Due Diligence: A challenge for the real estate sector of the Republic of Panama
In part, real estate growth in Panama is due to the ease in the execution of real estate transactions. Regular practice by local promoters excluded any kind of prior inquiry or investigation of these transactions, placing their trust, in the best of cases, on local financial institutions for those requiring financing.
In recent years, we’ve seen international pressure mostly from the Financial Action Task Force (better known as FATF), who has pushed for strict measures worldwide to prevent the use of financial and service platforms for money laundering, terrorist financing and the financing of the proliferation of weapons of mass destruction.
Panama has joined this international effort and sanctioned Law 23 of April 27, 2015 (“Law 23”). Said law regulates due diligence measures on a risk based approach for all participants in the financial sector (Financial Institutions) and creates also the Superintendence for the Supervision and Regulation of Obligated Non-financial Persons (the “Superintendence”). Within such Obligated Non-financial Persons supervised by the Superintendence and regulated by Law 23, we find promoting companies, real estate agents, real estate brokers and construction companies, whether general or specialized contractors.
By Resolution No. JD-001-2015 of August 14, 2015, the Superintendence separated and regulated specifically agents of the real estate sector listed in Law 23. Said resolution restricts its application to promoting companies, real estate agents and brokers engaging the in purchase transactions on behalf of their customers.
Under Resolution No. JD-001-2015, each agent mentioned above must apply different due diligence measures in accordance with their duties and activities, to verify customer identity, nature of the transaction and source of funds to be used in the transaction. Pursuant to the risk based approach defined for each obligated non-financial person, a minimum basic due diligence applies to customers on whose behalf the purchase is made in the case of promoters, real estate agents and brokers; and in the case of contracting companies, at least a basic due diligence shall be applied to the promoting company with whom it has a business relation.
Due diligence measures in Law 23, from basic which include obtaining detailed and reasonably verified customer information, to strengthened for clients who according to the risk based approach may be high risk (for instance, a politically exposed person [PEP], citizens from high risk countries as per FAFT report, etc.), establish an obligation for each actor in the real estate and construction fields to comply with before entering into a business relation with the customer. Based on the foregoing, many warn of a slow-down in regulated services more particularly, those offered by obligated non-financial persons, which would substantially hold back Panamanian economy, and even foreign investment given the amount of red tape necessary to comply with the due diligence measures in Law 23 and regulations for the sector.
Notwithstanding the above, I feel optimistic and believe this is a great step for the economy; the due diligence filters established in Law 23 will correct or at least reduce the contamination margins from money laundering funds and assets of the financial and services systems in Panama. In other words, despite the initial trauma for the different sectors regulated by Law 23 in implementing the measures and reports for due diligence compliance established therein, we will adapt and continue doing business in a more transparent way to benefit us not just locally, with systems less contaminated with money laundering related transactions, but also internationally, by projecting a more serious image with better supervised systems.
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