Panama Enacts New Bearer Shares Law
On July 29, 2013, the Panamanian National Assembly enacted a law that “sets forth a custody regime applicable to bearer shares.” It requires that any and all owners of bearer shares must appoint an authorized custodian—banks and trust companies authorized to do business in Panama, brokerage houses or certain lawyers and law firms—who will maintain custody of the bearer certificates.
The implementation of this new law is likely to make trouble for those who seek to conceal their ownership of nominee entities formed in Panama, among other things.
Unfortunately, the law does not become effective until August 6, 2015, and after that date the owners of bearer shares will still have up to three years to deliver their shares to custodians, along with an affidavit providing basic information about the owner of the shares. In addition, any company that issues bearer shares after the effective date must deliver them to a custodian within 20 days.
Panamanian nominee corporations may have many purposes. Some are no doubt innocuous, but others are used by criminals to further their own ends. In recent years, Panamanian entities have frequently figured in the SEC filings of penny stock companies, usually in connection with beneficial owners and convertible debt holders. Often the penny stocks in question are subsequently promoted heavily. Thanks to the protection nominee corporations afford, the identities of these shareholders are untraceable.
When one of these stocks is promoted, volume sufficient to permit large quantities of stock to be dumped is generated. The debt holders and beneficial owners sell, often realizing enormous, and sometimes illegal, profits. The shares they own in these companies are not, of course, bearer shares; they are ordinary common stock issued by the penny companies in question. Bearer stocks and bonds—technically equivalent to cash—were outlawed in the United States in 1980. However, these people are able to conceal their ownership by selling through the nominee companies they control through Panamanian bearer stock.
Once the law goes into effect, holders of Panamanian bearer shares will need to provide to the chosen custodian the full name, nationality or country of incorporation, ID card or valid passport number or incorporation data, physical address, telephone number and email address or facsimile number of the owners of the bearer shares whose certificates they will hold in custody.
These new procedures should be of great help to law enforcement and financial regulatory agencies worldwide. Panama’s days as a convenient refuge for crooks may be drawing to a close.
For further information about this securities law blog post, please contact Brenda Hamilton, Securities Attorney at 101 Plaza Real S, Suite 202 N, Boca Raton, Florida, (561) 416-8956, by email at [email protected] or visit www.securitieslawyer101.com. This securities law blog post is provided as a general informational service to clients and friends of Hamilton & Associates Law Group and should not be construed as, and does not constitute, legal and compliance advice on any specific matter, nor does this message create an attorney-client relationship. Please note that the prior results discussed herein do not guarantee similar outcomes.
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Brenda Hamilton, Securities Attorney
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