Panama's reputation as a world-class financial hub is being torn apart from the double scandals of the Panama Papers and now the US designating one of its most prominent families as top money launderers for drug cartels.

‘This is like a magnitude-10 earthquake for Panama's economic system and society, but it shouldn't be a surprise,’ said Miguel Antonio Bernal, a professor in constitutional law at the University of Panama.

‘The country's image has been damaged by these scandals,’ said Francisco Bustamante, who used to work for the Inter-American Development Bank.

They and other analysts believe that, far from putting the scandals behind it, Panama could see them grow in the weeks and months ahead, subjecting the Central American nation to further international scrutiny and spooking investors.

The US announcement this week declaring members and associates of the Wakeds, a prominent family of Lebanese descent, to be among ‘the world's most significant drug money launderers and criminal facilitators’ was a bad blow on top of the Panama Papers revelations that emerged a month ago.

The US Treasury Department froze the US assets of Nidal Ahmed Waked Hatum and Abdul Mohamed Waked Fares and those of many of their businesses, which span real estate, luxury shops, hotels, a bank, media and duty-free outlets.

Colombia arrested Waked Hatum on Wednesday and said it would extradite him to the United States, where he faces money laundering and bank fraud charges.

Meanwhile, the Panama Papers revelations about how many of the world's wealthy shoved assets into offshore entities look set to deepen.

A US-based journalists' collective that has been poring over the 11.5 million documents plundered from the servers of a secretive Panamanian law firm is to release many of them online on Monday.

And the US government and European countries are stepping up measures against countries seen to be ‘havens’ for tax avoiders and money-launderers.

- Financial sector hit -

Panama's authorities have been trying to emphasize that they are committed to ‘transparency’ and stamping out illegal activity.

But there is little doubt that its financial services sector -- a nexus of banks and law firms catering to clients around the world -- has been hit hard, and will struggle to recover.

As a sign of its seriousness, Panama has created a committee of international experts, headed by Joseph Stiglitz, an American economist who won the Nobel Prize in Economics in 2011, to recommend further reforms to the sector.

In the last couple of years, it has already cracked down on bearer shares and other instruments that helped obscure ownership of companies.

Panamanian President Juan Carlos Varela last month also announced that his government was willing to adopt OECD standards on sharing tax information it had long resisted. But last week he said Panama still needed ‘a little more time’ to comply.

The financial scandals will hang heavy over the country as it finally inaugurates next month a costly and behind-schedule expansion of the lucrative Panama Canal.

Varela has invited 70 heads of state and government to the ceremony, which will see a Chinese superfreighter be the first to navigate through the bigger waterway.

The canal, along with free economic zones, ports, tourism and recognized logistics and banking sectors have underpinned economic growth of more than six percent annually in recent years -- one of the highest in the region.

Nevertheless, Panama has found it hard to shake a perception that it is a shady nest of illicit transactions.

‘We can't go on as if we are privateers or pirates of the 18th century,’ Bernal said.

- 'Opportunity' for Panama -

The professor agreed that Panama needed to bring in changes to stop money laundering. ‘But the government can't do it because most of the people in it have interests in these types of operations,’ he said.

Analysts said the scandals could instead provide impetus for officials to ensure new reforms fall in line with international transparency standards.

‘This is a golden opportunity for Panama,’ Bustamante said.

‘No need for it to talk, it just needs to show that the law exists, that it works, and that's that,’ he said.

Annette Planells, head of the Independent Movement for Panama, an association fighting for better citizens' rights, said: ‘Panama needs to bear its share of the sacrifice to stop our institutions being used for these illegal activities.’

Still, the experts said Panama's institutions were relatively weak and often riddled with corruption, and the much-criticized justice system has shown itself unwilling or unable to convict senior officials or top businessmen.

‘Panama really needs to adapt to this new global reality, and we can't isolate ourselves,’ Planells said.