Legal Market Overview
Panama is showing the first signs of economic deceleration, following a sustained average annual growth rate of 5.6 percent over the past five years. Q1 2018-figures of 4.2 per cent dipped to a decade-low level in Q2; while final 2018 figures are not yet available, the year closed positively, supported by the favourable behaviour of its strong tertiary sector. Analysts forecast 4.6 per cent growth in 2019, and 4.1 the following year. International banking services and the Panama Canal (as a structural element of global free trade) have contrbuted most to recent economic growth, with construction playing an importnat secondary role.
The run-up to the 2019 presidential elections also weighed on the economy, as uncertainty loomed over the investment sphere. Laurentino Cortizo took up presidency in May 2019 finishing only two percentage points ahead of his centre-right candidate Rómulo Roux, who offered stiff competition. At the forefront of his political agenda are two goals: tackling corruption and reverting Panama’s reputation abroad. Practically, the former administration of Juan Carlos Varela had already made some advances on this front: money-laundering procedures were strengthened, a new personal data protection law enacted (Law No. 81) and tax evasion made its way into the Penal Code as Law No.7 (which renders it a criminal act when the amount defrauded in a fiscal year equals or exceeds $300,000). This recent compliance impetus and efforts to meet international transparency standards have already borne fruit: the country was recently removed from the EU’s blacklist of tax-haven jurisdictions and instead moved to a ‘grey list’ of countries that have undertaken commitments to change their tax regimes. The impact this will have is still to be seen, but reputational risk involving Panamanian offshore vehicles is expected to remain an issue for the foreseeable future.
As tensions between China and the US deepen, Panama finds itself at the heart of the dispute as a result of its role in -and reliance on- international trade. To some degree the country was following a recent Central American regional trend in consolidating its diplomatic ties with China, with which it signed some thirty bilateral agreements during the course of 2018; there was even talk of a free-trade pact; concurrently the US remains Panama’s foremost longstanding commercial partner in the context of a complex mutual history that began with the completion of the interoceanic canal and reached its nadir with the 1989 invasion. Certainly the country’s relationships with the two powers will certainly determine its future as a strategic hemispheric logistical hub.
Despite the economic slowdown, the legal market remaned fairly active in terms of financial intermediary services and the acquisition of local companies by multinationals. Activity in the M&A and banking sectors is expected to pick up further over the coming years, as compliance becomes costly and new regulations make it more difficult for smaller and medium-sized banks to operate independently. The amendment of Law 57 regarding the Multinational Headquarters Regime (SEM), is also likely to have a positive effect in the corporate sector, since it further enhances the advantages offered to those establishing and operating business in the country.
Given Panama’s position as a financial, offshore and maritime hub, full-service law firms such as Alemán, Cordero, Galindo & Lee, Arias, Fábrega & Fábrega, Galindo, Arias & López (GAL), and Morgan & Morgan tend to dominate the domestic legal market and handle most multi-jurisdictional and complex legal matters. Boutique practices nevertheless provide top-tier legal services alongside multidisciplinary firms in certan sectors, notably in relation to IP (Estudio Benedetti, for example) and shipping matters (Arias B Associates). The Panamanian legal market’s resistance to regionalisation was punctured by the recent entry of major insurance-market player, Kennedys, which formed an association with KBK Abogados. On the other hand, LOVILL announced an amicable exit from its participation in Central American regional platform, LatamLex, in February 2019, and has since reverted -in name and in practice- to its former independent status. The domestic legal landscape also welcomed newcomer Delvalle, Escalona, Levy & Corró -founded by three former-GAL lawyers and former finance-sector in-house counsel Diego Corró- which opend its doors in February 2019.