Many people ask about the cryptocurrency law in Panama: why and when. At Legal Solutions Panama we have always been aware of the progress of the Cryptocurrency Law in Panama. In the year 2021 we mentioned the legal status of cryptocurrencies in Panama in this same space, pointing to the legal void that our legal system presented and the risk that, according to the Superintendence of Banking in Panama, investment in cryptoassets meant for anyone interested in using them.
Time has passed and as a result of the movement that, at the time, the sister Republic of El Salvador made regarding cryptocurrencies (specifically bitcoin), some Panamanian lawmakers, among them Legislator Gabriel Silva, saw the opportunity to put Panama back on the map as a Technology Hub and sat down with experts in the field, both in the business and government sectors, to launch a legislative initiative or law on cryptocurrencies in Panama, which met with its approval on April 28, 2022 by the Panamanian Parliament. However, the initiative was vetoed by the President, which caused the same law to be sent back to Parliament to discuss the vetoed articles.
We consider it necessary to mention that the objectives of the Law approved by the Assembly were the following:
In the absence of legislation regulating the use of cryptocurrencies in Panama and in view of a reality in which many Panamanians and investors in the Republic of Panama are already using this type of currency to pay for different types of commercial transactions, the National Assembly of Panama detected the need for a legal framework that allows the protection of this type of transactions. The main objective of the regulation is to allow the use of cryptocurrencies as payment method in Panama. That is, any natural person located in the Republic of Panama, branches registered in Panama and legal entities organized in the Republic of Panama may freely agree on the use of cryptoassets, including without limitation, Bitcoin (BTC), Ethereum (ETH), XRP, Litecoin (LTC), XDC Network (XDC), Elrond (EGLD), Stellar (XLM) and Algorand (ALGO), as a means of payment for any civil or commercial operation not prohibited by the laws of Panama. This legislative step brings Panama closer to countries such as the USA, Argentina, Chile, etc. No one is forced to have to pay with cryptocurrencies, but the citizen can use it and if a conflict arises there is a law that protects the operation.
Currently companies such as Paypal, Binance, CoinBase cannot come to Panama and openly offer their services because there is no legal regulation to support their implementation,that is to say, there is no properly established license for this type of technology companies to operate from Panama for the region. The important thing is that once this regulation is approved by the Executive Branch in Panama, these companies will be able to come and establish themselves with all the guarantees.
It is important to mention that the Law approved by the Legislature clearly establishes the rules and competencies with respect to redeemable digital value entities, as well as issuers of redeemable digital value, such as digital asset exchange platforms and virtual wallets.
One of the relevant aspects of the Law is that issuers of redeemable digital value, including redeemable digital value entities, will be considered financial obligors, therefore they must comply with due diligence measures, as well as all those mechanisms for the prevention and control of the risks of money laundering, financing of terrorism and financing of the proliferation of weapons of mass destruction. The same law designates the Banking Superintendency of Panama (SNP) as the supervisory body, which must regulate according to the criteria recommended by the FATF (Financial Action Task Force). For its part, the Law entrusts the Ministry of Commerce and Industries of Panama (MICI) with the creation of the regulations for issuers of redeemable digital value. Once such regulations are in place, the MICI will be able to begin accepting license applications for redeemable digital value entities. The entity that will be in charge of supervising the redeemable digital value entities will be the General Directorate of Financial Companies in the MICI in Panama.
That Blockchain technology can be used by the government to have agile, transparent and competent processes is also one of the objectives of this Law. The smart contracts technology is already being used by other governments. It will even be possible to pay taxes through cryptoassets.
The Cryptocurrency Law in Panama seeks to make Banks (traditional banking) compatible with the world of cryptoassets, although this will be optional for banks. In other words, the Law creates the power for banks to do so, since the exchange is currently carried out through P2P.
Although what happened in El Salvador influenced the push for this Law approved in Panama, it should be mentioned that the Panamanian project is different from the Salvadorian one, mainly because in El Salvador the use of cryptoassets is mandatory and only bitcoin is recognized. In El Salvador the bitcoin was recognized as legal tender. In Panama, it is not mandatory. It all depends on what the trade decides. Even in Panama bitcoin is not set as the only cryptocurrency, since the legal analysis carried out obliges to leave open this possibility of the use of several cryptocurrencies, due to the fact that the Panamanian Constitution recognizes the plurality of currencies that can be used in Panama. Another point is that El Salvador opted for a strong position by creating its own wallet and even depositing money in the accounts of nationals. In Panama, although the law does give the government the power to create its own wallet, this is not enforced. On the other hand, in Panama there are many more alternatives that expand the ecosystem, such as: paying taxes with cryptocurrencies; smart contracts, complying with FATF regulations.
In conclusion, the Cryptocurrency Law in Panama must be re-evaluated and analyzed again in the National Assembly in the aspects required by the executive. Therefore, we are still in a legal void until the requested modifications are made.
