Panama’s Crypto Law Under Supreme Court Scrutiny: Will Regulation Survive?

The spotlight is now on Panama’s Supreme Court as it prepares to deliver a crucial verdict that could reshape the nation’s cryptocurrency landscape. The question on everyone’s mind: Will Panama’s ambitious “crypto law” stand, or will it be significantly altered or even scrapped?

What’s Happening with Panama’s Crypto Law?

The story of Panama’s crypto law has taken an unexpected turn. After initial excitement and anticipation, the legislation is now facing a critical review by the country’s highest court. President Laurentino Cortizo himself initiated this review, casting doubts on the law’s constitutionality and enforceability. Let’s break down the key events:

• Presidential Referral: On January 26th, President Cortizo sent the crypto law back to the Supreme Court for reconsideration.
• Constitutional Concerns: Cortizo argues that the law, as it currently stands, clashes with fundamental principles of Panama’s constitution.
• Enforceability Issues: The President also raised concerns about the practical implementation and enforceability of certain aspects of the law.
• Supreme Court’s Task: The Supreme Court now has the weighty responsibility of deciding whether to declare Bill No. 697 unconstitutional or to approve it with necessary modifications.

This situation marks a significant juncture for Panama’s aspirations to become a hub for digital innovation and cryptocurrency adoption. But what exactly are the sticking points?

Why is the Crypto Law Under Review?

President Cortizo’s reservations are not just vague concerns. He has pointed out specific articles within the crypto law that are causing friction. According to official statements, Articles 34 and 36 are particularly problematic. Why?

• Separation of Powers: These articles are believed to infringe upon the state’s separation of powers. This is a core tenet of democratic governance, ensuring no single branch of government becomes too powerful.
• Administrative Structures: The articles are also seen as potentially creating inappropriate administrative structures within the government. The specifics of these structures haven’t been fully detailed in the provided text, but it suggests a potential overreach or conflict with existing governmental frameworks.

Beyond these constitutional issues, President Cortizo also highlighted a procedural concern. He believes the law was not adequately revised after his initial partial rejection in June of the previous year. This rejection was linked to Panama needing to align more closely with international standards.

The AML Factor: Anti-Money Laundering Compliance

A key aspect of President Cortizo’s initial hesitation and ongoing concerns revolves around Anti-Money Laundering (AML) measures. He stressed the need for the crypto law to robustly address AML compliance, especially in light of the Financial Action Task Force (FATF)‘s recommendations.

Here’s why AML compliance is crucial:

• Global Standards: FATF sets international standards to combat money laundering and terrorist financing. Countries are expected to adhere to these standards to maintain financial integrity and international cooperation.
• Fiscal Transparency: AML measures are intrinsically linked to fiscal transparency. They aim to prevent illicit funds from entering the financial system and ensure legitimate financial flows.
• Reputational Risk: Failure to implement effective AML measures can damage a country’s reputation and lead to negative consequences, such as being placed on watchlists or facing financial sanctions.

President Cortizo’s insistence on strengthening AML provisions reflects a broader global trend of increased scrutiny and regulation of the cryptocurrency space to mitigate financial crime risks.

A History of Debate: National Assembly vs. Government

The journey of Panama’s crypto law has been marked by discussions and differing perspectives between the National Assembly and the government. Let’s rewind a bit to understand the legislative path:

• Legislative Push: In April of last year, Panamanian legislators demonstrated strong support for regulating cryptocurrencies. They backed a legislative proposal that aimed to bring digital assets like Bitcoin into the regulatory fold.
• Presidential Caution: However, just weeks after the legislative push, President Cortizo signaled a cautious approach. He made it clear he wouldn’t sign the law into effect without the inclusion of stronger AML safeguards.
• Legislative Origins: The initial legislative proposal wasn’t sudden. It was first introduced in September 2021, with a clear vision: to position Panama as a forward-thinking nation embracing the digital economy, blockchain technology, crypto assets, and the broader internet revolution.
• Progress in the Assembly: The proposal moved through the legislative process, advancing from the Economic Affairs Committee in April and gaining final approval shortly thereafter.

This timeline reveals a clear intent from the National Assembly to embrace crypto innovation, while the President’s office has emphasized the need for responsible regulation and alignment with international financial standards.

What Does Panama’s Crypto Law Actually Propose?

Despite the current uncertainty, it’s important to understand what the original crypto law aimed to achieve. If enacted, the law would bring significant changes to how cryptocurrencies are treated in Panama. Key provisions include:

• Legal Tender Status (Optional): Crucially, the law would allow Panamanians to “freely agree” to use cryptocurrencies, including Bitcoin and Ethereum, as payment for any commercial or civil transaction. This doesn’t mandate crypto as legal tender in the same way as in some other countries, but it provides a legal framework for crypto payments.
• Tokenization of Precious Metals: The law extends beyond just cryptocurrencies. It also seeks to regulate the tokenization of precious metals. This could open up new avenues for investment and trade in assets like gold and silver using digital tokens.
• Digital Currency Issuance: The legislation addresses the issuance of digital currencies, though the specifics are not detailed in this excerpt. This could potentially pave the way for the development of a Panamanian central bank digital currency (CBDC) or regulations for stablecoins.
• Blockchain for Digital Identity: Looking towards the future, the law tasks the government’s innovation authority with exploring the use of blockchain and distributed ledger technologies for digital identity solutions. This signals an interest in leveraging blockchain’s capabilities beyond just finance.

What’s Next for Panama and Crypto?

The fate of Panama’s crypto law now rests with the Supreme Court. Their decision will have far-reaching consequences for the country’s digital economy ambitions. Here are some potential outcomes and their implications:

The Supreme Court’s ruling is highly anticipated by both the Panamanian crypto community and international observers. It will not only determine the immediate future of crypto regulation in Panama but also send signals about the broader global trend of balancing innovation with regulatory oversight in the digital asset space.

In Conclusion: A Waiting Game

Panama’s crypto law is at a critical crossroads. The Supreme Court’s decision will be pivotal, shaping the country’s approach to digital currencies and blockchain technology for years to come. As we await the ruling, the global crypto world is watching closely to see how this story unfolds and what lessons it holds for the future of crypto regulation worldwide. Stay tuned for updates as Panama’s crypto saga continues!