Drugs and Money: Laundering Latin America's Cocaine Dollars

By Robert E. Grosse | Go to book overview

Chapter 7

General Noriega and Panama, 1981–89

Probably the single largest center for money laundering in the Western Hemisphere, outside of the United States, is Panama. This fact has arisen from the history of Panama’s offshore banking center, which has been one of the country’s main sources of economic development during the second half of the twentieth century, the Panama Canal, which opened in 1914, and the spending of U.S. military forces in the Canal Zone.

Just after taking power through a military coup in 1968, General Omar Torrijos supported banking legislation that opened Panama to foreign banks and established a high degree of bank secrecy and anonymity of depositors. Interest income is tax free, and bank accounts may be established in corporate and non-personal forms. As in Switzerland, Panama has offered users of the financial system a wide scope for secrecy and an ease for moving funds. This combination, along with the dollarization of the Panamanian financial system since 1904, produced a booming financial center, with over $U.S. 36 billion of assets (mainly loans) and $U.S. 37 billion of deposits at the end of 1998. More than 100 international banks (84 of them based in other countries) operate in Panama, almost all of which operate in the offshore sector, taking deposits and making loans to non-residents.

The small and relatively weak Central American countries make an excellent base for money laundering of U.S. currency and other financial instruments. The countries are geographically close to the United States, and dollars are widely used in all of them. For transportation of goods between South America and the United States, again, the Central American countries are located in a desirable intermediate point (see Figure 7.1)

Panama is especially well situated, for several reasons. First and foremost, historically, it is the country through which the Canal permits shipping from the

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