Money Laundering Scandals Highlight Central American Credit Weaknesses


A lack of effective anti-money laundering controls in several Central American banks as highlighted in the recent ‘Panama Papers’ scandal brings an added layer of risk to the region’s banks and opens them to increased risk associated with deteriorating reputations.
Unrelated incidents related to money laundering since late 2015 have exposed weaknesses in the regulation of Central American banks, which are already under pressure from slowing economic growth, according to a report released today by FitchRatings. “Rated banks in the regions said that correspondent banks have reduced funding lines this year given weaker economic prospects and, in our opinion, news about weak governance and poor transparency is likely to cause a further drying up of wholesale funding for the region.”
In April, the Panama Papers revealed information about over 11 million financial and legal records relating to offshore companies arranged by Panamanian law firm Mossack Fonseca. Although the scandal is not directly related to Panamanian banks, the sector’s credibility has still been undermined, the ratings agency said. In the same month, authorities confiscated some $20 million of preference shares at Guatemala’s Banco de los Trabajadores under suspicion that illicit earnings funded the investment. In that case, however, the regulators took swift action and the banks ratings were not affected. In another case, authorities forced Honduras-based Banco Continental into liquidation in October 2015, as its principal shareholder was prosecuted for money laundering in the U.S. In addition, Panamanian regulators turned against Balboa Bank & Trust Corp. in May after U.S. authorities said one of its largest shareholders had been accused of money laundering, causing a rating downgrade as the bank defaulted.
The overall operating environment in Central American countries keeps bank ratings low there, but poor or ineffective corporate governance further constrains that environment, according to FitchRatings. To date, Fitch assigns investment-grade ratings to seven banks in Panama and one in Costa Rica, while other Central American banks earn BB or B ratings that “incorporate weaknesses in the governance and regulatory environment compared with higher-rated countries.”
- Nicholas Stern, NACM editorial associate
FCIB members have access to the Credit and Collections Survey results of credit professionals doing business in Central America and Mexico. For more information on how to join and take advantage of this insider knowledge, go to fcibglobal.com.

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