Panama has a privileged geographical position. This factor was the reason for which the Panama Canal was built in the country more than 100 years ago, operated efficiently by 100 percent Panamanian labor. The Panama Canal, besides joining the Atlantic and the Pacific oceans, reduces maritime routes and is currently under expansion with an investment of $5 billion (USD).
You can travel to the Pacific Coast and swim into its beaches with their beautiful white sand, and later go to Isla Grande on the Atlantic side, known better as the Caribbean Sea, to do some snorkeling, all in the same day. Recently, Panama has become “The Hub of the Americas” thanks to an initiative of Compañía Panameña de Aviación (COPA) that has established its operations to offer quick connections to passengers that are traveling to and from the rest of America.
Panama is a service country with the highest international standards. Its corporate law was enacted in 1927 and has not suffered any major changes since. Panama is the leader in the creation of offshore corporations and registration of vessels. Currently, more than five fiber optic cable networks pass through the country. Recently, Panama has been recognized by three of the main international agencies of risk who have raised the country rating and categorized Panama as a country with investment grade.
In 1997, the government owned the monopoly of the gaming industry. That year, the gaming law was changed, and the Gaming Control Board of Panama, a multidisciplinary organization conformed by the minister of finance, a member of the Congress and the controller of the Republic of Panama, took control of this activity granting concessions to private parties.
This decision could not have been more assertive. The gaming rooms were submitted to international public bids through a legislation constituted by clear rules for obtaining the concessions, background investigations, minimal requirements of experience and operation standards. The government’s income was multiplied and the development of the gaming industry took place almost immediately, making Panama one of the most important places in the Central American region.
The industry has growing substantially since 1997, and in spite of the fact that taxes were recently increased, it continues to be an attractive area for investors interested in local gaming matters.
By means of resolution No. 65 of Oct. 25, 2002, the Gaming Control Board of Panama in charge of the authorization, regulation and supervision of wagering activities approved the statute named “For the operation of chance and wagering activities performed through electronic communications that allows online bets in Panama.”
At the culmination of a national and international consulting process and after hearing the opinions of experts in this area, the implementation of this modality of game was achieved. Therefore, the operation of companies aimed to capture all kind of Internet wagering, including, casinos, sports books, poker rooms and electronic lotteries, is now possible. This regulation found its way out without generating the conflicts caused in other countries where the established casinos and sports books are against these activities for considering them as an unfair competition.
Profile of the Applicant
The profile of the applicant, regarding its operation experience in this kind of activities, should include personal background, and the appropriate financial solvency to initiate and support the operation are indispensable at the moment of requesting a contract to operate a system for electronic communication games or to receive international calls for wagering.
Another important requirement is to be able to prove that the system is capable to identify the identity of the player and/or the origin of the money. It has expressly prohibited online games from authorized entities that operate in Panama and from players or persons that reside within the Panamanian territory.
The access of persons under age was also prohibited, and the board assumed measures to prevent money laundering, to guarantee security bets and avoid that the gamblers be objects of fraud.
Documentation that is required by Resolution No. 65 to file the application for obtaining the contract includes:
• Name of the applicant
• Supplier of the software or hardware of the System for Electronic Communication games
• Names of all persons, directly or indirectly involved in the proposed operation and their capacity
• Complete and detailed information on the personal data of the applicant and its reliable employees, including the criminal history, commercial activities, financial and commercial matters, within at least a 10-year period prior to the filing date of the referred to application
• For corporations, the information required must be also submitted for all directors, officers, legal representatives and shareholders
• Business program details including projections for the next seven years
• Corporations must submit a certificate issued by the Public Registry Office evidencing its legal existence, legal representative, constitution date, directors and officers, and initial capital of the corporation
• Authenticated copies of documents evidencing the constitution of the corporation or authenticated copies of documents certifying the identity of the natural person, depending on each case
• To describe the financial structure of the corporation, including a list of all the shares that were issued, all the outstanding shares, and a list of the related rights
• To submit a certification issued by the Corporate Secretary indicating the names of every shareholder of the corporation
• To submit a certification issued by the Corporate Secretary or the applicant, as is the case, indicating all outstanding loans, mortgages, trusts, encumbrances and obligations and any other liability incurred
• To enclose a certification issued by the Corporate Secretary or the applicant, indicating the names of the persons employed, whose benefits, wagers or fees correspond to the 10 highest amounts of the payroll, whether or not reliable directors, officials, officers or employees
• To describe the procedures used by the applicant to grant bonds and profit-sharing
• To specify and submit a photocopy of the agreements or sub-agreements executed or to be executed in relation to the operation of the game or other activity that requires a license
• To submit a general profit and loss statement certified by an authorized public accountant for at least three fiscal years prior to the date of the application. In case the applicant does not have three years of operations, the statement must include the complete operation period.
• To submit copy of the income tax returns for the last three years. In case the applicant has not operated a complete fiscal period, an estimated income-tax return must be submitted.
• To submit a Manual of Internal Control Procedures to be used, prepared according to the minimum standards of internal control procedure adopted in this regulation
• To submit documentation evidencing the organization experience and/or personnel experience in the development of the operation, including, without limitation, experience and knowledge in the administration of information systems
• To enclose any other information or documentation that the director may consider necessary and convenient to guarantee the public health, security, moral, good reputation, public order and general interest for the residents of the Republic of Panama and the gambling industry.
Once the contract has been approved, the applicant must post a bond to guarantee the compliance of its obligations.
Additionally, the applicant must manage its operations in accordance with technical standards approved by the gaming control board. This mainly involves to identifying players, identifying the source of the funds received as gambling, establishing an escrow account with a local bank to guarantee the payment of the prizes and not capturing players located in jurisdictions where virtual or electronic gambling is prohibited.
Taxes related to the profits of the operators were excluded. The gaming taxes are flat rates which amount to $20,000 (USD) per year for each operation license and $10,000 (USD) in concept of right key (paid once).
As stated above, under this regulation, it is prohibited to capture bets from Panama; hence the revenues generated by the System for Electronic Communication Games is considered as foreign source income. Therefore these operations are not subject to income taxes and revenue sharing taxes.
The particularities of Panama and the tax system created for the establishment of international companies was conceived with the purpose of increasing the enrollment of Panamanian labor in call centers, the leasing of commercial stores and the establishment of corporations and organizations of high technology in places such as the City of Knowledge and Panama’s Business, Scientific and Technological Park located in Howard, which was in the past a military base inside the Panama Canal Zone controlled by the United States government.
Evaluation of the Adopted Legal System
As of today, the wording of the adopted regulation, on which team I am honored to preside, has not been questioned. Nevertheless, it is evident that this ruling has to be updated together with the development of this kind of game. Until now, the coordination with the bank entities to facilitate payment services is still pending.
The gaming control board has the task of strengthening its audit department and to effectuate software and equipment testing in order to protect the integrity of the game and ensure that hackers and money launderers stay away from our jurisdiction.
What is needed is an immediate review of the policy with respect to the granting of licenses. While there is no such thing as a master license, the last two consecutive governments have maintained only one operator, the International Cybergaming Co., which in practice does not operate any of its granted licenses. This company is dedicated to lease, for high amounts, the referred to licenses thanks to its monopoly position.
The authorized operator company is allowed to grant sublicenses with the authorization of the gaming control board. This procedure is very fast since the company could be initiating operations within 30 days, including the frame time taken by the gaming control board to grant the approval.
The company rates of Cybergaming International amount up to the sum of $60,000 (USD) per year per leased license, plus the taxes paid directly to the gaming control board.
Under this new presidential administration, started in July 2009, a new and completely different position is expected, and it is hoped Panama will finally open its borders to online games.
As authors and proponents of the Internet gaming regulation, we bet for the granting of online licenses to several qualified companies under the understanding that this activity is an important source of resources for the country. With the advantage of our geographical position, the fiber optic cable networks and communications systems, the development of the hosting policy and the capacity of our country together with the American dollar as currency, and an appropriate regulation, we have all the conditions to attract the largest possible numbers of well-known operators.
Unfortunately, this has not yet happened since the governmental position has refrained from the development of the industry. In spite of this, it is important to keep in mind that we count with eight established companies as sublicenses and that these companies employ more than 800 Panamanians, lease and occupy an interesting amount of offices and residential buildings for their executives, and more importantly, even if they complain about the system which has not allowed them to hold a license on their behalf, these operators remain in our country, move their families to our land and educate their children in schools with the highest standards that have been installed since the boom of 2005.
As soon as we amend our granting license policy, Panama will become the greatest and most important online gaming place in Central America and the Caribbean, as it is, because of its accurate regulations applied to traditional gaming.