Establishing a licensed Trust Company in Panama as explained below involves specific procedures.
History of Panama Trust Laws
The history of trust laws in Central and South America began with Colombia in 1923. Panama enacted its own trust law in 1923 called Law 9 of 1925. Since then, the trust law of Panama has been superseded.
Law 1 of 1984 created a new Panama Trust Law. This law remains current except for a new law enacted in 2017 which provides additional regulations as explained below.
Recent Panama Law Regulating Trustees
Law 21 of 2017 created a process for issuing regulations supervising trustees in Panama along with the trustee business practices. Basically, this law modified previous Fiscal Code Law 47 of 2013 which established a custodial regime for corporate bearer shares. In addition, this law modified Law 23 of 2015 which sought to prevent money laundering and regulated non-financial obligations of the parties.
Law 21 of 2017 specifically provides complete control upon the Superintendence of Banks to regulate and supervise trustees. It included licensed trustees and all others authorized to perform trust services. In addition, this law ensures the proper functions of the trustee business.
Summary of Panama Law 21 of 2017
This law specifies the types of activities carried on by trustees including:
- Setting up and managing trusts in the manner prescribed by the law.
- Managing escrow and bank accounts.
- Providing financial consultation services.
- Acting as the representative of partners or shareholders with voting rights at meetings and representing bondholders and holders of other securities.
- Participating or acting as an intermediary in the administration or constitution of corporate, foundation, and trustee entities.
- Acting as a custodian of shares, securities, or documents.
- Exercising other activities regarding trustee services and functions authorized by the Superintendance of Banking.
In addition, the following functions are required:
- Trustees are required to maintain separate accounting records for each trust and file an audited financial statement for every trust within three months at the end of each fiscal year.
- Trustees prohibited from filing for bankruptcy.
- Trustees prohibited from acting, performing operations, and contracting with a trust’s assets for the benefit of the trustee or any other person or entity associated with the same economic group.
- Trustees prohibited from including clauses which appoint the trustee by the beneficiary either directly or indirectly.
- The creation of a legal or natural person as an “adherent trustor” without being subscribed in the original trust agreement is prohibited.
- Trusts will affect third parties the moment the signatures of the trustee and trustor (or by proxy) is authenticated by a public notary. If a public deed creates the trust, it will affect third parties upon the date of the public deed. However, trusts created from real estate transactions take effect upon the date of registration with the Public Registry.
- Pursuant to Section 1 of Article 709 of the Fiscal Code, natural persons subject to income taxation have the right to make annual deductions of the interest paid by Trusts owning real estate and their lawful lending debts. However, the deductible amount cannot exceed $15,000.
- All false statements regarding provision 7 above amounts to a sanction with a fine 10 times the amount declared.
Requirements to Establish a Licensed Trust Company in Panama
Applicants, in order to establish a licensed trust company in Panama, must meet the following requirements:
- Obtain a fiduciary bond.
- Produce a sound business plan.
- Provide resumes for every senior management official and all shareholders. Include personal and business references, national police criminal background clearance, and evidence of qualifications and experience.
- Upon issuing of a license, audited financial accounts must be filed with the government on a regular basis. All books and records subject to inspections at any time.
- Any breach of client confidentiality by the trustee or trust company will be treated in the same manner as a bank including fines and incarceration.
Requirements for Licensing a Trust Company in Panama
Law 21 of 2017 set forth the following licensing requirements for a trust company:
A Trust license is granted to applicants who certify to the Superintendence of Banks that they possess the appropriate levels of professionalism, specialization, and technical, financial, legal, administrative and operating capacity to conduct the trust business. Banks applying for a trust license must demonstrate how trust funds will be separated from the bank’s other funds. (Article 13)
The application for a license as a trust company must be filed with the Superintendence of Banks thorough an attorney or law firm. All supporting documents verifying the requirements set forth in Article 13 must be attached to the application. (Article 14)
The procedures for approving the application include analysis of the submitted documents, investigation of the facts presented, and request for any additional information deemed necessary to verify the facts. Background checks of the applicants will also be conducted. (Article 15)
A public notice will be published containing the information in the trust license application in a newspaper of broad national circulation for three consecutive days. In addition, a copy of the notice will be posted in a public place visible to all who pass by at the Superintendence of Banks offices for three consecutive days. (Article 15)
Any objections raised against granting the license must be submitted in writing to the Superintendence of Banks along with all documents supporting the objection within 15 days from the last publication of the notice mentioned in Article 15. Superintendence of Banks will consider the reasons for dealing with the moral solvency and the economic capacity of the applicant. This includes the legal entity which will become the trust company and all individuals mentioned in the application including the directors, officers, and executives. The applicant will have the right to reply to the objections within 15 days of being notified by the Superintendence of Banks. The Superintendence of Banks has the discretion to choose not to issue a decision regarding the objections or opposition. In addition, the Superintendence of Banks has total discretion to award or deny the application by a written resolution after analyzing all the documents submitted by the applicant. (Article 16)
The Superintendence of Banks has 90 days from the time of submission of all documents to award or deny the trust license. If the Superintendence of Banks determines an extension of the 90 days is necessary for a better evaluation of the application, it will be allowed. In the event a corporate applicant is under organization, Superintendence of Banks will authorize its formation before a Notary Public and registration of the corporate documentation with the Public Registry and certification of the escrow account required by Article 27. Upon completion of these requirements, the license will be granted. (Article 17)
Trustees will maintain at all times an escrow account in the Republic of Panama in the amount of $250,000 Balboas (USD) in favor of the Superintendence of Banks as compensation for damages due to inadequate management. (Article 27)
The Panama government also translated this law into English and provides the translation at its website in a PDF format.
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