The Panama Free Trade Agreement Is a Gift to Tax Dodgers

On April 13, Panama’s National Assembly approved a new Tax Information Exchange Agreement (TIEA) with the United States, in an attempt to win approval of the Panama Free Trade Agreement in the U.S. Congress.

Panama has long been a key target of both the Organization for Economic Cooperation and Development (OECD) and the G7’s “Financial Action Task Force” for its resistance to international norms in combating tax evasion and money laundering. Concerns over these issues derailed White House attempts to secure passage of the FTA in 2009.

The new TIEA is a first step, but by no means resolves the issues surrounding the Panama FTA.  To begin with, the TIEA itself contains a gaping loophole.  It states flatly that the Panamanian government can refuse a tax information request “where the disclosure of the information requested would be contrary to the public policy” of Panama. Given that much of Panama’s economy is built around banking secrecy, this is a serious concern.  It frankly remains to be seen just how seriously the government will be about changing the nation’s role as a tax haven.

This is an important question to settle before the FTA is approved.  Panama is home to approximately 400,000 multinational subsidiaries, second in the world only to Hong Kong.  Each one of those companies would be grant new powers under the FTA’s investment provisions to challenge new Panamanian or American financial oversight measures adopted in the future.