The European Commission’s latest revision to its list of high-risk third-country jurisdictions, published on June 10, is a significant win for Panama, which has been fighting to clear its name after nearly a decade of reputational and regulatory challenges.

The EU Commission has formally proposed removing Panama from its register of jurisdictions with strategic deficiencies in anti-money laundering and counter-terrorist financing (AML/CFT) frameworks. The move, though still subject to approval by the European Parliament and Council, signals a potential shift in Brussels's posture towards the Central American nation.

Yet, this administrative update is far from a routine adjustment. It brings into sharp relief the intersection of technical compliance, geopolitical interest, and regulatory consistency that underpins the EU’s AML/CFT apparatus. Despite formal alignment with the Financial Action Task Force (FATF), the EU's framework under Article 9 of the 4th Anti-Money Laundering Directive introduces an additional political layer to the designation of high-risk countries. As such, Panama’s inclusion and prospective removal reflect as much about international diplomacy and legislative discretion as they do about technical financial standards.

Panama’s woes with European financial authorities can be traced back to the seismic impact of the 2016 Panama Papers leak. Although the scandal was centred on a single law firm, Mossack Fonseca, the revelations cast a long shadow over the country's financial and legal frameworks. The exposé uncovered the systematic use of Panamanian shell companies for illicit financial flows, from tax evasion to money laundering, prompting fierce criticism from European stakeholders. While no institutional complicity was formally established, the incident severely undermined confidence in Panama’s regulatory environment and accelerated international pressure.

By 2019, Panama had been placed on FATF’s grey list, having been found deficient in implementing robust AML/CFT controls. The EU, in its role as a founding member of FATF and in line with its own AMLD IV obligations, followed suit. The inclusion carried significant reputational implications and triggered enhanced due diligence requirements for EU-based institutions interacting with Panamanian entities.

Technically, though, Panama’s compliance has been steadily improving. As of October 2023, FATF officially removed the country from its monitoring list, acknowledging tangible progress in the areas of financial transparency, supervision, and beneficial ownership registration. The European Commission's June 2025 proposal cites this progress, pointing to its reliance on FATF assessments and bilateral consultations, including on-site verifications. According to the Ministry of Economy and Finance of Panama, this step is a recognition that the country has satisfied the EU’s previously unmet benchmarks.

However, as previous instances have shown, technical compliance alone does not guarantee delisting. In March 2024, a similar recommendation by the Commission was rejected by the European Parliament, which cited unresolved issues—namely the use of Panamanian-flagged "ghost ships" potentially violating international sanctions regimes, particularly those related to Iran and Russia. The Parliament argued that despite FATF’s clearance, Panama posed “a significant threat” to the integrity of the EU’s financial system, citing evidence of lax controls in its maritime registry.

In response to these concerns, Panama enacted Executive Decree 512 in October 2024, empowering the Maritime Authority to cancel the registration of vessels linked to sanctioned individuals or entities. By March 2025, this led to the removal of over 125 vessels with flagged ties to international watchlists, including those of the EU, the United Kingdom, and the US Office of Foreign Assets Control (OFAC). This regulatory offensive aimed to dismantle one of the Parliament’s main objections, thereby bolstering the Commission's case for Panama’s removal from the list.

Despite regulatory improvements, uncertainty remains. As reported by La Estrella de Panamá, legal expert Carlos Raúl Moreno from the Panamanian group GAPIFI noted that the European Parliament operates with a distinctly political dynamic, making its decisions harder to forecast. “The Commission has a technical mandate. The Parliament, on the other hand, is a political arena, where unpredictability reigns,” he said. The Parliament now has a one-month extendable period to object to the Commission’s delegated act. If no objections are raised, the regulation will automatically enter into force.

One persistent complication lies in Panama’s decision not to recognise the sanctions list maintained by the US-based non-governmental organisation United Against Nuclear Iran (UANI). While UANI is not an international body like OFAC or the UN Security Council, its influence, especially among Western nations, is not negligible. Critics argue that this omission could provide fodder for renewed objections in the European Parliament, given that the organisation has been instrumental in drawing attention to sanctions evasion through maritime channels.

Beyond compliance, the debate touches on broader questions of geopolitical leverage. In an interview with La Estrella de Panama, Prominent Panamanian lawyer Adolfo Linares argued that the EU’s listing mechanism serves not just a regulatory function but a political one. According to him, these lists are used as tools of soft coercion under the guise of financial integrity. “The EU should not impose unilaterally defined standards to exert control over sovereign jurisdictions,” Linares said. He criticised what he perceives as the EU’s economic hypocrisy, citing its own internal financial inconsistencies and defending Panama’s cooperative stance in international transparency efforts.

These views reflect growing frustration within Panama over what is seen as extraterritorial overreach. President José Raúl Mulino has increasingly adopted a more assertive tone, at one point threatening to restrict European firms from bidding on public contracts if the country is not delisted.

It is also noteworthy that other countries, such as the United Arab Emirates, Barbados, and Uganda, were similarly recommended for removal in the latest update. Meanwhile, ten new jurisdictions were added, including Algeria, Lebanon, and Venezuela, in a sign of the evolving nature of financial risk assessment. The Commission insists that its methodology remains firmly anchored in FATF principles, supplemented by EU-specific evaluations based on national and international intelligence.

But critics argue that the dual-layered process—technical and political—can result in inconsistencies and unjustified delays in delisting compliant countries. While FATF declassification is generally viewed as the gold standard, the EU’s additional scrutiny imposes a heavier burden that disproportionately affects jurisdictions with limited geopolitical clout.

The case of Panama offers a compelling illustration of how international financial oversight is shaped not only by compliance metrics but also by political discretion and deep-rooted narratives. While the Commission's proposal to delist Panama appears justified by FATF-aligned technical improvements, its fate ultimately rests with the European Parliament: a body increasingly willing to assert its political judgement over external jurisdictions.