Analysis of Cuba's "Bitcoin Law"

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1 year ago

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Some time has passed since the euphoria of the legalization of Bitcoin in Cuba. A piece of news that injected large doses of hope in some and indifference and distrust in others. And precisely now that emotions have calmed down, I bring you this analysis on the repercussions of Resolution 89/2022 of the Central Bank of Cuba (BCC).

If you want to inform yourself with objective information, I encourage you to read until the end, because I will explain the good, the negative and even the insignificant.

Canva design made by me

With this new resolution, what is the situation of Bitcoin in Cuba?

First, it is necessary to clarify what this new "law" means regarding cryptocurrencies in Cuba. And it is that, to be honest, it is nothing more than a complement to BCC Resolution 215/2021, which is the regulation that established the regulations for the use of cryptoactives.

In more concrete words, the use of Bitcoin in Cuba and cryptocurrencies was already legal. This new resolution only defines the specifics on a factor defined in the other law (the granting of a license to virtual financial asset service providers).
Is the condition of Bitcoin in Cuba the same as in El Salvador?

No! The terms and situations cannot be confused. In El Salvador, and other countries that have recently joined, the BTC is legal tender.
Bitcoin in Cuba is considered a digital asset and, failing that, similar in category to foreign currencies, for a better analogy, a decentralized currency.

A legal tender is backed by the government and its acceptance to make or receive payments is mandatory throughout the territory of that nation at all levels. On the other hand, a virtual asset, despite the fact that it can be exchanged for local currency or used as a means of payment, is not mandatory acceptance.
What then defines this new resolution on crypto assets?

Resolution 89 establishes the specific requirements for licenses for virtual asset service providers that operate in and from Cuba (FIRST RESOLVES). That is, for:

…any natural or legal person who, as a business or in business activities, is engaged in the exchange between virtual assets and legal tender; the exchange between one or more forms of virtual assets; the transfer of virtual assets; the custody or administration of virtual assets or instruments that allow control over virtual assets; and to the participation and provision of financial services related to an issuer's offer or sale of a virtual asset.

These requirements range from the conditions for authorization, operation, regulation, supervision, surveillance, corrective mechanisms to their cancellation. So, is this law good or not? Let's analyze point by point to discover it.

RESOLVED SECOND

To be a provider of virtual asset services, you have to request the license from the BCC, which before granting it has to consult the Cryptoactive Group (who they are is not specified).

RESOLVED THIRD

You can present your application and your project, but it is the Central Bank of Cuba who decides the virtual assets (cryptocurrencies), the conditions and restrictions of the operations. As it also imposes measures that you must comply with in the control and custody of virtual assets.

RESOLVED FOURTH

Establishes the procedures to apply for a service provider license depending on whether you are a Cuban natural or legal person or not. Summary, everyone has to request it if they want to operate in Cuba.

RESOLVED FIFTH

Establish the attached documents that you must deliver together with the resolution, you practically have to give even the type of ink of the pen with which you sign.

You must also deliver the procedures related to the system for preventing and confronting money laundering, financing of terrorism and the proliferation of weapons of mass destruction that you will apply on your platform. These procedures should include actions such as:

Obtain, retain, and transmit information about the originator and beneficiary of a transaction when it is suspected that it is illegal or when they exceed the threshold of one thousand US dollars or its equivalent.
Issue reports of suspicious operations and the complementary information requested by the General Directorate of Financial Operations of the Central Bank of Cuba.

RESOLVED SIXTH

Establishes the particularities for documents issued in other languages or in other countries.

RESOLVED SEVENTH

The Central Bank can simplify the procedures and establish easier forms of compliance with the requirements set forth in this Resolution. We are all equal, but there are some more equal than others.

RESOLVED EIGHTH

Deadlines and procedures in cases that require correction of errors in the documents submitted or add others.

RESOLVED NINTH

Deadlines to respond on the granting or denial of the license. A maximum of 90 business days, extendable up to 180 if it is required to present additional documents or correct errors in any of them.

RESOLVED TENTH

Without the approval of the General Directorate of Financial Operations Investigation of the Central Bank of Cuba on the procedures presented by the applicant against money laundering and financing of terrorism, there is no license.

RESOLVED ELEVENTH

The licenses last for 1 year and can be extended for another year because this is on an experimental basis. In other words, you don't have a guarantee for the future, but this is Cuba, so we must be used to it, right?

RESOLVED TWELFTH

Virtual asset service providers operate only with virtual assets approved by the Central Bank of Cuba, by license.

I put it verbatim because it is so clear that it does not need an explanation.

RESOLVED THIRTEENTH

If you are approved, read Decree-Law 317, "On the prevention and confrontation of money laundering, financing of terrorism and the proliferation of weapons of mass destruction", of December 7, 2013, and its complementary regulations. You need to comply with it or abide by the consequences, that to know what they are you have to read it.

RESOLVED FOURTEENTH

Those that are approved are registered in the Registry of Obligated Subjects of the Strategy for the prevention, detection and confrontation of money laundering. They must do so at the General Directorate of Financial Operations Investigation within the period set in the license.

RESOLVED FIFTEENTH

In the event of any change in operations, ownership structure or of any other nature, they must request authorization from the Central Bank.

RESOLVED SIXTEENTH

They have the obligation to keep the accounting of the operations in accordance with the accounting standards issued by the Ministry of Finance and Prices on the basis of the approved Cuban Financial Information Standards.

In addition, they have to send the financial statements to the Central Bank of Cuba in the terms, terms and conditions established by it.

RESOLVED SEVENTEENTH, EIGHTEENTH and NINETEENTH

You must comply with the information requirements, internal control standards, risk management, and others established by the BCC.

In addition, you fall under the supervision of the organizational unit designated by the bank, regardless of the inspections and controls that may be carried out by other government authorities. Which may carry out all the inspection visits they deem necessary.

RESOLVED TWENTIETH

They cannot cease operations without authorization from the Central Bank.

RESOLVED TWENTY-FIRST

The license can be modified at the owner's own request or for any of the reasons provided in Decree-Law 362, "Of the Institutions of the Banking and Financial System", of September 14, 2018.

RESOLVED TWENTY-SECOND

If you violate the provisions of Resolution 89, its complementary regulations and the license granted or if you operate without a license from the Central Bank of Cuba, you will incur sanctions in accordance with the provisions of Decree-Law 363 "On administrative infractions of the provisions on banking, financial and exchange matters" of September 14, 2018". Without influencing this in the criminal proceedings to which you could be subjected.

They can judge and sanction you at the same time for administrative and criminal matters.

Conclusions of a serious analysis

For Bitcoin and cryptocurrencies, it is always better for their expansion in daily use when a state legalizes or regulates their use than when they suddenly prohibit it. But it is designed for projects that seek to integrate crypto with CUP or MLC payments for purchase or sale, otherwise it makes no sense to request this license to operate with Bitcoin in Cuba.
It is also necessary that measures be established so that their use on exchange platforms does not result in money laundering or financing of crimes. What causes reluctance is that the collection of personal data and transactions made is requested. Leaving open the assumptions where they can be made to the interpretation of the official on duty.
It is not defined when one is suspected of an illegal act, the requirement of a court order to obtain this data is not established. A request by the General Directorate of Financial Operations of the Central Bank of Cuba is enough for them to obtain private and personal information of the users.

The most worrying thing is that those who obtain these licenses are obliged to report all the data of any transaction carried out by a user or client over $1,000.

The two-year limit on licenses (1 for duration plus 1 for possible extension) seems designed to perhaps guarantee a new state monopoly after that time.

Although it is good for the private ecosystem of the economy in Cuba to have this possibility, the established regulations have the seal of excessiveness to which the government has accustomed us. It seems like a measure whose main objective is to maintain control at all costs and not to promote and encourage development and entrepreneurship.

It is the main difference with the measures taken in countries like El Salvador. They did so with the aim of attracting investment, promoting development and new ventures. The Cuban government, on the other hand, seems to have a philosophy of "we are going to regulate it so that control does not get out of hand and if it generates better money for us."