SURVIVE AND THRIVE IN THE AGE OF TURMOIL www.sovereignman.com Why Panama – yes, Panama – still works as a banking option OK. Let’s address the elephant in the room. Unless you’ve been living under a rock, you no doubt saw some of the breathless coverage of the Panama Papers scandal. It all started when hackers released millions of pages of documents belonging to Panama’s Mossack Fonseca law firm (a firm, I’ll note right here that we advised against using back in 2009 when I first started penning these missives). The gist of the scandal is that Mossack Fonseca helped establish asset protection structures for certain celebrities, politicians, and/or their close friends and relatives… offshore structures that, in at least some cases, could ostensibly be used to siphon off money belonging to taxpayers back home. So of course there would be scandal. And of course there are people who abuse offshore structures to hide ill-gotten gains. At the time of publication, our research is current. However, sometimes updates are inevitable. If you saved this report on your computer long ago, you may be reading an outdated version This link will take you to the latest report available. MARCH 24
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S U RV I V E A N D T H R I V E I N T H E AG E O F T U R M O I L
www.sovereignman.com
Why Panama – yes, Panama – still works as a banking option
OK. Let’s address the elephant in the room.
Unless you’ve been living under a rock, you no doubt saw some of the breathless coverage of the Panama Papers scandal.
It all started when hackers released millions of pages of documents belonging to Panama’s Mossack Fonseca law firm (a firm, I’ll note right here that we advised against using back in 2009 when I first started penning these missives).
The gist of the scandal is that Mossack Fonseca helped establish asset protection structures for certain celebrities, politicians, and/or their close friends and relatives… offshore structures that, in at least some cases, could ostensibly be used to siphon off money belonging to taxpayers back home.
So of course there would be scandal.
And of course there are people who abuse offshore structures to hide ill-gotten gains.
At the time of publication, our research is current. However, sometimes updates are inevitable. If you saved this report on your computer long ago, you may be reading an outdated version
This link will take you to the latest report available.MARCH 24
But it really gets my goat that this story has once again helped demonize the entire idea of asset protection structures.
The fact is, offshore structures help lubricate the world economy.
That’s why they’re legal.
Offshore structures offer a neutral venue which all parties — investors, recipients and non-government entities — can trust. If you’re investing money in a country like Myanmar, which is still the Wild West in terms of legal protection, you the investor are much better off if protected by the British commonwealth laws of the British Virgin Islands, for example.
That’s one reason why BVI structures are so popular around the world.
Or say an Australian investor and a Canadian investor use a Jersey structure to go in on a shoe factory in Vietnam. There’s a dispute between them. Happily, the structure falls under English common law, replete with very clear parameters that help the investment exit well.
Then there’s the tax benefit. But it’s not what the press thinks.
Investors in foreign projects often are taxed by both their home countries and by the recipient countries.
Offshore structures can help prevent multiple layers of taxation, which then helps keep the price of goods down.
Panama skyline at dusk
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Similarly, offshore solutions also help smooth out any kinks in supply chains, which these days snake around the globe. Again, this keeps down the price of goods.
And if your home country’s legal system allows professional ambulance chasers to frivolously help themselves to your wealth, offshore asset protection structures provide a legal, safe way to store some of your hard-earned wealth abroad.
It is our job here at Sovereign Man to provide you with the best options for your Plan B – lifestyle and investments opportunities around the globe, residencies in various countries, and, of course, options for protecting your wealth.
It is also our job to make sure we educate you on how to stay compliant while acting on our recommendations.
Following the law is the ONLY way we recommend doing things.
So know that it is perfectly legal and acceptable to minimize your taxes using the many legitimate means out there, so long as you stay compliant.
And as for the Panama Papers… I still advise you to steer clear of Mossack Fonseca.
Panama itself, however, is another story.
The scandal could have occurred in Switzerland, Hong Kong or even the US, which by the way is the biggest “offshore” destination out there.
There are more nefarious criminals and corrupt politicians ‘hiding’ wealth in the United States than everywhere else in the world combined.
So ‘Panama’ is not the root of the problem at all; I would argue that it’s still far too easy for corrupt bureaucrats to put taxpayer funds in their own pockets… but we’ll save that for another time.
As a jurisdiction, Panama still offers significant promise. If you’ve ever been there, at least within the last few years, you’ve seen how modern and civilized it became.
We recommend it for obtaining legal residency, and as a place to consider moving to or to retire.
And, as a place to bank, Panama might make sense for your Plan B as well.
Why bank in Panama?After having my team spend a significant amount of time crunching numbers on the entire Panamanian banking sector, I can affirm that Panama is a solid banking jurisdiction.
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Here are some of the major points:
• Panama’s economy is dollarized
Panama technically has its own currency – the balboa, which has been pegged to the US dollar at a 1:1 rate since Panamanian independence over a century ago.
But in reality, there is no such thing as a ‘balboa’. US dollar paper currency circulates in Panama as legal tender.
Obviously, there is a downside to this. Banking in Panama does not diversify your currency holdings in case Uncle Sam has a crisis.
We view this as problematic and do recommend currency diversification.
That said, there is a number of SMC readers who hold their savings in US dollars and need to continue doing so… yet they are still seeking the safety and protection of a well-capitalized foreign bank.
Should you find yourself in this category, Panama may tick the boxes for you.
• Panama is just a short flight away from North America
As with most other jurisdictions nowadays, banks in Panama require in-person presence of an applicant. This is part of the “KYC” (Know Your Customer) process.
Panama city
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The good news for North Americans is that Panama is much closer to home than most other banking jurisdiction that we have recommended in the past, where in-person presence is also typically required – e.g. Singapore or Hong Kong.
• Panamanian banks are safe
One of my Panamanian friends complained recently that when he applied for a mortgage at a local bank to buy his home in Panama City, the bank’s requirements were very stringent. He was asked a million different questions and had to fill out heaps of various forms, show multiple proofs of income, etc.
Getting a mortgage in Panama is not easy, even for a well-established person of means such as my friend.
But as a depositor, it’s music to my ears. I want to deposit my money at a bank that has incredibly high lending standards.
Panamanians don’t make it easy for you to get a loan or a mortgage. They choose the best people and companies to loan their depositor’s money to.
• The banking sector in Panama is profitable
The banking sector contributes 7.5% to the country’s GDP, and there are more than 70 billion dollars in deposits across all Panamanian banks (more than the entire GDP of the country).
Panama created the Superintendency of Banks in 1998 to keep the system robust. The Superintendency supervises the entire Panamanian banking sector and sets the minimum liquidity and capitalization requirements below which banks cannot fall.
The requirements are strict. And according to the latest data, capitalization and liquidity exceed the required minimums by a factor of two: liquidity over the entire sector is 23.2%, and
the capital adequacy ratio stands at exactly 10%. These are solid figures.
In fact, my team looked at the entire Panamanian banking sector’s liquidity data, stretching back ten years.
We found that even in 2008/2009, in the midst of global financial crises, the Panamanian banking system did not experience any significant declines in either liquidity or capital ratios.
This is important; you should always have clear visibility over the liquidity and solvency of your bank.
After all, as a depositor, you are essentially an unsecured creditor of your banker, so it’s imperative to know that they’re in a position to: (a) take good care of your funds, and (b) pay you back.
Bear in mind that there is no government-backed insurance protection in Panama. Again, I prefer to deal with a well-capitalized bank than a poorly capitalized bank that’s backed by an undercapitalized insurance fund.
In the event of a bank going under in Panama, the local bankruptcy code takes over.
Article 167 of Panamanian banking law, in fact, prioritizes customers with deposits of $10,000 or less as first in line to get paid.
This isn’t to say that holding significant funds is risky in Panama, but rather that the Panamanian banking system is actually skewed in favor of the little guy.
Additionally, we’ve analyzed various numbers across the Panamanian banking sector, such as liquidity and capitalization (as tracked by the Superintendency), plus non-performing loan ratios across the entire sector, loans overdue, etc. The numbers remain encouraging, and have been very stable over the last several years.
We will, of course, continue monitoring the Panamanian banking system and will update you should there be any changes.
Our Panama banking recommendationPanama has licensed dozens of banks. The following are, according to our strict requirements for liquidity and capital adequacy (among many other things), the best candidates for your money.
• Transparency • High CD yields• No/low account maintenance fees• English-speaking customer service
• High minimums (US$30,000)• In-person presence is required to
open an account
Multibank was established in 1990 in Panama, and since then has expanded to three more countries – Colombia, Peru and Costa Rica.
Panama is, without a doubt, Multibank’s primary focus.
It consists of two different divisions – Multibank Local and Multibank International.
The local Multibank division caters to clients who live in Panama, who have significant ties to the country (e.g. owning a property, owning an operating business there), or who already have applied for Panamanian residency.
However, if you don’t meet the “significant tie” requirement, then you can become a client of Multibank International.
The drawback to this is that Multibank International requires a much higher minimum deposit to open an account.
On a positive note, English proficiency among Multibank International’s staff is very good.
To open an account with them, you’ll need an opening balance of $30,000 for a personal account, or $50,000 for a corporate account. In addition, the monthly average balance should not fall below the above-mentioned amounts in order to avoid account administration fees.
In contrast, the minimums for Multibank Local are only $3,000 for both types of accounts.
Here are some of the reasons why I like Multibank:
• Multibank is liquid and well capitalized
Based on its 2015 audited financials, Multibank’s liquidity stands at 17.8%, and the bank is aiming to increase this to 25%. That’s a very strong number, and a great sign that the bank’s management actually cares about its liquidity.
Capital adequacy ratio is also a healthy 9.3%.
• Multibank is profitable and large… but not too big
With almost $4 billion in total assets, Multibank is definitely big enough to provide dedicated customer service and offer an adequate online platform.
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A few other banks that we looked into were just too small to recommend – customer service was not reliable, and finding an English-speaking representative was impossible.
Multibank has been constantly profitable. It earned more than 50 million dollars last year in net profits. (You do not want to entrust your savings to the bank that constantly loses money).
• They’ve been vetted by much larger banks
In 2013, DEG (German development bank), became a strategic partner of Multibank.
If you have not not heard of DEG, they’re part of the large, venerated German-based KfW group, which has been named “the safest bank in the world” more than once.
Now, I’ll make my own judgments for which banks I consider safe vs. unsafe. But it’s fair to say that KfW is an incredibly well-established, highly conservative bank that performed extensive due diligence on Multibank before partnering up.
This is a good sign that Multibank passed a peer review with flying colors.
• English proficiency (in Multibank International)
Even though I speak Spanish, whenever I called the bank, I deliberately requested to communicate in English, and was always able to talk to an English-speaking operator. Their website is easy to operate in English as well.
Multibank opens accounts denominated in several currencies, including US dollars, euros, Canadian dollars, British pounds, Japanese yen, Swiss francs, and even Mexican pesos.
So if you prefer to have the Swiss government as your counterparty, you may want to choose to open a CHF account instead.
In case of non-USD currency, the requirement to maintain an equivalent of USD $30,000 (or $50,000 for corporate accounts) will be applied.
Account minimums apply to EACH currency that you choose to use.
In addition, non-USD accounts come with limitations – you cannot use them to earn interest, and you will not get any card with them.
The list of available operating currencies may change without notice, so make sure you double-check the availability with the bank official if you want to hold anything besides the USD.
Panama city skyline
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• Reasonable Interest rates
Finally, interest rates Multibank pays on time deposits are — compared to most in the US — very good (applies to USD accounts only):
Term Interest
30 days 0.50%90 days 0.75%180 days 2.00%1 year 3.25%3 years 3.87%5 years 4.375%
Here you can find the most current list of Multibank International’s interest rates.
Even if you just leave your money sitting in the savings account, you will still earn 1% interest. Not bad, considering that so many banking systems in the developed world nowadays are starting to charge clients for the “privilege” of keeping money with them.
Here are some other fees and conditions to consider before applying for an account with Multibank:
• There is no fee unless your account falls below the minimum balance, in which case a $25 monthly charge applies.
• You will need to make some kind of transaction every three months (i.e. deposit, transfer, ATM withdrawal) to keep your account active. If your account has no activity for more than three months your account will be frozen, but a simple message or a call to the bank will reactivate it.
There is a no reactivation fee unless the account has remained inactive for seven months, in which case the quarterly fee is $30 for a personal account, and $50 for a corporate account.
• International wire fees are not exactly low – they start at $75. A $100,000 transfer out of your account should cost $105 to transact. International incoming wire fees are flat and cost around $35.
• Don’t bother opening a checking account with Multibank (cuenta corriente); it costs $250 a year just for the privilege of having a Panamanian checkbook.
Instead you can open a savings account (cuenta de ahorro), which comes with a debit card and has no maintenance fees subject to the account minimum. This is a much better way to go.
• ATM withdrawals are free within Panama, but expect a $6-$10 charge in other countries.
What do you get?I advise applying only for a savings account (cuenta de ahorro) unless for some reason you need to have a checkbook that works only in Panama.
With a savings account, you will get:
• Access to online banking
• Access to CDs. You can open a CD with a minimum of 10,000 USD (which is separate from the minimum you should maintain on your savings account).
• A debit card (Visa or MasterCard). You’ll need to apply for it separately.
• A credit card (Visa or MasterCard). 120% backing is required for the first three years of banking. You’ll need to apply for it separately.
In other words, if you want a card with a $10,000 line of credit, the bank will require you to maintain a $12,000 deposit for three years while you build a credit history with them.
This may strike you as inconvenient if you are a borrower, but as a depositor, it’s exactly what I want to see.
How to applyTo apply for an account, follow these steps:
1) Contact Lisseth Hall Graciani [[email protected] or +507 294-3500 (Ext. 2308/2307)] from Multibank International and inquire about the bank’s most recent account opening requirements.
2) Once all documents are gathered, email Lisseth their digital copies. If, for privacy reasons, you are more comfortable overnighting such documents to Panama, you may do that instead.
The list of required account opening documents for personal accounts will include copies of two different IDs, banking reference letters, as well as proof of income (tax returns, employment letters, etc.), among others. Lisseth will then forward the documents to the compliance department to make sure they are sufficient.
It usually takes 3-5 business days for the compliance department to go over your application.
3) Next, travel to Panama and meet with Lisseth to finish the process. One business day should be enough for this.
4) Receive your package by mail (delivery fee applies) or pick it up personally at the bank.
It usually takes 10 business days (personal) and 20 business days (corporate) for accounts to be opened.
There is a good chance that Multibank’s compliance department will ask WHY are you opening a bank account in Panama. It seemed to be a standard question during our vetting process.
The most readily accepted response was that I wanted CDs with higher interest rates.
Overall, Multibank should work well for stashing a portion of your savings away in a liquid, well-capitalized and profitable bank outside your home country… and at the same time obtaining one of the highest returns on your USD deposits that you can find nowadays.
As for corporate client accounts, Multibank International will consider most jurisdictions around the world, with some exceptions (such as the so-called “conflict countries” of the Arab world).
I definitely would not recommend Multibank for an operating international business with frequent transactions, due to bank’s high international wire fees. However, you may be able to negotiate individual discount rates.
Alternative banking optionsHere are two more recommendations for banks in Panama that work with foreigners (more specifically, with Americans, something that fewer and fewer global banks are willing to do these days... thank you, FATCA).
MMG BANK (the more flexible option)
Pros Cons• In-person presence is not required in
most cases• Relatively low account-opening
minimums ($10,000)• Great English-speaking customer service
• High account maintenance fees ($600 a year)• Association with a large Panamanian law
firm (Morgan and Morgan)
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MMG Bank’s liquidity of 25.2% is higher than the Panamanian banking sector’s average of 23.2%. Capital ratio is a healthy 9.3%.
MMG Bank was formed in 1996 as a part of the Morgan and Morgan group – a large law firm in Panama.
No matter the firm, I would view such association as a negative, considering the fall out after Panama Papers.
So this is definitely a risk. If, for example, Morgan and Morgan became the next target of Panama Papers investigations, it’s possible the fallout could extend to the firm’s bank.
Still, MMG Bank is an interesting option because their $10,000 minimum requirement is relatively low, and they will most likely satisfy their due diligence with just an interview over the telephone.
There is, however, a relatively high account maintenance fee of $600 per year.
That said, many of us happily pay $50 a month for a self-storage to keep bunch of old junk tucked away… Savings is more important to safeguard than that old sofa.
I consider a fee of $50 a month for keeping your money safe to be money well spent.
Of course, it may make little sense for you to pay $600 a year to safeguard just $10,000. You’d be losing 6% of your money every year.
MMG Bank’s international wire fees are very reasonable – a $10,000 outbound wire will cost you $25, and sending $100,000 will cost $63. Incoming wire transfers cost a flat fee of $20.
Their most basic account is a “checking account” or “cuenta corriente,” all in USD.
Aside from access to MMG’s CDs (albeit with interest rates lower than at Multibank) and online banking, you will also get:
• a Clave Debit card (costs $20 a year to maintain)
Clave is a Panamanian system that can also be used worldwide for ATM withdrawals (in any ATM that is a part of Visa’s PLUS system). Please note that any international ATM withdrawal bears a charge of 2.5%.
For purchases, the Clave card can be used only in Panama.
• a prepaid credit card issued by the Swiss company Cornercard.
It is may be a good idea to skip this one, since the card costs an additional $300 annually to maintain, and still needs to be 100% backed by cash.
To open an account at MMG Bank, please email David Tuñón ([email protected]).
He can also be reached by phone: +507 265-7600 (Ext. 7005).
BANESCO (low minimum to open an account)
Pros Cons• Low minimums to open an account (just
US$500)• No/low account maintenance fees
• Zero English proficiency• Little experience working with North
American clients• In-person presence is required to open an
account
Banesco Panama is a prominent, popular Panamanian branch of a Venezuelan chain.
As you know, Venezuela’s economy is in dire straits.
The crisis didn’t unfold overnight. Every Venezuelan who had his plan B in place has long left the country in search of greener pastures. (We see many Venezuelan professionals in Chile.) If they haven’t left the country, they’ve at least moved their savings overseas.
A lot of this money ended up in Venezuelan banks in Panama.
Banesco is liquid and adequately capitalized. Liquidity stands at 21.1%. Capital ratio is 7%.
The list of standard benefits and requirements are very similar to those of Multibank, but with two major differences:
• Positive: the minimum deposit required to open an account in Banesco is only $500… and it is the main reason for presenting this option to you.
• Negative: since Banesco primarily works with Venezuelan clients, no one at the bank really speaks English. Their website is NOT available in English.
Therefore, if you decide to go ahead and open an account with Banesco, you’ll need to be able to speak Spanish.
Opening a bank account as part of the process for obtaining Panama residency Panama remains a great choice for those looking to plant a solid residency flag abroad. (See our previous Alert on Panama residency for reasons why, and for details on how to do it.)
If you decide to go through the residency process, note that opening a Panamanian bank account is compulsory; specifically, you must deposit at least $5,000 at a Panamanian bank in order to qualify for Friendly Nations Visa.
If you don’t already have a foreign residency set up, then going whole hog here will allow you to tick two boxes off your plan B checklist:
1) Obtain residency in a foreign country; and,
2) Open a foreign bank account.
I would strongly encourage you to open a bank account in a reputable bank such as Multibank. Sure, a higher initial deposit is required, but it is unlikely for Multibank to get involved in any type of scandal, which seem to happen periodically in Panama - especially with smaller local banks.
We’ve long recommended our trusted local legal contact, Julio Quijano from Quijano & Associates, for residency in Panama.
Julio’s team will be able to answer any questions you might have about obtaining Panamanian residency. Do not to hesitate to contact them at [email protected].
Banco Nacional de PanamáBanco Nacional de Panamá is the second largest bank when measured by total assets, and one of the only two state-owned banks in Panama.
The reason I decided to mention it here is that its liquidity ratio stands at very healthy 39.1%. This is well above average in both Panama and the rest of the world.
We do not cover Banco Nacional in detail because they work only with Panamanian residents.
However, if you decide to go for Panamanian residency, they’re a viable option.
