After two separate debates, the government’s initiative to regulate the issuance and transfer of bearer shares, which came as a result of Panama’s commitment to comply with international standards of transparency, was materialized with the adoption of the Law 47 of 6th of August 2013.

That law espouses a regime of immobilization or restraint, which preserves bearer shares through the private custody of the certificates representing them by authorized custodians that may, if required to do so, provide certainty about the ownership of such certificates in specific cases.

This immobilization, not elimination, allows the free circulation of such shares and the exercise of all the political and economic rights attached to their ownership.

There have been many arguments against this controversial regulation, all duly based and reasoned. However, to resist complying with international guidelines on transparency - regardless of whether we are in agreement or not with whomever establishes them - would result in the inclusion of our country in discriminatory lists, which would undoubtedly pose a serious prejudice not only for the country but for all those who use our corporate and financial services platform.

Inasmuch as we are aware of the important role that bearer shares play in international trade, both in terms of goods and services, our guild has actively participated in the refinement of the terms contained in the initial proposal, in order to ensure that the adoption of this new regime is the least burdensome possible for the owners of bearer shares, that implementation periods for both, as well as the share certificates issued before and those to be issued after the implementation of the law, conform to the reality of our system, and that the law offers options to maintain the competitiveness of our jurisdiction.

In light of the above, we offer below a glimpse of the most salient provisions of this regulation:

  • Authorized Custodian. These are private keepers or depositaries. The law establishes two categories: Local Authorized Custodians and Foreign Authorized Custodians. Local Authorized Custodians may be general licensed banks and trusts established in the Republic of Panama, regulated by the Banking Superintendence of Banks; brokerage houses and central securities depositary offices regulated by the Securities Market Superintendence of Panama;  lawyers and resident agents registered as such with the Fourth Chamber of the Supreme Court.

    As for Foreign Custodians, these can be banks, trusts and financial intermediaries regulated in jurisdictions which are members of the Financial Action Task Force on Money Laundering (FATF) or their associate members. These kinds of custodians must register with the Banking Superintendence of Panama and appoint an attorney-at-law or trust company established in Panama, as agent for service for any requirement related to custodianship and law compliance issues.

  • Delivery of Certificates for Custody. The certificates issued prior to the enactment of the law must be submitted to the respective custodian within three years after the entry into force of the Law. Those share certificates that are issued after the law takes effect, shall be delivered to the custodian within 20 days after the approval of the issuance of bearer shares.
  • Information for the Custodian. The share certificates delivered to the custodian must be accompanied by information allowing the identification of the owner of the shares, who must also sign an affidavit of share ownership.
  • Duties of the Custodian - Information. Local custodians are required to deliver the information in custody when required to do so by the competent authorities. The information is not provided automatically, but as a requirement for investigations related to money laundering, terrorist financing and illegal activities under Panamanian law, and to comply with the commitments made by Panama upon subscribing international agreements or conventions.In regard to foreign custodians, they have the obligation to automatically deliver the information on the owners of the share certificates in their custody to the resident agents of the companies. However, the law allows them to guard this kind of information without having to deliver it to the respective resident agents, provided that they post a performance bond in the amount of U.S.$25,000.00 with the Panamanian authorities and that they undertake to deliver the information in custody to the resident agent if required to do so. The bond will be executed in case of default.
  • Transfer of Bearer Shares. From the entry into force of this law, the transfer of bearer shares will be perfected as soon as the authorized custodian is formally notified in writing of such transfer by the owner of the shares, and the acquirer submits to the custodian the information requested thereon.
  • Inheritance Provisions. The owner of the bearer share certificates delivered for safe custody may designate the heirs of such certificates and communicate this in writing to the custodian, so that when there is evidence of his/her death, the custodian may transfer such certificates without the need for a judicial declaration. The designation thus made shall prevail over any right of succession, whether testate or intestate, of the place of domicile of the owner of the certificate, and it shall not grant ownership rights to the heirs until the death of the owner is verified.
  • Collateral. Bearer shares pledgees must deliver the share certificates to the authorized custodians, who will act as pledge depositories, within the terms provided for delivery, depending on whether the pledge was established before or after the entry into force of the law.
  • Default. The owner of the shares issued to bearer that fails to comply with his/her duty to surrender the certificates for safe custody may not exercise in a definitive manner, any political and economic rights inherent thereto, recognized by Law.
  • Penalties Applicable to the Custodian. The law sets forth a detailed list of cases and different financial penalties applicable to custodians, the most expensive one relating to the breach of duty to keep the information received in custody in strict confidentiality.
  • Redemption or Settlement of Shares. If bearer shares are redeemed or settled during the transition period of three years after the entry into force of the Act, the new shares shall be issued in registered or bearer form. In the latter case they must be submitted to custody.
  • Effectiveness. The law will take effect two years after its enactment.

The above aspects represent, in our opinion, the most salient aspects addressed by the law. There are other guidelines regarding notification and penalties, on which we will gladly provide information upon request.

As indicated at the outset, the immobilization system adopted is aimed at allowing the continued use of bearer shares by Panamanian corporations in international commercial and financial transactions, without distorting or diminishing their value or questioning their validity. And this works to the benefit of both Panamanian financial and corporate service providers and you, the users of these services.