Bearer shares in Panama

Until last year, companies in Panamá could issue bearer shares, i.e., shares are held by the person whose name is on the share certificate and no record of such information is recorded thus hiding the identification of the person. The use of bearer shares in effect caused Panama to enter into the gray list of countries proving that they lacked control regarding compliance and prevention against money laundering of the Financial Action Task Force (“FATF”). Based on the need to get out of said list and demonstrate its greatest interest on improving the financial transparency within its jurisdiction, on August 06, 2013, Panama enacted Law 47 that modified the bearer shares regime. In this new regime every owner of bearer shares must designate an authorized custodian to maintain the certificates of such shares in custody.

According to the mentioned law, the terms for this disposition to enter into force, as well as the delivery of the certificates and the information related to them were set as follows:

• Law 47 will enter into force 2 years after its enactment, i.e., August 2015.
• Certificates issued before the law enters into force, i.e., the certificates issued before 2015 had to be delivered in custody, together with an affidavit evidencing all information related to the owner of the shares and with the company issuing them, in a term of three years after the law enters into force in year 2018.
• The certificates issued after the law enters into force, had to be delivered to the Authorized Custodian, together with the affidavit in a term of twenty days, beginning on the approval of the issuance of the bearer shares.

Likewise, in accordance with Law 47, the Authorized Custodians may be local or foreigners. In this sense, the Authorized Local Custodians may be banks with a general license and trustees, brokerage firms and central securities depositaries established in the Republic of Panama and regulated by the Banking Supervisory Authority of Panama and the Stock Market Supervisory Authority of Panama, respectively; as well as lawyers who are registered in the record for the custody of bearer shares certificates of the Fourth Chamber of General Affairs of the Supreme Court of Justice. On the other hand, the Authorized Foreign Custodians may be banks, trustees and financial intermediaries with license to exercise their activities in countries members of the FATF or its associated members that are registered in the Banking Supervisory Authority of Panama.

Now, regardless of the enactment of Law 47, Panama kept on having strong international pressure in order to improve its financial transparency regime to be removed from the gray list of FATF.

On April 23, 2015, it enacted Law 18, where the terms established in Law 47 were amended as follows:

• The entering into force of the law was moved forward to May 04, 2015.
• The certificates issued before the entry into force of the law had until December 31, 2015 to be replaced for certificates of registered shares or to be deposited in custody. After December 31, 2015, the bylaws would be amended by force of law, prohibiting the issuance of bearer shares, except for the cases where the board of directors or the shareholders meeting have approved the adoption of the immobilization of shares regime and said approval has been registered in the Public Registry of Panama.
• The certificates issued after the entering into force of the law, had to be delivered in custody in a period of twenty days starting from the approval of the issuance of the bearer shares. This obligation became enforceable starting August 04, 2015.

In addition to the commented reforms, Panama enacted a law to prevent money laundering, the financing of terrorism and the proliferation of massive destruction arms, all this in order to follow the policies of FATF.

Such efforts from Panama to achieve financial transparency that can be compared to international standards caused the plenary Session of FATF held by the end of 2015 to acknowledge its compliance and to approve a site visit in January 2016. The result of said visit was that Panama was finally excluded from the gray list in February 2016.

Image: Unsplash – Stefan Kunze