By: Staff Writer
December 9, 2022
Cryptocurrencies are inadequate in the Latin America and Caribbean (LAC) region despite widespread adoption in places like Colombia and El Salvador.
A new report titled “Cryptocurrencies: A Financial Crime Risk within Latin America and the Caribbean,” from Global Financial Integrity (GFI) analyses the benefits of crypto as well as the potential risks that may emerge, both for consumer financial protection as well as for financial crime. It also maps the responses from governments, private sector, academia and civil society in light of rapidly changing dynamics in the region.
GFI conducted interviews with subject matter experts from the public sector, private sector, academia and civil society. Also, we analyzed publicly available information, including national legislation, international standards and best practices. The interviews and analysis shed light on how crypto is developing in LAC and the risks of use when not regulated appropriately.
Governments in the region need to be aware that cryptocurrencies and crypto products cannot be eliminated or ignored, the report argues. They represent new financial products that are here to stay, and that must be regulated to protect users, investors, and processes of the inherent risks that, as of now, are either not regulated or only partially regulated.
The report said about Colombia that while the country does not currently have a legal framework in place to address cryptocurrency. Nevertheless, announcements have been made by the Central Bank (Banco de la República), the National Directorate of Taxes and Customs – DIAN (Dirección de Impuestos y Aduanas Nacionales), the Information and Financial Analysis Unit – UIAF (Unidad de Información y Análisis Financiero) and the Financial Superintendence of Colombia – SFC (Superintendencia Financiera de Colombia) in order to raise awareness about cryptocurrencies and their risks.
The report added: “Bills have been introduced in Congress since 2018, both in the Senate and the House. However, most of these bills have been archived.”
One of the bills that is still active and it provides guidance on how to treat crypto, notes that any losses are not recoverable, requires AML/CFT measures, and seeks to minimize risks to consumers, among other measures. The experts interviewed were not sure if the bill would pass, but they were confident that with political debate, stronger proposals will eventually be approved.
As with regard to El Salvador as a slight contrast, while it was the first country to adopt bitcoin as legal tender, it has received heavy criticism as analysts are suggesting that the move is not paying off the way the El Salvadoran government thought it would have.
The report said: “The experts interviewed noted that citizens are not well informed about Bitcoin and the risks involved in using crypto. This can potentially expose Salvadorians to financial risks such as scams and fraud. From a public sector perspective, since Bitcoin implementation and regulation is based on public funding, it needs to be as transparent as possible.
“Despite government claims that sending remittances is more affordable using Bitcoin, Salvadorians have not fully embraced this method, with more than 90 percent of Salvadorians still preferring to send remittances through means other than Bitcoin.”
As El Salvador continues to deepen its development with cryptocurrencies, adoption of digital wallets is still a work in progress as well. “…around 61 percent of Salvadorians have downloaded the Chivo Wallet and around 70 percent of these individuals have used the US$30 government Bitcoin credit. It is interesting to note that around 80 percent of those that received the funds used it to buy food.”
The report also said: “The government partnered with CHIVO S.A. de C.V. to develop the government endorsed Bitcoin wallet app called “Chivo Wallet” to facilitate transactions. As of September 2021, El Salvador had installed more than 200 Bitcoin ATMs in the country, becoming the ‘third-largest network of crypto ATMs after the United States and Canada.’ However, some interviewed experts have questioned how companies were chosen for providing certain public services (like CHIVO S.A. de C.V) and whether there was a real bidding process.”
It added: “There are also concerns with access to information. Several experts mentioned that there is opacity in the way the data is publicly released, both as published by the authorities and when requested under the Access to Public Information Law. Additionally, the experts interviewed questioned the lack of transparency in the bidding process for the delivery of public Bitcoin products and services.”