Spotlight: Cryptocurrency regulations in Latin America

There are some similarities between the world of cryptocurrencies and the Wild West.

The Wild West was largely lawless but somewhere where you could make a fast fortune - and also lose the clothes off your back and much more besides.

While bitcoin investors hungry for a fistful of dollars won't find themselves peering down the barrel of a Smith and Wesson, there are risks.  

Indeed, the issue of regulation has moved from the periphery to center stage. There's no shortage of reports of dirty deeds. People are getting rich and clearly people are losing money - and not just because of unfavorable price fluctuations.

The general message from governments and central banks is they don't want to hamper innovation but that cryptocurrency trading must be regulated - particularly to protect the financial system from money launderers.

Regulation is coming, particularly as those who make money from trading virtual currencies tend to dodge their local tax collector.

A question mark hangs over what this will mean for prices, as a major part of the allure of cryptocurrencies among investors is that the sphere is indeed largely unregulated.

There are rumblings globally. In Europe, Germany's central bank has called cryptocurrencies to be regulated on a global scale, citing concerns over its use in money laundering and the financing of terrorism. The EU is also concerned.

In Latin America, some countries have simply warned consumers that virtual currencies are not legal tender and that investing is risky. One country has banned them outright, some have issued piecemeal legislation and one has issued a major law which covers the area.

BNamericas, with assistance from Óscar Urzúa, a Chile-based management consulting partner at professional services giant KPMG, takes a look at the general state of play in terms of regulations and use in nine Latin American countries.

ARGENTINA:

Cryptocurrencies are generally accepted by merchants. For example, a leading taxi line is working with Xapo, a bitcoin startup based in Argentina, to help clients pay for their services using cryptocurrencies.

In 2014, regulatory authorities ordered all Argentine financial services companies to begin reporting on all transactions involving virtual currencies. The main concern, according to the regulator, was the threat of money laundering and the potential use of cryptocurrencies in the financing of criminal activities and terrorism.

The country, among others in the region, also has cryptocurrency ATMs.

ALSO READ: Creeping crypto regulations in LatAm

BOLIVIA:

Bolivia has explicitly banned virtual currencies and cracked down on traders. Authorities say investment schemes in the area of virtual currencies have the attributes of pyramid scams and that Bolivians risk losing their savings if they invest.

BRAZIL:

Cryptocurrencies such as bitcoin are considered financial assets and are accepted by commercial establishments in Brazil. For example, Brazilian private tech university FIAP accepts payments in bitcoin for selected courses.

From a tax perspective, cryptocurrency transactions are subject to income tax. An individual holding the equivalent of 1,000 reais (US$309) or more in cryptocurrency must declare this on his or her annual income tax return. In addition, any cryptocurrency transaction exceeding 35,000 reais is subject to a capital gains tax of 15%.

State development bank BNDES has said it would begin using its own cryptocurrency for certain operations. Use would be restricted to paying suppliers in projects supported by the bank.

Meanwhile, the president of the central bank, Ilan Goldfajn, has ruled out implementing specific cryptocurrency regulations in the short term.

ALSO READ: BNamericas' Q&A with Óscar Urzúa

CHILE:

Chile's central bank does not recognize cryptocurrency as legal tender and associated sales or intermediation activities involving cryptocurrencies are not subject to its regulations. However, traders could be regulated under the bank's forex rules. The bank told BNamericas that specific legislation is possible in the medium to long-term.

Chile's revenue service SII is working on guidelines for associated tax declarations and has called for specific legislation covering cryptocurrencies as current laws only avoid pigeonholing cryptocurrencies in a very specific category of asset, in such a way as not to limit taxation for all types of income that asset may generate, local paper La Tercera reported.

In the country, cryptocurrencies can be used as a payment method for suppliers and merchants.

Chile's largest bitcoin provider, SurBTC, now known as Buda.com, announced that users in Peru can now market bitcoins and ethers [a form of payment associated with the Ethereum blockchain-based open software platform]. The exchange secured investment of US$300,000, which allowed it to improve the customer experience and serve the remittance market, as well as provide other services. Among its investors are US venture capital company Digital Currency Group (DCG) and Corfo, a state-run development agency.

COLOMBIA AND PERU

Colombia and Peru are one step behind in the use and regulation of cryptocurrencies. In Colombia, the government has warned of associated risks and blocked the entrance of the virtual currency market into the financial system.

ECUADOR:

Earlier this year the central bank reminded Ecuadorans that buying and selling cryptocurrencies is not illegal. However, it said bitcoin is not an authorized payment instrument in the country. It did not cite other types of cryptocurrency.

MEXICO:

Cryptocurrencies can be used by consumers for the payment of services and goods. For example, FAMSA, a Mexican retail chain accepts bitcoins on its website for the purchase of goods.

However, the government does not recognize cryptocurrencies as legal tender. Regulations impose restrictions on certain transactions that use virtual currency. These include the purchase of real estate priced at more than 500,200 pesos (US$26,791). In addition, regulations apply to the purchase of goods such as boats, automobiles, jewelry or art, and the transfer of shares or capital quotas, involving more than 200,000 pesos.

The country's fintech bill, approved this month, defines virtual assets, or cryptocurrencies, as representations of a verifiable digital value that have no legal tender but generate units for their exchange. New firms will be required to gain previous approval from the central bank before starting operations involving cryptocurrencies.

Financial technology institutions handling cryptocurrency transactions must also clearly inform clients that transactions are irreversible and that they include potential threats related to the global crypto trade, including cyber fraud. Furthermore, ITFs must be able to deliver on demand the amount of virtual assets clients have deposited with the firm, or its equivalent in pesos.

The central bank has evaluated private digital currencies and concluded that although they are interesting, they currently do not represent an important risk for monetary or financial stability in Mexico. The bank continues to monitor developments in this area.

PANAMA

In February the head of government-owned Banco Nacional de Panamá, Rolando de León, warned there were no regulations in the country covering investments in cryptocurrencies. De León advised people to steer clear of them and said associated regulations needed drawing up.