The country of Colombia recently clarified its stance on Bitcoin, following previous reports from 2016 that it had been declared illegal there.
Bitcoin Was Never Banned in Colombia
Colombia caught the attention of the cryptocurrency community in late 2016 when reports began appearing that the country had outlawed digital currency. The alarm was raised by an article (text in Spanish) written by Julián Villabona Galarza for the PanAm Post, which then spread on social media and was picked up by other outlets.
In the article, PanAm claimed that Bitcoin had been banned in Colombia following an announcement by Francisco Reyes Villamizar, head of the Superintendencia de Sociedades, an agency attached to the Colombian Ministry of Commerce, Industry and Tourism.
According to PanAm, Villamizar said that the Colombian peso was the country’s only legal currency, and that the only entity that can issue money in Colombia is the Banco de la República, the country’s central issuer of money.
Neither A Currency Nor A Security
Jorge Castaño Gutiérrez, Head of the Financial Superintendency of Colombia, finally clarified the country’s stance on digital currency in a circular released last week.
The good news: cryptocurrencies are not banned in Colombia.
The bad news: They won’t be getting legal recognition there any time soon.
Gutiérrez restated that Colombia does not recognize cryptocurrency as a legal form of monetary exchange. He also reasserted that Colombia’s only monetary unit, and unit of account, is the peso issued by Banco de la República.
He also added that because cryptocurrencies have no value under the country’s capital market laws, Colombia does not recognize them as a security either. Therefore, Colombian businesses are not authorized to guard, invest, broker or manage operations related to them.
However, this does not mean that they’re illegal in Colombia. Instead, Gutiérrez advised citizens that:
it is up to each person to understand and assume the risks inherent in virtual currencies if they choose to deal with them, since they are not protected by any type of private or state guarantee.
Pure, Uncut Colombian Ponzi Schemes
Given the country’s notorious history in the narcotics trade, Colombia’s suspicion over a currency once firmly associated with the darkweb may seem fairly unsurprising. However, it was actually a series of Colombian Bitcoin-based Ponzi schemes that prompted the government to warn the public and prohibit banks from trading with it earlier this year.
These so-called Colombian “investment clubs,” which masquerade as cryptocurrency investment firms, use Bitcoin to raise funds from investors with the promise of doubling their money within two months. Scammers are able take advantage of Bitcoin. Its pseudonymous nature can help avoid detection, dodge taxes and cheat investors out of their money.
The cryptocurrency community itself is no stranger to such scams. The infamous OneCoin scam is just one example — though it’s technically not even a cryptocurrency — of the many fraudulent coins shilled by online con artists.
But even though actual blockchain-based cryptocurrencies may be secure and transparent, transactions cannot be reversed by a central entity. Thus, users should be skeptical of online services guaranteeing profits and do all of their homework before sending their coins.
Besides pyramid schemes, Colombian officials are also wary of criminals using cryptocurrencies to launder money and fund terrorist activities. They have urged businesses which use cryptocurrencies to take proper measures to prevent any illegal activity.
No Taxation Without Regulation?
Without a legal framework to define cryptocurrencies, Colombia has yet to address its policies on its plans, if any, for taxation. Nevertheless, PanAm Post recently published another article declaring that Colombia wants to start taxing Bitcoin despite declaring it illegal:
Apparently, Colombia wants to… [force] the creators of cryptocurrency to pay taxes to without any regulation.
However, beyond the article’s misconceptions about Bitcoin’s legal status in Colombia, it is also unclear on what plans have officially been announced. The article does not mention any sources beyond a similarly-worded piece (text in Spanish) published in the Peruvian newspaper La República. Instead, it quotes attorney Juan Sebastián Peredo, who said:
We should think that people will have to report them as part of their assets in their income tax return. In this way, and to the extent that Bitcoin is part of people’s assets, they will have to follow the corresponding tax rules.
This answer appears speculative, however, as Peredo is also quoted saying that “tax issues are yet to be decided.”
Jhonathan Alexander Higuera, an academic from Peru’s Universidad Nacional, is also quoted saying that “currently, in Colombia, people are not required to report their investments or transactions in Bitcoins or any other cryptocurrency.”
As such, it is only safe to say that Colombia has left digital currency regulation wide open, along with any policies that may come with it.