Nicaragua is Regulating Virtual Assets – Such as Bitcoins

In order to comply with the Financial Action Task Force (FATF) and various international credit rating agencies, Nicaragua is regulating virtual assets with new legislation. The first new law is aimed at electronic operations and transactions relating to Virtual Asset Service Providers in Nicaragua. Anyone in that business may need to check with their lawyer that they are in compliance with the new legislation.

The law that reforms the “Law on Money Laundering, Terrorism Financing and Financing of the Proliferation of Weapons of Mass Destruction” came into effect on May 17th 2021.

The new law No. 1072 reforms the above Law No. 977 as well as makes additions to Law No. 561 “General Law of Banks, Non-Banking Financial Institutions and Financial Groups”.

Law No.561 is the one that will be used to regulate virtual assets (VA’s) and virtual asset service provider (VASP’S) who will now come under the scrutiny of Nicaragua’s Financial Analysis Unit.

Virtual Asset (VA’s)

The term ‘virtual asset’ refers to any digital representation of value that can be digitally traded, transferred or used for payment. It does not include the digital representation of fiat currencies.

Virtual Assets (VA’s) in the form of decentralized digital currency or virtual currency (Cryptocurrencies such as Bitcoins) are examples of VA’s

Fiat (Traditional) Currency

Banknotes and coins printed or stamped by governments are examples of fiat currencies. Fiat currency is declared as legal tender by the issuing government. The value of these currencies are dependent on economic policies and the strength (and weakness) of a particular country’s economy. The United States Dollar, Euro and British Pound are all examples of fiat or traditional currencies.

Virtual Asset Service Providers (VASP’s)

A VASP is a person who carries out activities or operations, for or on behalf of another natural or legal person (Corporation). This can mean making an exchange between virtual and fiat currencies, making and exchange between different forms of virtual assets, transferring virtual assets, having custody or administrative control over virtual assets and offering financial services related to issuing and selling a virtual asset.

New Laws

The law creates a requirement for any virtual asset service provider to register themselves before the Financial Analysis Unit (in Nicaragua) and to comply with the amended Law No. 977 as well as Law No. 561 and its additions.

Note: In Article 53 of the amended Law No. 561 (General Law of Banks, Non-Banking Financial Institutions and Financial Groups) now lists “may provide virtual asset services” under the operations that banks may carry out.

The Financial Action Task Force (FATF) is an inter-governmental policymaking body whose purpose is to establish international standards, and to develop and promote policies, both at national and international levels, to combat money laundering and the financing of terrorism.

A report by the Financial Action Task Force (FATF) entitled “Virtual Assets – Red Flag Indicators of Money Laundering and Terrorist Financing” provides some background to the recent law changes and why Nicaragua is Regulating Virtual Assets.