As you know, Próspera ZEDE has faced heightened legal and political challenges in the past few weeks, stemming from the reported ruling of the Honduran Supreme Court purporting to hold unconstitutional the ZEDE framework retroactively. After nearly two months, the ruling has now been published.

Although nuanced interpretations are possible, this narrow 8-7 ruling appears to deviate from and overturn established Honduran constitutional law in various ways. Many agree that the ruling is itself violative of both trade and human rights treaties that bind the Honduran government as a matter of international law (or if enforced in accordance with its most radical interpretation, the ruling would give rise to such violations). An excellent analysis of the ruling by noted international arbitration and SEZ expert Dr. Julien Chaisse is available in Spanish at https://www.tunota.com/radar-comercial/el-fallo-retroactivo-de-la-corte-suprema-de-honduras-debilita-la-defensa-del-gobierno-hondureno-en-el-arbitraje-internacional-sobre-el-marco-zede and in English, at https://www.linkedin.com/pulse/honduran-supreme-courts-retroactive-ruling-weakens-its-julien-chaisse-ucpcc/. Consequently, almost certainly, the ruling will be subject to ongoing legal challenges in various venues by various parties. It can be expected that remedies will be sought to nullify the ruling or at least to enjoin efforts to enforce it in ways that are clearly unconstitutional and in violation of international law.

In the interim, Honduras Próspera Inc. and Próspera ZEDE have already begun seeking to mitigate the resulting legal instability and political uncertainty by conditionally restating the nature of the legal relationship created by your (e)Residency. By logging into eProspera.com, you will be asked to sign a Rider to your Agreement of Coexistence which is designed to make the agreement maximally enforceable under any foreseeable interpretation or enforcement of the Supreme Court ruling. It allocates those authorities and responsibilities of the ZEDE that can be handled through direct private governance under external Honduran national law to designated private entities; and it reserves authorities and responsibilities of the ZEDE that cannot be handled in this way to the ZEDE itself and its General Service Provider, the status of which the Technical Secretary intends to defend from any application of the ruling.

Updated Terms of Service for the various Próspera websites underscore this new conditional legal structure and include important additional disclosures and disclaimers. Please ensure to read them here: https://www.prospera.co/en/terms-of-service. You should also read the detailed disclaimer here: https://www.prospera.co/en/disclaimer. Please consult with an independent and qualified legal counsel in regard to these matters.

What follows are the highlights of the new legal structure and associated risks of residing and operating in Próspera ZEDE.

To the extent that the published Supreme Court ruling purports (or is enforced) to overturn Próspera ZEDE’s current governmental status, private entities, including North Bay GSP LLC (a recently organized Wyoming (USA) LLC) and/or Próspera Foundation, S.A. (the former remotely and the latter locally), will handle those aspects of your (e)Resident agreement which relate to access control over private property; will manage the Próspera Personal Registry as a private database of (e)Residents; and will also manage the Próspera Property Registry as a private registry binding only among (e)Residents.

In regard to the Próspera Property Registry, a “wraparound power of attorney” template has been drafted with the assistance of the local Dentons law firm, and it will be circulated to allow for corresponding registrations in the external National Property Institute Registry, as necessary to maintain or perfect conforming external property rights, as needed.

Default private dispute resolution will remain allocated to Prospera Arbitration Center LLC, a Texas (USA) LLC. And in connection with such dispute resolution services, the Rider also retains, enforceable under Honduran national law, the Rules of Próspera ZEDE (published at https://pzgps.hn) as the contractual choice of law among (e)Residents while accessing, residing and doing business within what historically has been the boundaries of the zone.

Finally, the Rider provides that (e)Residents and the Próspera Group are contractually committed to each other to honoring and enforcing the intent of the Agreement of Coexistence to the greatest extent permitted under external Honduran national law, including through entry into more formal instruments as may be required by such law.

Thus, all aspects of Próspera governance that can be maintained and enforced through private contractual agreement under Honduran external national law have been decoupled from those aspects which cannot be so maintained and enforced, as discussed below.

All other aspects of the ZEDE governance will remain in the hands of the Technical Secretary, the Próspera Trust (now managed by Motus LLC as Trustee), and the General Service Provider (managed by the Technical Secretary as Acting Manager) notwithstanding the Supreme Court’s ruling, until all legal challenges and defenses, both domestically and internationally, have been exhausted. Accordingly, at this time, the Technical Secretary, in his various public capacities, intends to conduct governance as before, and to continue to act as best he can to shield the jurisdiction of Próspera ZEDE from lawless incursions using all feasible lawful options.

Even under the new legal structure, there will continue to be risks from working, leasing or owning property, and operating a business in Próspera ZEDE. If you have a legal entity formed under Prospera ZEDE law, the Rider underscores that it may be regarded as a “defacto” legal entity under external Honduran national law vis a vis external persons, entities, and governmental bodies; as a result, under external Honduran national law, if the worst case scenario interpretation of the recent Supreme Court ruling is enforced, the entity will not have limited liability as to this class of people and entities. If you anticipate significant exposure to non-(e)Resident persons, you may wish to have your Próspera ZEDE entity organize an entity under U.S., Honduran, or another jurisdiction’s law, and conduct business externally through that entity instead.

But even as a “defacto” legal entity, your Próspera entity should still have legal capacity to contract, sue, and be sued in greater Honduras. Moreover, among (e)Residents, who will continue to be contractually bound by the Roatán Common Law Code as a matter of standard choice of law principles under Honduran national law, we anticipate the Próspera Arbitration Center LLC will continue to treat Próspera entities as having all of the corporate features under which they were created. Banking options for Próspera entities will likely continue to be offered by various institutions.

If you are a Regulated Industry Person, you should understand that continuing to operate in Próspera ZEDE will entail increased legal and political risk because the Honduran Supreme Court ruling makes it more likely that national and local regulatory bodies will claim jurisdiction over you relative to external laws and regulations. If you are operating physically in Próspera ZEDE, you may also face increased risk of double taxation on income, real property, services, and on sales. Ownership of large land parcels by non-Honduran citizens or nationals could be challenged. It is not clear whether the captured insurance structure of Próspera ZEDE’s regulatory insurance group is lawful under external Honduran national laws. Consequently, if you are relying on regulatory insurance policies, there is a greater risk that national agencies will act to deny or cause the denial of your rights under them. If you are hiring employees, you are at greater risk of being subjected to external labor laws, regulations, and agencies. If you are an employee, you are at greater risk of losing the right to your Próspera Labor Benefits. Finally, the worst case scenario enforcement of the Honduran Supreme Court ruling may lead to even more serious risks that cannot be fully articulated or anticipated at this time. Although in all cases we believe meritorious challenges and defenses to the ruling will exist, including the right to nullification of the ruling as applied to your unique circumstances, such risks will include the possibility of both civil and criminal liability. You may wish to consider complying with laws applicable in greater Honduras.

Although Próspera ZEDE and Próspera Foundation, S.A. are in negotiations with the municipality of Roatan to create a one-stop compliance option whereby a subsidiary of the General Service Provider or Próspera Foundation, S.A. will act as the tax and regulatory interface between Próspera ZEDE businesses and the external local government, no such negotiations are currently underway with national governmental authorities. Therefore, complying with laws applicable in greater Honduras will likely require you to form a Honduran corporate entity under external national laws into which your Próspera ZEDE entity would need to be merged (or you could attempt to form the Honduran corporate entity as a subsidiary of your Próspera ZEDE entity; or you could dissolve your Próspera ZEDE entity and contribute its assets to the new Honduran entity). You will also need to obtain an external tax identification for your Honduran entity, which will entail becoming familiar and complying with the array of tax laws that apply locally and nationally. You will need an operating permit from the local municipality (Roatan in most cases). If you intend to hire employees, you will need to become familiar with external Honduran national labor laws. Finally, if you or your entity intends to operate in traditionally regulated industries under external Honduran national regulations, you should not expect reciprocal recognition for your regulatory election, existing licenses, permits, or regulatory insurance; and it is very likely that many such regulated industries will be effectively fenced-off to entry. In all of these cases, we recommend consulting with an independent Honduran attorney and/or notary. A list of recommended legal service providers is here: https://pzgps.hn/wp-content/uploads/2023/03/Legal-Service-Providers.pdf

Notwithstanding the foregoing risks, there are still good reasons to continue to live, work, own property, and to operate businesses in Próspera ZEDE and to wait out future developments.

All of these developments may mitigate many or all of the risks described above. But nothing in life, much less in politics, is guaranteed.

In the final analysis, each (e)Resident must decide for himself, herself, or itself what level of risk is acceptable. While there is no dishonor in deciding the risks of standing with Próspera ZEDE outweigh the benefits, there is certainly an opportunity to make history and to protect the future of startup societies by standing your ground. In a very real way, Próspera ZEDE is now the testing ground for the Network States concept championed by so many thought leaders. It is where the rubber meets the road and theory meets practice.

Finally, please be advised that Próspera Foundation, S.A. has adopted public interest litigation as among its social impact missions. If you would like to make a donation to support efforts by Honduran workers and businesses in the wake of the recent ruling of the Honduran Supreme Court and potentially pursue options in both domestic and international venues, please consider making a significant donation to it. Email Compliance Officer Ricardo Gonzalez for more details at rgonzalez@prospera.hn