Given the convenience of established currency and payment systems, what is driving the ever-growing interest in Bitcoin and other virtual currencies?
Cryptocurrencies and Blockchain technology are set to change our future, and the enthusiasm around it can be compared with the ones seem 3 decades ago with the rise of the internet. Strongest security, more privacy, less bureaucracy, fastest transactional times and lower costs of handling financial or contractual transactions are the promises and goals of such innovate technologies, which we consider to be the driving factor of its growing interest. Although, the lack of knowledge and fear to access it along with the non existing regulations and resistance from the government to support it will delay its general massive inception.
Has your jurisdiction taken steps to regulate virtual currencies? What is their current status?
Panama has no current regulations for Virtual Currencies, DLT or Crypto Exchanges. In fact, the banking regulator issued the Notice 5 of April 24th 2018, to communicate to the general public a warning of the risks to invest on it as it is not a regulated asset, and that to date the regulated financial institutions had not requested them authorization to transact with virtual currencies.
Panama has a non-financial license for remittance companies, which has recently been used by some exchange companies for virtual currency remittance, and advertised by its promoters as “e-money license”.
How are transactions using virtual currencies as the medium of exchange taxed in your jurisdiction?
Panama has not yet classified virtual currencies for tax reasons, but the general trend applied in Latin America to consider it as Assets will likely be applied. It is important to consider that as a territorial based jurisdiction, all foreign sourced transactions are tax free, and all local sourced transactions are taxed.
If virtual currencies were to become a mainstream payment system, how might this affect the ability to control inflation in your jurisdiction?
Panama has had the lowest inflation rate in Latin American for the last 4 decades, as it has a solid economy based on the US dollar, with a strong financial, maritime and offshore sector. Because of the high volatility of virtual currencies since its inception, in addition to the lack of regulations, we cannot foresee it becoming a dominant mainstream payment system in Panama yet, as inflation rates would be highly affected by it.
Fraud and Money Laundering
What are the potential risks of virtual currencies in terms of fraud? How would these be addressed in your jurisdiction? Have any specific instances emerged in which virtual currencies have been used for money-laundering or other fraudulent purposes?
To our knowledge there are no reports of high profile money-laundering or fraudulent cases involving virtual currencies in Panama, but the country has strict KYC/AML laws, and any transactions involving cryptocurrencies shall be subject to compliance procedures, despite the lack of specific regulations. For that reason, all banks in Panama have strict policies not recommending account openings for virtual currencies related businesses or individuals. In spite of it, there has been a few crypto companies installed in the country, and multiple international crypto investors and enthusiasts have moved to Panama, motivating the increase of the local crypto community.