Jun 30, 2022
4 min read

Panama Debates its Crypto Asset Law

All about the latest crypto regulations in Panama and how they can affect your business. Plus, a special comment from Sumsub’s Chief Legal Officer.

On April 28, 2022, the National Assembly of Panama passed a bill allowing private and public use of crypto assets. It was approved by 38 members of the assembly, with no votes against. Soon enough, Panama may become the third country in the world to consider crypto as equivalent to fiat.

In order for the bill to come into force, it needed to be signed by President Laurentino Cortize. Despite being in favor of the bill, the President refused to sign it before  tougher Anti-Money Laundering (AML) measures were added. Therefore, the National Assembly will have to amend the bill accordingly. 

Sumsub has prepared a short guide on what this new bill could mean for people and businesses in Panama. We’ll be updating this article as new developments occur.

How can crypto assets be used in Panama?

The Crypto Asset Law was created to simplify the transactions for Panamanian citizens, half of whom don’t have any bank accounts. If the bill passes, people in Panama will be able to create crypto wallets and pay with virtual assets more easily. 

According to Congressman Gabriel Silva, the new law will also create favorable conditions for international businesses, helping Panama “become the hub of innovation and technology in Latin America.”

While the bill allows the use of crypto assets, it specifically states that businesses will not be obliged to accept them. This is one of the crucial differences between Panama’s crypto law and the one adopted by El Salvador in September 2021. Taking this approach will hopefully avoid the scandals that El Salvador faced after passing its crypto law (e.g., employees being paid by crypto currencies without their consent). 

In short, the crypto regulations in the works in Panama aim not to limit or impose obligations on businesses, but rather provide a wider variety of transaction options within the country.

What crypto assets will be used?

The bill was written in accordance with other Panamanian laws, enacted to prevent monopolization in crypto. It has a wide scope of crypto assets that may be accepted for transactions, including NFTs.

While Bitcoin is the most popular cryptocurrency, the bill doesn’t limit itself to it. Instead, it permits different crypto assets such as Bitcoin, Ethereum, Litecoin, Stellar, XRP, XDC Network, IOTA, Algorand, and Elrond.

Additionally, the bill will enable the tokenization of precious metals, payment systems, and provisions. This means that the rights to them will be converted to digital formats. 

Silva states that crypto is considered foreign-source income since the transactions take place online. According to his argument, such transactions won’t be taxed on capital gains. 

How will Panama regulate crypto assets?

Like El Salvador, the first country to adopt cryptocurrencies as legal tender, Panama is planning to create a special digital wallet that will allow citizens to use crypto safely. Citizens will be also able to use crypto assets to pay taxes, fees, and other financial obligations. According to Silva, this will lead to “faster, more efficient, and transparent processes” within the country. 

Crypto assets will be regulated by watchdogs and the government to ensure that they aren’t abused for illegal purposes. Accordingly, just like traditional payment means, crypto assets will be subject to the Anti-Money Laundering (AML) procedures, which will be implemented in accordance with the Financial Action Task Force (FATF) regulations and recommendations. Notably, concern over FATF penalties against Panama is one of the reasons Panama’s President  isn’t ready to sign the bill in its current form.

What are the risks?

While the new law should bring a variety of benefits for the country, it could also create certain risks. Even if AML controls are strengthened to the fullest extent, there are concerns about limited transaction traceability and the resulting use of crypto for illegal purposes. 

Sumsub’s opinion

Sumsub’s Chief Legal Officer, Tony Petrov, gave his professional opinion on Panama’s new crypto law:

“I think that all Latin American countries are in a good position as regards adoption of cryptocurrencies as an alternate payment method. Why? Because most of them are notorious for having traditionally vulnerable financial systems, i.e. their fiat currency backbone has always been relatively weak and some of them even used the US Dollar as a second legal tender. This means that they have more political liberty to risk by allowing currencies generated by cyber protocols to be used in their economies. And this liberty will help them to get faster in their development and digital transformation than some of the well-known economic leaders, especially the EU Member States.

Throughout world history, Latin America has been a place with endless troves of gold and silver. Latin America made Spain and Portugal rich and mighty, yet it did not become rich itself and the only “prize” that Latin America got was piracy in the Caribbean.

For Panama and Latin America, crypto is a new chance to accelerate, provided that they do not forget about the necessary infrastructure. Without effective domestic financial institutions and regulators that are able to operate this new stream of wealth, Latin American jurisdictions may effectively cede their sovereign control over their own finances and then may be used as shell structures for transnational fincrime. Therefore, it is extremely important to realize that the adoption of the Crypto Law for Panama is only the beginning of a very long journey where success is not guaranteed.

However, shall Panama and Latin American countries be able to maintain effective AML compliance procedures and financial controls on both a legal and technical level, hundreds of thousands of citizens could be lifted out of poverty and given a boost in a new wave of small and medium business activity.

This problem is well known in Panama: we bear in mind the recent publicity related to the Panama Papers and other adverse media. But just as corporate law is not the source of the problem with shell companies, the crypto law is not the reason to expect crypto fraud. We firmly believe that the country will rise to the challenge, and we as service providers are ready to help them. After all, we know how to fight fraud.”

Despite the risks, the bill provides a wide range of benefits to the country. The new regulation will attract more foreign investors, and create new job opportunities. Besides, citizens without bank accounts will be able to use digital wallets for their transactions. Meanwhile, banks will be able to adapt crypto assets to their systems, allowing more citizens to get banked. 

If you want to learn more about the latest crypto and AML developments in the world, subscribe to Sumsub’s newsletter. 

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