Próspera, Honduras - private charter crypto city

When Samson Mow, architect of the “Bitcoin Bond,” announced that the charter city had adopted a bitcoin standard, many watched in confusion as this small city was largely unknown. Now, Próspera is trying to show the world what it means to exist semi-autonomously from nation-state control while still being part of a nation-state.

Joel Bomgar, the president of Honduras Próspera Incorporated (the private company behind the creation of Próspera) sat down virtually with Bitcoin Magazine for an interview where he referred to Próspera as “a free city that has adopted bitcoin as legal tender.” Bomgar chose these words specifically because the city isn’t just about bitcoin, it’s about freedom. Bitcoin just happens to be the quintessential tool for achieving its economic freedom.

Speaking of economic freedom through the adoption of bitcoin as legal tender, one’s mind might wander to thoughts of El Salvador doing this very same thing at the nation-state level. However, the scale of Próspera is much smaller, and the election to use bitcoin as legal tender is a choice, not a requirement. Critics of El Salvador’s have challenged the adoption process of El Salvador, and while we will not discuss those differences here today, it is important to note that the forms of adoption between Próspera and El Salvador are vastly different.

But what exactly is this free city, and how did it come to recognize bitcoin as legal tender?
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How Is Bitcoin Recognized As Legal Tender?

Taxation. At least, that’s how bitcoin was initially recognized as legal tender. In Próspera, taxes include: a 5% individual income tax, 2.5% sales tax for goods and services, 1% corporate revenue tax, and 1% land value tax. That’s it.

There are no other taxes (not even capital gains taxes) levied within Próspera. This allowed residents and businesses to transact in whatever currency they deemed appropriate which made bitcoin a de facto legal tender, if that was their choice. However, Próspera went one step forward in May of last year and released a resolution for the acceptance of bitcoin and other cryptocurrencies as legal tender. The resolution states that, in order to use bitcoin, the amount of bitcoin used must be equivalent or greater to the value denominated in USD or the Honduran lempira at the time of the transaction.
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Próspera is a private charter city and special economic zone on the island of Roatán in the Central American state of Honduras. The city is an autonomous zone with private government and its own fiscal, regulatory and legal architecture,[1].
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Based on the Honduran ZEDE law, Próspera has its own civil law and regulatory structure, independent of that of Honduras. However, ZEDEs remain bound by the Honduran constitution and its criminal law code. The ZEDE law in Honduras was inspired by successful special economic zones such as Shenzhen in China or Dubai in the United Arab Emirates.
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In 2022, Honduran president Xiomara Castro repealed the enabling legislation for the ZEDEs, leaving developments like Prospera in limbo. [4]
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TEGUCIGALPA, April 21 (Reuters) - Honduras' Congress unanimously repealed a law overnight which allowed for the creation of special economic zones exempt from some national laws and taxes throughout the country, known as Zones for Employment and Economic Development (ZEDEs).

Legislators in the unicameral Congress said the law violated the Central American country's constitution and its sovereignty.

The so-called ZEDE law was passed in 2013, but was vigorously promoted during the administration of former President Juan Orlando Hernandez from 2014 to 2022 to encourage international investment and employment in Honduras, where more than 60% of the population lives in poverty.

Hernandez was extradited to the United States Thursday on drug trafficking and arms possession charges.

The legislation was repealed at the behest of leftist President Xiomara Castro, who took office in January. During her campaign, Castro had promised to push for the law's repeal.

The chamber also passed a constitutional reform, which must be ratified next year, abolishing existing ZEDEs.
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In a statement, initially issued the day before the cancellation of the ZEDE program, the Prospera folks were confident they could continue as they were; indeed, that they had airtight legal agreements that ensure it.

"The ZEDE framework was built to last and specifically tailored to serve as a rule of law oasis of economic freedom and legal stability in Honduras for decades to come," Prospera said, after insisting the project is protected by "a Fifty (50) year legal stability agreement" and that "in case of repeal or amendment of the ZEDE framework, Article 45 of the ZEDE Organic Law nevertheless states that the rights and privileges of ZEDE investors will stay in place for the duration of their stability agreements."

Prospera's future is further secured, the statement said, by the fact that "Honduras Próspera, Inc., the Promoter & Organizer of Prospera ZEDE, is a U.S. company with rights under the Central American Free Trade Agreement (CAFTA-DR) and the U.S.-HN Bilateral Investment Treaty, which extend to investments made in Próspera ZEDE the highest degree of legal protection in Honduras."
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December 20 2022 - US investors Honduras Próspera Inc. and its affiliates filed claims with the International Centre for Settlement of Investment Disputes (ICSID) against the State of Honduras to protect themselves against violations of international and Honduran law. Honduras Próspera did everything reasonably possible to avoid filing the claims, but the Government of Honduras continues to refuse to cooperate with our sustained efforts to find a negotiated solution within an internationally-accepted framework.

Depending on how the Government of Honduras chooses to proceed, the amount of damages will be at least several billion US dollars, and as high as US$10.775 billion if Claimants’ entire investment is lost.

The Request for Arbitration filed by Honduras Próspera and its affiliates under the Dominican Republic – Central America – United States Free Trade Agreement (CAFTA-DR) serves to protect a U.S. investment in Honduras. It also gives the Government of Honduras an opportunity to show the world that it handles investment disputes reasonably.

Whether the Government of Honduras is ultimately held liable for the entire US$10.775 billion remains substantially in its own hands. Honduras Próspera and its affiliates would still welcome Honduras honoring the 50-year legal stability guarantee it made to U.S. investors in Próspera ZEDE. The Government of Honduras could mitigate the substantial liability it faces under international law by providing clear assurances that Honduras has no intention of expropriating investments in Próspera or blocking the creation of tens of thousands of new jobs or hundreds of millions of dollars in nearshoring investments in Próspera. Honduras Próspera and its affiliates remain willing to discuss a negotiated resolution.

Hopefully, today’s filing will lead to a more positive outcome for all sides of the dispute. In the meantime, Honduras Próspera and its affiliates will continue their efforts to operate in accordance with their clear legal rights to legal stability in Próspera ZEDE, and create jobs and economic opportunities as best they can under the ambiguous circumstances wrongfully created by the Government of Honduras.

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via Google Translate said:

Pedro Barquero, Minister of Economic Development of Honduras, said Tuesday that the Special Economic Development Zone (Zede) Próspera (Roatán) has no intention of entering into a dialogue with the State of Honduras to resolve the lawsuit that the latter announced in recent months.

In Barquero's opinion, Honduras will not lose the lawsuit imposed by Próspera because the State "is endorsed by its Constitution and the concepts of sovereignty."

Barquero referred to this, also saying that the Attorney General's Office (PGR) is in charge of developing strategies to defend "the interests of the country."

He added that the Government of Honduras has expressed to Próspera its “position for an open dialogue and without conditions”, but that Próspera's investors and executives have refused to participate in the deliberations.

"This has not happened with the other two Zede, with the Zede in the southern zone and the one in Choloma, we have been able to have an open, frank, sincere and unconditional dialogue," said the official.

The Prosperous Employment and Economic Development Zone (Zede) denounced the State of Honduras for an amount greater than 10,000 million dollars for alleged damages.

Honduran President Xiomara Castro confirmed in a televised public statement that her government has "nothing to negotiate" with ZEDE investors, including Honduras Próspera Inc., the U.S. organizer of the well-known special economic zone. as Prospera ZEDE.

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The advertisement—posted on Mirror, a Web3 publishing platform, in March last year—outlined an eye-catching if perhaps confusing proposal: “Access NFTs for a follistatin plasmid phase I clinical trial in Prospera ZEDE, Honduras.”

The ad had been posted by a biotech startup called Minicircle, which was recruiting participants for a clinical trial of gene therapy. But several details made it unusual. For one, it instructed would-be guinea pigs to purchase an NFT to take part. Upon completing the study, it promised, they would receive payment in cryptocurrency. And while it notes the geographical location of the trial, test subjects may not have immediately understood that it would get underway in what is essentially an experimental crypto city—Próspera, Honduras.
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... Attorneys at White & Case LLP, the world’s leading international arbitration firm, has filed a $10.77 billion case to stop interference by the Honduran government. They contend that the repeal of the constitutional authority for Prospéra ZEDE will violate the Dominican Republic-Central America FTA (CAFTA-DR). This case will take years to recover and legislation is necessary to aid the fight to protect American investments in Honduras.

Sen. Cassidy and Rep. Salazar object strongly to the Castro administration’s attack on U.S. ZEDE investments. They wrote in a letter to President Castro on February 21, 2023, that “threats of the wholesale elimination of the ZEDE legal framework and harassment of lawful investors are exactly the type of actions which have kept Honduras with a large informal economy and increased irregular migration” and exactly the practices the Americas Trade and Investment Act seeks to eliminate. Honduras would not be allowed the benefits of this legislation if they follow through with a seizure of American assets. ...

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Bitcoin may now be used to determine the market value of goods and services in the region.

Bitcoin (BTC) has scored yet another big win in a special economic zone in Roatan, Honduras. Barely two years after adopting the cryptocurrency as legal tender, it has now also officially recognized it as a unit of account. That is, Bitcoin may now be used to determine the market value of goods and services.

According to the acting manager of Próspera’s ZEDE (Zone for Employment and Economic Development), Jorge Colindres, the move is an attempt to bring more financial freedom to residents of the region. ...

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Próspera Inc. filed its ISDS case with ICSID in late 2022 after Honduras’ left-leaning President Xiamora Castro (no relation to Fidel) partially repealed a law granting foreign investors like Próspera the right to create charter cities in Zones of Employment and Economic Development, or ZEDEs. Established in 2021 on Roatán, an island 40 miles off Honduras’ northern coast, Próspera was described by the tech news website Rest of World as a “crypto-libertarian paradise.”

Then, just a year later, the Castro government pulled the rug from under Próspera’s feet by doing away with part of the law allowing ZEDEs to operate as more or less autonomous territories on Honduran soil. In its ISDS suit, Próspera Inc. alleges that Honduras owes it more than $10 billion for breaking a “50-year legal stability guarantee” granting it sovereignty over Próspera, including the ability to create its own laws, courts, authorities and taxes.

Claws and Teeth

For those unfamiliar with this topic, ISDS clauses are what give most bilateral or multilateral investment treaties their claws and teeth, essentially enabling foreign investors to ride roughshod over domestic laws and regulations. Put simply, foreign investors get to sue governments for any loss of profit, including profits not yet earned, resulting from new laws and regulations, and they tend to have a chilling effect on pubic-interest regulatory action. The cases are decided by secret panels staffed by highly-paid, investor-friendly arbitrators and are always brought by corporations against governments, never the other way round.

But something almost unheard of is happening in Honduras’ case. Instead of waiting for the imposition of crippling fines that would almost certainly bankrupt her government, Xiaomi Castro decided in late February to withdraw her country from ICSID, arguing that the court was infringing illegally on Honduran sovereignty.

In taking this step, Honduras has become the first Central American country to walk away from ICSID, the world’s most important forum for the settlement of differences between investors and States, with a total of 149 government signatories. ...

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