Criminal Liability Panama 2026: Ley 517 Amendments, Asset‑freezing & Corporate Risk

Criminal liability Panama rules changed materially on 15 April 2026 when Ley 517 amended the Penal Code, broadening the scope of asset‑freezing and asset‑recovery powers available to prosecutors and courts. For general counsel, compliance officers, and company directors with operations or assets in the jurisdiction, the reform introduces urgent new exposures, from expanded provisional‑measures authority that can immobilise bank accounts within hours, to strengthened corporate penal responsibility provisions that reach beyond the legal entity to its individual officers. This article provides a practical, section‑by‑section guide to the amendments, maps the risks by entity type, and delivers an actionable compliance and defence playbook designed for immediate implementation.

Executive Summary, What GCs Must Know Now

Ley 517, enacted on 15 April 2026 and published in Gaceta Oficial No. 30505 on 16 April 2026, amends provisions of the Panamanian Penal Code dealing with asset freezing, confiscation, and recovery in criminal proceedings. The law took effect upon publication, meaning every company and executive with Panamanian exposure is already subject to its expanded regime.

The most significant exposures are threefold. First, prosecutors now have wider authority to request provisional asset‑freezing orders, including against third parties holding assets on behalf of suspects. Second, the threshold for corporate criminal liability in Panama has been clarified and, industry observers note, effectively lowered, making it easier to pursue legal entities alongside their directors. Third, cross‑border asset‑recovery cooperation mechanisms have been reinforced, increasing the practical likelihood that freezing orders requested by Panamanian authorities will be recognised and executed abroad.

Three‑point action plan:

• Immediate (0–72 hours). Issue a litigation‑hold notice on all documents related to Panama operations; confirm the location and status of all Panamanian bank accounts and assets.
• Short term (1–4 weeks). Conduct a gap analysis of your existing compliance program against the Ley 517 provisions; engage Panamanian criminal‑defence counsel for a privilege‑protected risk assessment.
• Medium term (1–3 months). Update board‑reporting protocols, revise KYC/EDD procedures, and implement a rapid‑response playbook for asset‑freezing notifications.

Ley 517, Statutory Changes and Legislative Timeline (15 Apr 2026)

The official text of Ley 517, published by the Órgano Judicial, modifies provisions of Panama’s Penal Code that govern precautionary measures and the confiscation of assets derived from or connected to criminal activity. The reform sits within a broader 2026 legislative programme that also includes involuntary dissolution measures for dormant entities and new substance requirements for international companies.

Key Provisions and Practical Interpretation

The Penal Code amendment Panama 2026 introduces or reinforces the following core changes:

• Expanded scope of provisional freezing. Courts may now order the freezing of assets held by third parties, including nominee shareholders, trust structures, and offshore vehicles, where prosecutors demonstrate a reasonable nexus to the suspected criminal activity. Previously, freezing authority was largely confined to assets held directly by the accused.
• Lowered evidentiary threshold for provisional measures. The standard for obtaining an interim freeze has shifted toward a balance‑of‑probabilities test at the preliminary stage, rather than requiring near‑conclusive evidence of criminal origin. The likely practical effect is a significant increase in the speed and frequency of freezing applications.
• Reinforced confiscation‑without‑conviction pathways. Ley 517 strengthens the legal basis for non‑conviction‑based confiscation (extinción de dominio), allowing forfeiture proceedings to continue even if the criminal prosecution is discontinued or the accused is acquitted on procedural grounds.
• Mandatory bank cooperation. Regulated financial institutions must execute freezing orders promptly upon notification, consistent with Superintendencia de Bancos circulars on AML/CFT compliance. Failure to comply exposes the institution itself to administrative and potentially criminal sanctions.
• Cross‑border cooperation provisions. New language facilitates the recognition of foreign freezing and confiscation orders, and streamlines Panamanian requests to foreign jurisdictions under mutual legal assistance treaties (MLATs).

Legislative Timeline

The full statutory text is available from the Órgano Judicial and the Gaceta Oficial Digital. The historical version of the Penal Code prior to amendment can be consulted on WIPO’s legislative database.

Who Is Criminally Liable Now? Companies, Directors, Officers

Panama’s framework for corporate criminal liability has evolved significantly over the past decade. Even before Ley 517, the Penal Code contained provisions enabling legal entities to be held responsible for offences committed by their representatives, directors, or employees acting within the scope of their authority. As noted in analysis by Kraemer & Kraemer, Panama adopts a model of derivative liability: the criminal conduct of a natural person is attributed to the entity when committed for the entity’s benefit or in the exercise of its corporate purpose. The 2026 amendment reinforces this architecture and, according to Chambers & Partners’ practice guide on Panama white‑collar crime, closes several interpretive gaps that previously allowed entities to avoid prosecution.

Liability by Actor: Legal Persons, Board Members, and Managers

Criminal liability in Panama now attaches at three distinct levels. The legal entity itself can face fines, suspension of operations, or, in the most serious cases, judicial dissolution. Board members and directors face personal criminal liability where they authorised, directed, or knowingly failed to prevent the offending conduct. Middle managers and compliance officers may also be exposed if they were responsible for the internal controls that failed.

Executive criminal liability does not require proof that the individual personally carried out the illegal act. A director who deliberately turned a blind eye to money‑laundering activity conducted through a subsidiary’s accounts may be held to have the requisite mens rea through the doctrine of wilful blindness, which Panamanian courts have increasingly recognised. Academic commentary confirms that this evolution mirrors trends across Latin American jurisdictions.

Penalties Table: Sanctions by Actor Type

These sanctions can be imposed concurrently, meaning a single investigation can result in penalties against the entity, its directors, and its compliance function simultaneously.

Asset‑Freezing and Asset‑Recovery Powers Expanded in 2026

The provisions on asset freezing Panama practitioners are now contending with represent the most operationally disruptive element of Ley 517. The amendment grants prosecutors and judges broader authority to freeze assets at an earlier stage of proceedings, with fewer procedural safeguards for asset holders during the initial period.

Freezing Order Process: Step‑by‑Step

1. Prosecutor’s application. The Ministerio Público files a request with the competent guarantee judge (juez de garantías), presenting evidence of a reasonable nexus between the assets and the suspected offence.
2. Judicial review and order. The judge evaluates the application. Under Ley 517’s lowered threshold, provisional freezing can be granted on an expedited, ex parte basis where the prosecutor demonstrates a risk of dissipation.
3. Notification to financial institutions. The court order is transmitted to the relevant banks and financial institutions. Under Superintendencia de Bancos AML/CFT circulars, regulated entities are required to execute the freeze promptly upon receipt.
4. Third‑party notification. The asset holder receives notice of the freeze. Under the amended provisions, this notification may occur after the freeze is already in effect, a critical change that limits the ability to move assets.
5. Defence window. The affected party may challenge the freeze before the guarantee judge, requesting a hearing to contest the evidentiary basis or argue disproportionality. Early indications suggest that the practical window for mounting a challenge is narrow, making immediate legal representation essential.
6. Continuation, modification, or release. The judge may maintain, modify, or lift the freeze based on the evidence presented and the progress of the underlying investigation.

Key Authorities and Timelines

Cross‑Border Enforcement and MLATs

Cross‑border asset recovery under the amended framework benefits from Panama’s network of mutual legal assistance treaties and its membership in regional cooperation bodies. Where assets are located abroad, prosecutors can now invoke Ley 517’s reinforced provisions to request foreign courts to recognise and enforce Panamanian freezing orders. Conversely, foreign prosecutors seeking to freeze assets in Panama will find the new provisions make compliance by Panamanian banks faster and more certain. Industry observers expect a significant uptick in inbound and outbound freezing requests in the months following Ley 517’s enactment.

Criminal Liability Panama: Corporate Risk Assessment, How to Map Exposure

A structured risk assessment is the essential first step for any organisation with Panamanian exposure. The goal is to identify, quantify, and prioritise the criminal liability risks arising from Ley 517 and the broader Penal Code framework, and to document the organisation’s posture in a form that can support a due‑diligence defence if needed.

Six‑Step Risk Assessment Framework

1. Map all Panama‑connected entities. Identify every subsidiary, branch, joint venture, representative office, and nominee arrangement with any nexus to Panama, including bank accounts, registered agents, and trust structures.
2. Categorise by exposure type. For each entity, determine whether the exposure is direct (Panama‑domiciled operations) or indirect (cross‑border transactions, correspondent banking, nominee shareholdings).
3. Assess business lines for criminal risk. Focus on activities most likely to trigger Penal Code offences: financial intermediation, government contracting, real estate, trade in regulated goods, and any activity involving cash‑intensive transactions.
4. Evaluate existing controls. Audit current compliance programs against Ley 517 requirements: KYC/EDD, suspicious‑transaction reporting, beneficial‑ownership disclosure, and anti‑bribery protocols.
5. Identify red flags. Look for indicators such as unexplained payments, nominee structures without legitimate business purpose, transactions with high‑risk counterparties, and gaps in beneficial‑ownership records.
6. Document and report. Produce a board‑ready risk memorandum that summarises findings, assigns risk ratings, and recommends remediation priorities with timelines.

Exposure by Entity Type

Entities that have not yet demonstrated actual operations in Panama face additional risk. Recent reporting by Newsroom Panama confirms that international companies unable to show genuine substance may face a 15% tax, and Morimor reports that involuntary dissolution proceedings have begun for non‑compliant entities, both developments that compound the criminal‑liability risk profile.

Immediate Remediation and Incident Response Checklist

When a freezing order is served, an investigation is opened, or a red flag is identified internally, the response must be immediate, disciplined, and privilege‑protected. The following checklist is organised by urgency window.

First 24 Hours, Emergency Response

• Issue a litigation hold. Instruct all relevant employees and departments to preserve all documents, communications, and electronic records related to Panama operations. Disable automated deletion protocols.
• Engage criminal defence counsel. Retain Panama‑qualified criminal defence lawyers immediately. All internal investigation communications should be routed through counsel to preserve attorney‑client privilege.
• Verify the freezing order. If an asset freeze has been notified, confirm its authenticity, scope, and the issuing authority. Identify which accounts and assets are affected.
• Notify the board. Prepare a confidential, privilege‑protected briefing for the board or audit committee. Include the nature of the exposure, the assets at risk, and immediate next steps.

First 72 Hours, Stabilisation

• Assess communications. Review all public and internal communications for consistency. Impose a media‑response protocol and designate a single spokesperson.
• Contact banking relationships. If accounts have been frozen, liaise with the bank through counsel to understand the scope and ensure no further accounts are at risk.
• Begin internal investigation. Under counsel direction, commence a preliminary factual review of the conduct in question, focusing on identifying the scope of potential liability and preserving exculpatory evidence.

First 30 Days, Remediation Planning

• Complete the risk assessment. Finalise the six‑step framework described above and deliver a written risk memorandum to the board.
• Evaluate voluntary disclosure. In consultation with counsel, determine whether a proactive approach to regulators or prosecutors, such as self‑reporting, would reduce the organisation’s exposure.
• Update compliance program. Implement immediate policy changes to address identified gaps: revised KYC/EDD procedures, enhanced suspicious‑transaction monitoring, and updated beneficial‑ownership records.
• Prepare interlocutory applications. If the freeze is disproportionate or factually unsupported, instruct counsel to prepare an urgent application to the guarantee judge for modification or release.

Defence Strategies and Negotiating with Prosecutors

Effective defence in Panama’s criminal‑liability framework requires early, strategic engagement. Waiting passively for the prosecution to build its case is almost always counterproductive, particularly given Ley 517’s expanded asset‑freezing powers that can paralyse business operations during the investigative phase.

When to Seek Interlocutory Relief

Interlocutory applications to modify or discharge a freezing order should be filed as soon as the factual basis permits. The key arguments typically include: disproportion between the value of frozen assets and the alleged proceeds of crime; absence of a genuine nexus between the frozen assets and the offence; and legitimate third‑party ownership claims. Courts will weigh these factors against the risk of dissipation, making early evidence‑gathering critical.

Negotiation Levers

• Self‑reporting and cooperation. Entities that voluntarily disclose wrongdoing and cooperate with investigators may be eligible for mitigated sanctions. Prosecutors in Panama, as in many jurisdictions, view cooperation as a significant factor in sentencing recommendations.
• Compliance undertakings. Offering to implement or enhance a compliance program under independent monitoring can serve as both a mitigating factor and a negotiation lever for reducing the scope of provisional measures.
• Remediation. Demonstrating that the organisation has already taken concrete steps to address the conduct, including dismissing responsible individuals, closing problematic business lines, and disgorging profits, strengthens the defence position.
• Plea agreements. Panama’s accusatorial criminal‑procedure system permits negotiated outcomes. Where the evidence against an individual or entity is strong, a structured plea that limits personal liability for executives in exchange for corporate cooperation can be strategically advantageous.

Cross‑Border Asset Recovery and Cooperation

Panama’s updated framework does not operate in isolation. Cross‑border asset recovery is increasingly the norm in complex financial‑crime investigations, and Ley 517’s enhanced cooperation provisions make Panama a more active participant in international enforcement networks.

Practical Steps for MLAT Requests

1. Identify the treaty basis. Confirm whether a bilateral MLAT exists between Panama and the requesting or requested jurisdiction. Panama maintains treaties with the United States, multiple European countries, and several Latin American neighbours.
2. Prepare the request package. Ensure the MLAT request includes a detailed description of the assets, their nexus to the offence, and the legal basis for the freeze or confiscation under Panamanian law.
3. Coordinate with the central authority. In Panama, the Ministerio de Relaciones Exteriores typically serves as the central authority for incoming MLAT requests, coordinating with the Ministerio Público for execution.
4. Monitor execution. Follow up with both the requesting and executing authorities to ensure timely compliance. Delays in execution can allow asset dissipation.

For entities whose assets are frozen pursuant to a foreign request executed through Panamanian banks, the defence approach mirrors that for domestic freezes: challenge the order’s legal basis, demonstrate legitimate ownership, and seek proportionality review before the competent judge.

Next Steps: Recommended Compliance Program Changes

The Penal Code amendment Panama 2026 demands a structured, prioritised response from every organisation with Panamanian exposure. A compliance program Panama that meets the post‑Ley 517 standard should include, at minimum, the following elements:

1. Policy updates. Revise anti‑money‑laundering, anti‑bribery, and asset‑management policies to reflect the expanded scope of criminal liability and freezing powers.
2. Training. Deliver targeted training to directors, managers, and compliance staff on the new provisions, emphasising personal liability exposure and the importance of timely suspicious‑transaction reporting.
3. KYC/EDD enhancements. Strengthen customer and counterparty due diligence, particularly for transactions involving nominee structures, trusts, and high‑risk jurisdictions.
4. Reporting lines. Establish clear, documented escalation paths from operational staff to compliance officers to the board, ensuring that red flags are reported and acted upon without delay.
5. Incident‑response protocol. Adopt the response checklist detailed in this article as a standing procedure, tested through tabletop exercises at least annually.

Organisations that can demonstrate a robust, documented compliance program in place at the time of an alleged offence are better positioned to argue a due‑diligence defence and to negotiate mitigated outcomes with prosecutors. To connect with experienced criminal‑liability counsel in Panama, visit the Panama lawyer directory.

Sources

1. Órgano Judicial, Ley 517 PDF (official)
2. Gaceta Oficial Digital, No. 30505
3. Superintendencia de Bancos de Panamá, AML/CFT Circulars
4. Chambers & Partners Practice Guides, White‑Collar Crime (Panama)
5. WIPO, Criminal Code of the Republic of Panama
6. Kraemer & Kraemer, Entities Criminal Responsibility (Panama)
7. Morimor, Panama Involuntary Dissolution Process
8. Newsroom Panama, International Companies Substance Requirements
9. Dialnet, Academic Article on Corporate Criminal Liability in Panama