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Prostitution in Panama is legal and regulated. The main area of prostitution in Panama City is El Cangrejo. There are many foreign prostitutes in the country, especially from Cuba and Colombia  Panama was part of Colombia until To work as a prostitute, foreign prostitutes need an "alternadora" visa. As this is stamped into their passport, many work unofficially on tourist visas to avoid effectively having "prostitute" stamped in their passport.
During the construction of the Panama Canal , many prostitutes came to the canal zone to service the needs of the workers building the canal. Many were from the Caribbean , especially the English speaking islands. President Roosevelt launched an inquiry into the morality of these women, in case they had been brought in to work as prostitutes. After the completion of the canal, most of the migrant labour force left, leaving mainly US troops and civilians. These US citizens became the main customers of the red-light districts in Panamanian cities close to the canal such as Panama City and Colon.
The US government, concerned about the spread of STIs , tried to pressurise the Panamanian authorities into prohibiting prostitution and shutting down the red-light districts. The Panamanians resisted the US pressures to alter the laws within an independent state. They saw the prostitutes as a buffer between the US servicemen and Panamanian women. It countered the US's argument with the suggestion that it was the US servicemen giving STIs to the prostitutes not the other way around.
During WWII , the Vincentian Fathers encouraged parishes to set up "Catholic recreational centers for servicemen" to try to get the serviceman away from the red-light districts. In , the World Health Organization estimated that there was a 1. However the figures were higher for sex workers in Panama City and Colon than for those in the rest of the country. Panama is a source, transit, and destination country for men and women subjected to sex trafficking.
Child victims of trafficking are typically Panamanian nationals subjected to commercial sex acts inside Panama. Panamanian women are subjected to sex trafficking in other countries, including The Bahamas and Guyana. In Panama, most identified trafficking victims are foreign adults exploited in sex trafficking, especially women from Brazil , Colombia , Venezuela , Cuba , the Dominican Republic , Honduras , and Nicaragua. In , the number of foreign transgender victims subjected to sex trafficking increased.