The new U.S. sanctions announced on May 5, 2016 against the Waked Money Laundering Organization (MLO) pile on the pain and humiliation for Panama, coming just a few weeks after the Panama Papers scandal broke. This development may start to raise serious questions in the international financial community about Panama’s ability to control financial crime in its trade and financial industries, two sectors that are critical to its economy.
Notably, the U.S. Treasury Department’s Office of Foreign Assets Control (OFAC), which imposed the sanctions, stated in its announcement that “the Panamanian authorities have been informed of this designation and Panamanian and U.S. authorities will coordinate going forward.” Translation: OFAC and the Drug Enforcement Administration (DEA) acted unilaterally here, presumably because the Panamanian government was viewed as an unreliable partner. If the Panamanians are not able to get their house in order fairly quickly, and depending on what additional details emerge from the Panama Papers leak, further financial sector restrictions could be in store.
This OFAC action names the Waked MLO and its leaders, Panamanian-Colombian-Spanish national Nidal Ahmed Waked Hatum and Panamanian-Lebanese-Colombian national Abdul Mohamed Waked Fares, as Specially Designated Narcotics Traffickers (SDNTs) under the Kingpin Act. It similarly designates six of their alleged “associates” and 68 companies alleged to be “tied to” the network, including a Panamanian bank, Balboa Bank & Trust. OFAC states that the Waked MLO used trade-based money laundering schemes – including false invoicing, duty-free retail, real estate development, and financial services – along with bulk cash smuggling and other methods, “to launder drug proceeds on behalf of multiple international drug traffickers and their organizations.” These sanctions prohibit U.S. persons from dealing with the listed persons and entities and require that all of their property with U.S. jurisdiction or in the control of U.S. persons be frozen. That includes any entity of which they or any other SDN owns 50% or more.
It is noteworthy that OFAC designated two of the network’s attorneys in the wake of the Panama Papers revelations, which involved Panama-based law firm Mossack Fonseca. OFAC alleged that the attorneys helped Waked incorporate shell companies and served as nominees for these entities, not unlike what Mossack Fonseca has been accused of doing. This will likely add to the speculation about whether sanctions could be in the cards for Mossack Fonseca as well.
Along with the sanctions, OFAC issued general licenses to allow parties to wind down their business with Soho Mall Panama, a luxury mall in downtown Panama City, and entities tied to the Millennium Plaza hotel. It also issued a general license to allow two Panamanian newspapers, La Estrella and El Siglo, which are owned by one of the sanctioned companies, to continue operating by authorizing US persons to engage in certain transactions that otherwise would be prohibited due to the new designations.