundation and a Trust” is this: A Panama Foundation contains the best features of a trust, and the best features of an IBC or Offshore Company in a single legal entity, which can hold assets like bank accounts, stocks, bearer shares, and real estate, passively.  A Panama Foundation is based on the Liechtenstein Foundation or ‘Anstalt.’  The Anstalt form has been a preferred wealth and asset protection tool for continental Europeans over several generations, but it is neither well known nor understood in the Anglo-American common law countries.  Liechtenstein offers superb offshore secrecy and confidentiality, but these days, my opinion is that Panama offers even better safeguards.

As an asset protection and estate planning vehicle, a Panama Foundation is second to none.  Most of my clients who choose this vehicle want to create a legal structure that will reduce tax liabilities, and protect their hard-earned assets from lawsuits or claims.  Upon their demise, their estates pass to the chosen beneficiaries without unnecessary legal disputes or fees.

In most countries there are no reporting requirements.  Because US tax law doesn’t specifically recognize Panama Foundations, you can structure it to legally avoid IRS reporting requirements.  This ‘difficulty’ only applies to US taxpayers; other nations make it even easier.

Ironically, the best way to keep your assets safe in a Panama Foundation is by avoiding Panamanian banks!  By keeping accounts in another country, perhaps on another continent, you are protected by strict Panamanian secrecy laws, and the most powerful asset protection strategy on earth… ignorance.  What somebody doesn’t know, they can’t reveal. You can make sure that your Foundation is structured so there are absolutely no records held in Panama of what the assets are and where they are located.
Panama Foundations are attractive for Estate and Inheritance Planning, too. They offer a way to avoid probate on offshore holdings. They can be used inter vivos, replacing a living will.

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Because the desire for privacy and the desire to keep what they have rightfully earned IS the major motivating factor, we should really begin calling them “Privacy havens.”  People have worked hard, and played by the rules, their entire lives only to see the fruit of their labor threatened.  The best alternative people can see is to move their assets offshore to countries that still respect privacy and private property rights.

The Republic of Panama has long stood out as an offshore privacy haven and financial center.  The ability of non-residents to own bank accounts, Panama Corporations (IBCs), Private Interest Foundations and to use other privacy methods creates a business-friendly and investor-friendly environment.  Panama has never taxed non-resident income and Panamanian courts have a solid record with regard to respecting private property rights.

Panama is currently seeking to strengthen trade relations with the U.S. and there is speculation that Panama will be asked to become more transparent in its banking practices.  Global initiatives in the enforcement of banking transparency will likely mean that Panamanian banks will begin to co-operate in tax evasion investigations. Tax evasion through the ownership of non-declared bank accounts is rapidly becoming a thing of the past; anyone who tries this is likely to be caught, fined, and perhaps jailed.  I recommend that persons with undeclared bank accounts take immediate action to legitimize their situation.

Even if Panama does yield to some of these pressures, the culture of privacy that still allows anonymous corporations, controlled only by bearer shares, is not likely to vanish; the culture that welcomes foreign capital will not disappear.  Panama will still have a lot of attractive qualities in international tax planning and asset protection strategies.  In 1995, the Panama Private Interest Foundation was created in law, based on the European asset protection tradition of the Liechtenstein ‘Anstalt’ or Family Foundation.

With a little planning, you can utilize one of the greatest privacy strategies in existence – ignorance!  What someone does not know, they can not reveal.  The privacy elements in the law allow a Foundation to be structured such that no record about the client or beneficiary is held in Panama.  Even in the unlikely event that legal force such as a court order is rendered, the nominee director has no information of value. Keeping the Foundation, the assets, and the records in several different jurisdictions adds layers of privacy.  The topics of layering and jurisdiction shopping are complete discussions in themselves.

In summary:  We feel that even though the banking climate is changing, our clients will still be able to use Panamanian offshore investing and banking services as a means of legally protecting what is rightfully theirs well into the future.

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More than 100 American banks have been closed by regulators between 1 January and 15 October 2009; another 400 banks have bad assets in excess of net assets and are teetering. They have not been closed because the FDIC is woefully underfunded and can not ensure the deposits represented by these banks. Otherwise, they would be gone. Smart Americans are looking for a safe place to put their money, and quickly.

So it appears that the Mongolian banking system is going to see huge influx of American money seeking safe haven… But let’s take a look at Panamanian “luck” first. The banks in Panama have not suffered in this crisis for precisely the same reason that Mongolian Banks have not suffered, no exposure. No exposure to the greed that permeated the global banking system; no exposure to ridiculous Ponzi schemes; no exposure to borrowers who had absolutely no ability to make good; no exposure to borrowers who had no ‘skin’ in the game.

Understand that Panama has no central bank to act as a lender of last resort.  Since there is no one to “bail them out,” Panama banks are still conservative in their approach to business. They create only safe, well-collateralized, properly documented loans. The financially deadly concepts of subprime mortgages, 10% down, 5% down or even No Money down loans, and NINJA (No Income, No Job or Assets) loans are concepts that do not exist here. Panama banks still require a 25% down payment from Panamanian residents and 30% from non-residents. They simply have not created for themselves the same types of risks that are causing the global financial problems.

That’s not to say that these good outcomes were strictly the result of market action and corporate prudence. Panama’s National Banking Commission ensures depositor safety. Monthly audits detect problems before they get out of hand.  The NBC is empowered to deal with potential problems and to direct banks actions to remedy any situations. Banking superintendent, Olegario Barrelier, told Reuters “At the moment our banks are good, very good. They are healthy, they are liquid, capital is nearly double what is required. They are being financed by local deposits and are not dependent on external financial markets.” He said the global crisis would eventually slow Panama’s economy rather than create havoc in the financial system.

Panama uses the U.S. dollar; there are no exchange controls to prevent the ready flow of monies into or out of the country; there is a stable government; the Canal and the Colon Free Trade Zone encourage free trade. Panama has a top notch telecommunications system, an excellent legal framework that allows 100% foreign owned investments, and a strategic location with access to the entire western hemisphere.

Mongolia or Panama? Panama is obviously the correct choice.

And “luck” didn’t have a thing to do with it.

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