The Costa Rica legislative assembly has put forward a law, Bill N.º 20.438, which could significantly curtail the freedom of its citizens to engage in cash transactions. Ratified with a motion of reiteration on April 1, 2024, this proposed legislation seeks to eliminate the use of cash for transactions over $10,000, ostensibly to combat money laundering and terrorism financing. However, this move has sparked a debate about the implications for personal freedom and the right to use cash. This article looks at the proposed law in more detail and its potential ramifications for the use of cash in Costa Rica.
Analyzing the Proposed Limitations on Cash Transactions
The legislative proposal aims to insert Article 23 bis into their Drug, Money Laundering and Terrorism Law “Ley sobre Estupefacientes, Sustancias Psicotrópicas, Drogas de Uso no Autorizado, Actividades Conexas, Legitimación de Capitales y Financiamiento al Terrorismo N.° 7786.” This amendment would mandate that all transactions involving the transfer of movable (cars, boats, motorcyles etc..) and immovable properties (real estate) requiring registration in the recording office and exceeding $10,000 be conducted without cash. The law mandates that this type of transaction could only be done by bank wire transfer.
Reduced Freedom for Cash Transactions over US$10,000:
The primary target of the legislation is for transactions pertaining to real estate and vehicles, which under this proposed law would not be able to be done in cash if they exceed the $10,000 threshold. This will certainly impose a limitation cash transactions.
Mandated Electronic Payments
The proposed law stipulates that any transaction over US$10,000 in cash must proceed through financial institutions regulated by the designated Financial Regulatory Agencies. While the law is aimed at attacking money laundering in Costa Rica, this requirement could be seen as a move towards a financial surveillance economy, where every cash transaction over US$10,000 is restricted.
How does the law define "cash"
Under the this proposed new law, “cash” is defined not just as physical currency but also negotiable instruments and other bearer payment methods. This broad definition could extend the law’s reach, further restricting the avenues through which individuals can conduct private transactions.
Verification and Oversight:
The proposed legislation mandates rigorous declarations and verification for transactions which fall within the scope of the law, demanding that the parties to such transaction disclose the payment method and the origin of the funds. Such measures, while designed for detecting money laundering activities, that net will also affect all transactions in Costa Rica by the vast majority of law abiding citizens who will have to deal with the added paperwork.
Increased Bureaucracy and Forms
The law mandates that any Notary Public overseeing a transaction exceeding US$10,000 must verify that the transaction was completed via bank wire transfer. Furthermore, the Notary Public is required to document the transaction’s amount, the payment method utilized, and ensure that the parties involved sign a sworn declaration regarding the source of the funds used in the transaction. Should these details be absent from the deed or notarial instrument necessary for recording the asset transfer, the National Registry is directed, under this proposal, not to register the document.
What are the Broader Implications
The law’s proponents argue that it will align Costa Rica with international standards for combating financial crimes. However, critics warn that it could mark the beginning of the end for cash transactions in Costa Rica, setting a precedent for further restrictions.
Conclusion
The proposed legislation will have the effect of prohibiting cash transactions over US$10,000 and forcing parties to use the banking system. While the intent of the law appears to be noble which is to fight money laundering in Costa Rica by restricting cash transactions. It also directly creates a prohibition upon its citizens to use cash on what the government deems are high-value cash transactions.
