DeFi protocol frontend in Honduras

Ley Contra el Lavado de Activos (Law Against Money Laundering) – Decreto No. 144-2014.

This law establishes the framework for preventing, detecting, and punishing money laundering and financing of terrorism in Honduras.

It defines "reporting entities" (sujetos obligados) which primarily include banks, financial institutions, insurance companies, and other specified entities, and obliges them to implement AML/CFT measures.

While VASPs are not explicitly named, if a VASP engages in activities that fall under the general definition of financial services or involves fiat currency conversions through regulated entities, those regulated entities (banks, etc.) will apply the requirements of this law.

Identification and Verification:

For Individuals: Obtaining and verifying full legal name, date of birth, residential address, nationality, and a unique identification number (e.g., national ID card, passport). Verification should involve reliable, independent source documents, data, or information.

For Legal Entities: Obtaining and verifying legal name, legal form, address, proof of incorporation/existence, names of directors and beneficial owners (UBOs), and the legal representative's identification.

Purpose and Nature of Relationship: Understanding the purpose and intended nature of the business relationship or occasional transaction.

Ongoing Monitoring: Continuously monitoring transactions and activities throughout the business relationship to ensure consistency with the customer's profile and source of funds.

Risk Assessment: Implementing a risk-based approach to CDD, applying enhanced due diligence (EDD) for higher-risk customers (e.g., Politically Exposed Persons - PEPs, customers from high-risk jurisdictions, complex structures) and simplified due diligence (SDD) for lower-risk ones.

Beneficial Ownership: Identifying and verifying the beneficial owners of legal persons and arrangements.

Sanctions Screening: Screening customers against national and international sanctions lists.

Reporting Obligation: Report any transaction or attempted transaction, regardless of amount, where there are reasonable grounds to suspect money laundering or terrorism financing.

No Tipping-Off: Prohibits disclosing to the customer or third parties that an STR has been or will be filed.

CDD Records: Copies of identification documents, verification data, and any other information obtained during the CDD process.

Transaction Records: Details of all transactions, including amounts, types of assets, dates, and parties involved (including originating and beneficiary information, as per FATF Travel Rule principles, even if not explicitly legislated for VASPs in Honduras).

STRs: Copies of all suspicious transaction reports filed.

Retention Period: Typically, records must be kept for a minimum of five (5) years after the business relationship has ended or after an occasional transaction has taken place.

Comisión Nacional de Bancos y Seguros (CNBS) – National Commission of Banks and Insurance:

Unidad de Inteligencia Financiera (UIF) – Financial Intelligence Unit:

The UIF operates under the CNBS (or closely associated with it) and is the body responsible for receiving, analyzing, and disseminating STRs. Any reports concerning virtual asset activities would likely go here.

Banco Central de Honduras (BCH) – Central Bank of Honduras:

Role: The Central Bank is responsible for monetary policy and financial stability. It has repeatedly stated that cryptocurrencies are not legal tender in Honduras and has warned against their use due to volatility, lack of regulation, and potential for illicit activities.

Lack of Specific Licensing: VASPs are not currently licensed or specifically regulated as such in Honduras. This creates legal uncertainty and potential operational risks.

Regulator Name: Banco Central de Honduras (BCH)

Entity Targeted: General Public, Financial System Institutions (preventative guidance). Violation Type: Not a violation, but a clarification of legal status and warning against risks. Penalty Amount: N/A (This was a regulatory declaration, not a punitive action against a specific entity.).

Date: March 25, 2024 (Communiqué 001/2024) - Although this specific communiqué is from 2024, it reiterates and strengthens previous warnings, making it the most current and definitive statement within the timeframe. Previous, less formal warnings have been issued in prior years.

Outcome: The BCH officially stated that cryptocurrencies are not legal tender in Honduras and are not backed or regulated by the Central Bank. It also warned the public about the inherent risks associated with using and investing in cryptocurrencies, emphasizing that they are not recognized as currency or assets by the Honduran financial system. This effectively prohibits financial institutions under BCH supervision from operating with cryptocurrencies as recognized assets and strongly advises the public against their use.

Absence of Specific Crypto Laws: Honduras does not have specific laws regulating cryptocurrency exchanges or service providers. Therefore, there are no "crypto-specific" regulatory violations for which an entity could be fined or sanctioned by a financial regulator in the way you might see in the US or Europe.

Regulatory Focus: Honduras, like many smaller nations, is still in the early stages of addressing digital assets. Its focus has been on protecting the financial system's stability and informing the public about risks, rather than establishing a licensing regime or proactive enforcement against crypto companies.

No specific custodial license requirements exist for digital asset custodians in Honduras. Since cryptocurrencies are not recognized or regulated, there is no legal framework or licensing regime for entities providing crypto custody services. Any entity attempting to operate a dedicated crypto custody business would be doing so outside of formal regulatory oversight.

It is highly probable that traditional financial institutions (banks, fiduciaries) licensed by the CNBS are prohibited from offering direct crypto custody services due to the BCH's warnings and the lack of a legal framework.

No specific rules or mandates exist for the segregation of client digital assets. In a regulated environment, segregation is crucial to protect client funds in case of custodian insolvency. However, without a regulatory framework, such requirements are non-existent.

Pending Custody Legislation: