Enhancing U.S.–El Salvador Crypto Collaboration Amid Deportation Backlash

Main Points:

• SEC crypto task force meets El Salvador’s CNAD to explore cross-border sandbox pilot ($10,000 cap per scenario)
• Proposal would let U.S.-licensed brokers obtain Salvadoran digital-asset licenses to issue “non-security” tokens in partnership with local firms 
• Occurs against tense backdrop of U.S. deportations to El Salvador prisons, some in violation of federal judges’ orders 
• Initiative reflects SEC’s outreach to foster innovation and investor protection across jurisdictions
  
• New SEC Chair Paul Atkins emphasizes building a “firm regulatory foundation” for digital assets 

1. Introduction

On April 22, 2025, officials from the U.S. Securities and Exchange Commission’s (SEC) crypto task force convened with representatives of El Salvador’s National Commission on Digital Assets (CNAD) in Washington, D.C. The purpose: to chart a pilot “sandbox” program for cross-border digital-asset testing. This meeting marks an unprecedented step in bilateral crypto regulation cooperation, positioning El Salvador as a live test bed for tokenization and offering U.S. firms a regulated pathway into a jurisdiction that embraced Bitcoin as legal tender in 2021.

2. Background on the SEC’s Crypto Task Force

Formed under then-SEC Chair Gary Gensler, the crypto task force has led enforcement actions against unregistered offerings while exploring policy frameworks. Under Commissioner Hester Peirce, known as “Crypto Mom,” the task force balanced strict enforcement with industry dialogue. The April 22 meeting reflects this outreach ethos, seeking to harmonize regulatory approaches rather than impose unilateral U.S. rules.

3. Meeting Details and Participants

According to the SEC memo released on April 22, the meeting included:

• SEC crypto task force leadership under Commissioner Peirce
• Officials from CNAD, led by President Juan Carlos Reyes
• Erica Perkin of Perkin Law Firm, a blockchain-specialized U.S. attorney advising CNAD
• Heather Shemilt, former Goldman Sachs partner and crypto policy advisor

Discussions spanned regulation, investor protection, and technical collaboration mechanisms. Both sides assessed how a controlled sandbox could test token issuance, secondary trading, and custody standards.

4. Cross-Border Sandbox Pilot: Structure and Scope

Under the agreed framework:

• Exposure Cap: Maximum of $10,000 per scenario ensures limited systemic risk.
• Participants: U.S.-licensed broker-dealers would obtain a temporary Salvadoran digital-asset license.
• Token Classification: Tokens explicitly deemed “non-securities” under Salvadoran law, sidestepping U.S. securities-law triggers.
• Local Partnerships: Each scenario pairs a U.S. firm with a Salvadoran enterprise to facilitate compliance with domestic AML/CFT rules.
• Use Cases: Two pilot categories have been proposed:
  1. Real-Estate Tokenization: Fractional ownership of Salvadoran property, capped at $10,000 per investor, to gauge market interest and trading mechanics.
  2. Tokenized Capital Raises: Small businesses issuing tokenized equity under the same exposure limit, comparing outcomes to U.S. crowdfunding regimes.

These pilots aim to deliver empirical data on investor protection, market liquidity, and cross-border settlement, informing future rule-making on both sides.

5. Political and Social Context: Deportation Backlash

The timing of this cooperation is notable due to concurrent tensions over U.S. immigration policy. In mid-April, Salvadoran President Nayib Bukele met with U.S. President Donald Trump to discuss a $6 million arrangement whereby the U.S. would deport migrants—some lacking clear legal status—to Salvadoran prisons. Reports indicate portions of these deportations contravened federal court orders. Critics argue that deepening regulatory ties amid such human-rights concerns risks reputational fallout for both governments and for industry participants.

6. Implications for the Crypto Industry

For U.S. Broker-Dealers, the sandbox offers:

• A structured route to test tokenization products under real-world conditions.
• Engagement with an emerging market that has statewide crypto adoption.
• Insights into AML/CFT implementation in a cross-border context.

For El Salvador, the collaboration:

• Validates CNAD’s regulatory model, enhancing global legitimacy.
• Attracts specialized legal, technical, and financial expertise.
• Fosters public–private partnerships that may accelerate domestic blockchain use cases.

Industry watchers anticipate that successful pilots could catalyze broader token offerings, bolster decentralized-finance (DeFi) ecosystems, and influence SEC rule-making on digital assets.

7. Leadership Change at the SEC

Just days after the meeting, on April 21, Paul Atkins was sworn in as SEC Chair, succeeding Gary Gensler and Acting Chair Mark Uyeda. Atkins, a former SEC Commissioner under President George W. Bush, stated at his inauguration that “building a firm regulatory foundation for digital assets” is his top priority. His pragmatic stance—balancing innovation support with investor safeguards—signals continuity for the sandbox initiative and suggests potential acceleration of pilot approvals.

8. Alignment with Hester Peirce’s Policy Priorities

The sandbox echoes five pillars from Commissioner Peirce’s 2023 crypto policy statement:

1. Cross-Border Collaboration: Harmonizing international rules to reduce legal uncertainty.
2. Broker-Dealer Regulation: Adapting securities laws to digital-asset contexts.
3. Custody Standards: Establishing custody requirements tailored to on-chain assets.
4. Token Offerings: Clarifying “coin vs. token” classifications.
5. Innovation Facilitation: Creating safe harbors for limited, supervised testing.

By operationalizing these principles in El Salvador, the SEC underscores a shift from pure enforcement to cooperative rule-building.

9. Future Outlook and Next Steps

• Pilot Launch: Regulatory drafts and MOUs are expected to be finalized in the coming months, with first scenarios kicking off by Q3 2025.
• Data Collection: Both regulators will monitor metrics on trading volumes, custody incidents, and investor complaints.
• Policy Feedback: Insights will feed into upcoming SEC rule-making docket entries, potentially influencing U.S. digital-asset regulation by late 2025.
• Global Expansion: Success could spur similar sandboxes with other jurisdictions, such as Singapore or the EU.

10. Conclusion

The U.S.–El Salvador sandbox initiative represents a landmark in cross-border crypto regulation. It blends innovation with investor protection, offers real-world testing grounds under a low-risk cap, and aligns with broader SEC policy goals. While occurring amid contentious deportation policies, the program may redefine how regulators and industry collaborate internationally. As Chair Paul Atkins takes the helm, the sandbox’s outcomes will likely shape the future regulatory architecture for digital assets on a global scale.