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Panama's New E-Commerce Law

According to renowned "E-Readiness Report" presented earlier this year by the prestigious McConnell International - "in every country, a relationship of trust, accountability and predictability between public and private sectors is essential. For nations with a market-oriented economy where the government does not itself dominate the economy or the provision of communications services, staying out of the way of market forces - except to protect consumers - is the first priority".

Panama took a step in the right direction when the new e-commerce bill was signed into Law 43 by Panama's President, Mireya Moscoso on July 31, 2001. Believed to be the first of its kind to be implemented in Central America, the new law is expected to provide a much needed boost to Panama's e-commerce industry. This Law represents an advance for the legal recognition of electronic documents and signatures, which are elements necessary to increase the confidence in transactions conducted electronically. Its provisions on electronic documents are loosely based on the United Nations Commission on International Trade Law (UNCITRAL) Draft E-commerce Law.

The bill establishes a certification procedure and penalizes the non compliance of contracts. It also envisions the creation of an e-commerce directorate at the Ministry of Commerce and Industry, which will be responsible for authorizing certification entities.

Activities regulated under this law are subject to the following principles:

Freedom to provide services: to maintain the right of service providers to continue their legal trading activities without prohibition from the government;

Open market: to ensure the absence of monopolistic practices and to remain impartial to the provider of any specific type of technology;

Technological neutrality: by eliminating the elements in an earlier draft of the bill that favored encrypted technologies;

International compatibility: by using international criteria to supervise certification authorities and acknowledge certificates;

Legal recognition of electronic data messages: by granting electronic documents full value as evidence; and

Functional equivalence of e-commerce to traditional commerce: acknowledging as valid in electronic documents the same elements of traditional agreements, such as offer, acceptance and others.

Legal Requirements for a Valid Electronic Document

Under traditional civil regulations, an agreement is executed by the granting of offer and acceptance. Most agreements required to be drafted in writing and executed through the written signature of the parties. In cases of agreements above a certain monetary amount, notarization and even recordation with a public entity are required to ensure the enforceability.

Law 43 does away with the written document requirement, which was an obstacle to enforceability of e-commerce agreements. When the current law requires that a document be in writing, data messages are granted the same validity, as long as:

The information in the document is available for later consultation;

The data message is conserved in the original format in which it was generated, sent or received or with some format that is shown to reproduce exactly said information;

That it conserve, if any, all data that allows to determine the origin and destination of the message, date and time when it was sent or received;

Data messages are defined as all information generated in optical, electronic or similar form, such as electronic data interchange (EDI), Internet, e-mail, telegram, telex or telefax. A form of data message are electronic documents defined as any electronic representation that bears witness to a fact, image or idea. In the case of agreements, the consent of the parties is contained as a signature. Electronic signatures (understood as any electronic sound, symbol or process linked to or logically associated to a message and granted or adopted by a person with the intention of signing a message that allows the receiver to identify the issuer) are granted the same value as written ones, when signatures are required under legislation. Electronic signatures by notaries and other authorities are also granted the same validity as their written counterparts, when required.

Law 43 allows businesses to maintain as data messages their correspondence, invoices, ledgers, corporate books and other records previously required by the Code of Commerce and Tax Code. They must be kept under the conditions required for electronic documents, for the period required by said Codes (7 to 15 years, depending on the nature of the documents). If a change in configuration of a data message creates a material risk that a consumer may not access it, the provider of said record keeping service must provide notice of said change and allow an early termination of a contract.

Regulation of Certification Authorities and other Security Features

Among the forms of electronic signatures, the law defines as secure electronic signature that which may be verified with a security system or procedure under internationally accepted authentication standards. Entities known as certification authorities (CAs) issue electronic records known as certificates, which serve to verify the authenticity and legitimacy of electronic signatures and the integrity of a message. Law 43 presumes that a user has accepted a certificate when it is posted in a repository or data base by the CA upon request of the user, or if it has been sent to one or more other users.

In a manner analogous to a Personal Identification Number or a corporate seal, the Law provides that upon acceptance of a certificate, the user guarantees all persons of good faith, free of liability, that the certified electronic signature is under control of the user, that no other person has accessed the procedure for its generation and that the information contained in the certificate is true and matches that provided to the CA.

The newly created Directorate of Electronic Commerce, part of the Ministry of Commerce and Industries, supervises the activities of CA. The Directorate will maintain a voluntary register of CAs, which will be optional for CAs active in Panama. The Directorate will also ensure that CAs operating in Panama, whether local or foreign, maintain adequate financial and technical standards. However, repositories or the databases where certificates are stored, must be registered with the Directorate. Registered repositories must store their databases in an integral manner, as well maintain a registry of expired certificates. Certificates from foreign CAs are valid in Panama like those from local CAs when said certificates are accepted:

by a CA registered in Panama;

under international agreements; or

under approval from other foreign CA registrar similar to the Directorate.

Conclusion

The use of the U.S. Dollar as currency and the current low tax environment, under which income taxes are applied to foreign source income, are expected to attract e-commerce operations into Panama. Panama is now better prepared to become a Hub for E-Commerce, and as stated in our previous article entitled "The Panama Canal Silicon Valley" B2B, e-banking, web hosting, applications outsourcing, broadband content and exchange traffic providers that serve clients outside of Panama or that are set up in the International Techno Park of Panama or any of the Private Hi-Tech Parks already offering services from Panama currently can benefit from many government incentives not found in other offshore e-commerce centres such as Singapore or Bermuda.

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