Panama -- Securities Classification Regulatory Overview

Panama's classification of cryptocurrency tokens as securities primarily relies on its existing securities legislation, as there isn't a specific, comprehensive law dedicated solely to crypto assets that is currently in force. While Panama has explored specific crypto legislation (e.g., the "Crypto Law" that was vetoed), the Superintendencia del Mercado de Valores (SMV) - Panama's securities regulator - applies the definition of "security" from Law Decree No. 1 of July 8, 1999 (General Law of the Securities Market) to determine if a crypto token falls within its purview.

The Legal Test Used (Howey Test Equivalent)

Panama's Law Decree No. 1 of 1999 broadly defines "securities" to include shares, bonds, debentures, units of investment funds, and "generally, any contract or instrument that, by its characteristics, grants its holder a participation or interest in a common enterprise, with the expectation of obtaining a profit principally derived from the efforts of others, or that is designated as such by the SMV."

This definition closely mirrors the principles of the U.S. Howey Test, looking for:

1. Investment of Money (or assets): The participant contributes value to the scheme.
2. In a Common Enterprise: The fortunes of the investors are linked to each other and to the success of the promoter.
3. With an Expectation of Profit: The primary motivation for the investment is financial gain.
4. Principally from the Efforts of Others: The profits are generated through the managerial or entrepreneurial efforts of the promoter or a third party, rather than the active participation of the investor.

If a cryptocurrency token satisfies these criteria under Panamanian law, the SMV will classify it as a security.

Which Tokens Are Considered Securities

Based on this legal test, the SMV would likely classify tokens as follows:

• Security Tokens: These are tokens explicitly designed to represent traditional securities (e.g., fractional ownership in real estate, company shares, bonds, or investment fund units). These would almost certainly be considered securities.
• Investment/Profit-Sharing Tokens: Tokens that promise future profits, dividends, or a share in the project's success, where the holder's primary expectation is financial gain derived from the efforts of the token issuer or a third party, would be classified as securities. This includes many tokens issued through Initial Coin Offerings (ICOs) or Security Token Offerings (STOs).
• Utility Tokens (with an investment component): While a pure utility token (one that grants access to a product or service without an expectation of profit from the issuer's efforts) might not be a security, if it is marketed or structured in a way that emphasizes its potential for speculative gain, or if it has characteristics that make it look like an investment contract, it could be deemed a security. The SMV would look beyond the label to the substance of the offering.
• Payment/Currency Tokens (e.g., Bitcoin, Ether): Generally, widely decentralized cryptocurrencies like Bitcoin or Ether are not considered securities in Panama, similar to most jurisdictions, unless they are offered or packaged as part of an investment scheme (e.g., a managed crypto fund).

Registration/Exemption Requirements for Token Issuers

If a token is deemed a security, its issuance and offering in Panama must comply with Law Decree No. 1 of 1999:

1. Registration: The issuer and the specific security (token) must be registered with the SMV. This involves:
   • Submitting a comprehensive prospectus detailing the project, the token's characteristics, financial information of the issuer, risks, and use of proceeds.
   • Providing corporate documentation and information about key personnel.
   • Ongoing reporting requirements, including financial statements and significant events.
2. Exemptions: Law Decree No. 1 provides certain exemptions from full registration, which could potentially apply to token offerings:
   • Private Placements: Offerings made to a limited number of qualified investors (e.g., institutional investors, high-net-worth individuals) may be exempt, subject to specific conditions and limitations on re-sale.
   • Small Offerings: Offerings below a certain monetary threshold or to a very small number of investors might also qualify for an exemption, though specifics would need to be checked against current SMV regulations.
   • Even with an exemption, Anti-Money Laundering (AML) and Counter-Financing of Terrorism (CFT) requirements, as well as general anti-fraud provisions, would still apply.

Secondary Trading Rules

If a token is classified as a security:

• Regulated Platforms: Secondary trading of such tokens would ideally need to occur on exchanges licensed and regulated by the SMV. Panama's primary stock exchange is the Bolsa Latinoamericana de Valores (LATINEX, formerly Bolsa de Valores de Panamá). Any platform facilitating the trading of tokenized securities would likely need to be authorized as a broker-dealer or an exchange.
• Licensed Intermediaries: Participants in the secondary market (e.g., brokers, dealers, investment advisors) would need to be licensed by the SMV.
• Market Conduct Rules: All trading activities would be subject to market conduct rules, including prohibitions against market manipulation, insider trading, and other fraudulent practices.
• AML/CFT: Secondary trading platforms and intermediaries would be subject to Panama's AML/CFT framework, notably Law No. 23 of April 27, 2015, and subsequent amendments, which require customer due diligence (KYC), suspicious transaction reporting, and other compliance measures.

Enforcement Examples

As of my last update, Panama has not had widely publicized, landmark enforcement actions specifically targeting cryptocurrency tokens as unregistered securities in the same vein as the U.S. SEC's actions. This might be due to several factors:

• A relatively nascent market for tokenized securities offerings originating directly from Panama.
• The SMV generally focuses its enforcement on traditional securities violations and fraudulent schemes.
• If a crypto offering were clearly fraudulent or violated securities laws, the SMV would typically issue cease-and-desist orders, impose administrative fines, and potentially refer cases to prosecutorial authorities for criminal charges under the existing legal framework for securities fraud.

The SMV's "Resoluciones" (Resolutions) and "Comunicaciones" (Communications) sections on their website often detail enforcement actions against companies or individuals for operating without proper licenses, making unregistered offerings, or engaging in fraudulent activities in the traditional securities market. These would serve as precedents for how they would approach a non-compliant crypto-security offering.

Specific Legislation and Regulatory Guidance URLs

• Superintendencia del Mercado de Valores (SMV) Official Website: https://www.smv.gob.pa/
  • (Look for "Normativa" or "Marco Legal" for laws and regulations).
• Law Decree No. 1 of July 8, 1999 (General Law of the Securities Market):
  • This is the foundational law. You'd typically find it linked on the SMV's "Normativa" section, or by searching the Official Gazette (Gaceta Oficial) archives. A direct, stable URL from the SMV can sometimes be tricky for specific laws, but searching for "Decreto Ley No. 1 de 1999 SMV Panamá" on Google often yields results from government sources.
  • Example source (might not be the SMV's direct host, but contains the text): https://www.gacetaoficial.gob.pa/pdfTemp/23838_A/GacetaOficial_23838A_19990708.pdf (This is the Gaceta Oficial publication).
• Law No. 23 of April 27, 2015 (Anti-Money Laundering and Counter-Financing of Terrorism):
  • This law, and its subsequent amendments, govern AML/CFT for financial institutions and designated non-financial businesses and professions, including those dealing with virtual assets if they fall under the definition of financial activities.
  • Example source (again, potentially Gaceta Oficial): https://www.gacetaoficial.gob.pa/pdfTemp/27776_A/GacetaOficial_27776A_20150428.pdf

Important Note: It's crucial to acknowledge that while Panama passed a "Crypto Law" (Law 697 of 2022, which originated as Law 254) aimed at regulating crypto assets and establishing a framework for their use, it was vetoed by the President and did not enter into force in its original form. Therefore, the country currently relies on its existing regulatory framework for securities and financial services when dealing with cryptocurrency tokens. This means the SMV's interpretation of "security" under Law Decree No. 1 of 1999 remains the primary guiding principle.