The film The Laundromat, starring Meryl Streep, damaged Panama’s reputation by drawing inspiration from a real-life story: the global scandal that erupted a decade ago over offshore companies based in this Central American country used to launder money and evade taxes.
Shaking off the stigma of the “Panama Papers” is no easy task, acknowledges the government, which is celebrating the European Union’s (EU) decision to remove Panama from its list of “high-risk” countries for money laundering and terrorism financing as a victory. “That unfair image pinned on Panama” is beginning to be corrected, says Economy and Finance Minister Felipe Chapman, who asserts that Panama is “cooperative” in the fight against money laundering.
However, Panama remains on the EU’s tax haven list. According to Olga de Obaldía, executive director of the local chapter of the NGO Transparency International, the country “still faces major structural challenges” to prevent “money laundering linked to drug trafficking.”
Global Scandal
Panama has a territorial tax regime, where only income generated within the country is taxed, while foreign-sourced income is exempt.
This enables tax evasion since an offshore company registered in Panama and connected to a business and a bank account elsewhere can hide funds without declaring them anywhere.
After the “Panama Papers” scandal in 2016, the Financial Action Task Force (FATF), an intergovernmental body, and the EU included Panama on their lists for money laundering and terrorism financing risks. Panamanian authorities reject the accusations and argue that their dollarized economy is based on legitimate sectors such as international trade, tourism, banking, and the Panama Canal.
Were Reforms Enough?
In response to the scandal, Panama reformed its laws and began sharing financial information with over 100 countries.
It criminalized tax evasion and implemented measures to trace accounting movements and identify the real beneficiaries of offshore companies.
This led to Panama being removed from the EU list this month. The FATF had already taken Panama off its list in 2023. The Panamanian government now expects increased investment and lower-cost foreign credit, as businesses and banks will no longer be penalized for operating in a blacklisted country.
“Getting off these discriminatory lists is very important for Panama,” said Luis Miguel Hincapié, who was vice foreign minister when the “Panama Papers” scandal broke. But De Obaldía warns that “although legal reforms have been adopted, implementation has been weak, with little accountability.”
Moreover, “Panama’s strategic location as a logistical and financial hub exposes it to cross-border risks, including money laundering linked to drug trafficking,” she adds.
Other Lists
To be removed from the EU’s tax haven list, Panama must change its laws to require companies to have offices and employees within its territory. “If Panama passes a law by September 2025 regulating this requirement, it could be removed from the list in the EU’s October 2025 review,” said tax consultant Luis Ocando.
The Organization for Economic Cooperation and Development (OECD) also includes Panama on a list for deficiencies in tax information exchange. Panama, which seeks to join the OECD, has asked the organization to reconsider its status. “Panama has little time left on these lists,” assures Ocando.
However, De Obaldía maintains that “lack of transparency,” “weak institutions for investigating and punishing financial crimes,” and “the persistence of the offshore model that enables illicit flows” remain ongoing issues.
