Since cryptocurrencies hit the scene in 2009, the discussion around them has strongly focused on how they aren’t centrally controlled. We live in a world mostly run by Central Governments so it is natural to question how cryptocurrencies thrive and if they do so legally. Let’s take a look at the situation in Uganda.
Context.
It’s worth noting that all institutions involved in Uganda’s finance sector have to be issued an operating license by the Bank of Uganda before they commence operations. The licensing protocols are usually detailed by a guiding law such as the National Payment Systems Act that regulates mobile money & other e-wallets, the Financial Institutions Acts and Regulations which regulate banks and the Tier 3 and Tier 4 laws and regulations.
In a statement from October, 2019, Minister of Finance, Planning and Economic Development, Hon. Maria Kasaija issued a statement pointing out that the Government of Uganda does not recognize any cryptocurrency as legal tender in Uganda. He added that the Government of Uganda had not licensed any organization in Uganda to sell crypto-currencies or to facilitate the trade in crypto-currencies and so these organizations were not regulated by the Government or any of its agencies.
Hon. Matia Kasaija issues statement of cryptocurrencies
Before you go and report that crypto enthusiastic co-worker or relative who keeps bringing up cryptocurrencies for breaking the law, here’s what the statement implied:
Unlike with old notes or coins that some of us just don’t like to carry, a local vendor is well within their rights to refuse you service if you offer payment in cryptocurrency & demand payment in Uganda shillings or any other fiat currency.
While the message may have seemed grim, the Minister’s position is similar to one taken by many countries around the globe. Canada and Australia don’t consider bitcoin as money or foreign currency. Canada in particular looks at transacting in crypto as a barter transaction while in the European Union, it is considered a supply of services.
This initial reluctance to acknowledge cryptocurrencies led to pushback from the crypto community especially following the enactment of the National Payment Systems Act 2020.
FIA Involvement.
In a letter from December, 2020, Uganda’s Financial Intelligence Authority (FIA) called on the country’s Ministry of Finance to help formulate a regulatory framework for crypto service providers. This was coupled with an amendment to the Anti-Money Laundering Act classing Virtual Asset Service Providers (VASP) “as accountable persons.” Essentially, this subjected entities like cryptocurrency exchanges and other crypto asset service providers to FIA supervision and monitoring.
There was however a low response rate recorded from the VASPs.
Since the concepts of virtual assets and digital space are relatively new, the existing laws had to and will probably still continue to be adjusted to find what is most conducive for the country. At the Annual Bankers’ Conference in July, 2021, Bank of Uganda economist Dr. Tumubweine Twinemanzi admitted that regulators & lawmakers are constantly playing catch-up & have to adapt. “Fintech innovations happen a lot faster than policy decisions. As regulators, we have the difficult task of finding the balance between protecting citizens from exploitation and fraud while still providing incentives and allowing the sector(s) to grow and thrive in this ever changing environment.”
Building in the Sandbox.
The Government of Uganda thus adopted a regulatory sandbox framework intended for the benefit of all parties involved. A sandbox framework basically is a safe space for innovators and other FinTech players to interact to test innovative products, services, business models and delivery mechanisms. This is done under the supervision of the regulatory authority without immediately dealing with all the normal regulatory consequences.
The Central Bank assesses applicants to determine if they meet the minimum selection requirements to operate within the sandbox and tests the fitness of substantial directors, managers and shareholders.
Cryptocurrency trading platforms like YellowCard, Binance, Chipper Cash and many others have cropped up and have accessible physical locations and the digital space online as needed.
YellowCard Country Manager, Abel Namureba explains crypto adoption in Uganda.
In the regulatory sandbox framework, the Bank of Uganda included considerations ranging from genuineness of the innovation through the lifecycle of the sandbox until the exit time(s) including a fees structure. According to this framework, applicants wishing to be in the sandbox are charged an application fee of $290. (“Sandbox Framework, 2021”)
Persecution and Protection.
The fact that the law is still being shaped doesn’t necessarily mean that jungle rules apply now. The 2021 Police cybercrime report estimated that over 200,000 Ugandans have lost about $1 billion over the past two years so if you or someone you know has fallen victim, you are not alone. (“Police Crime Report 2021”).
The DunamisCoin scandal that rocked the Ugandan crypto scene in December, 2019 remains an important reference point. For thousands, the name Dunamiscoins Resource Centre Ltd serves as a reminder of the millions of shillings that they were defrauded of. While a few directors got away with some money, the Police and FIA were able to arrest one director and freeze multiple accounts in the company’s name.
While significant, the $1 billion is still just a fraction of the $15 billion lost due to cybercrime in general with banks taking the biggest chunk, followed by mobile money. These two avenues are more vulnerable to attack, which explains the Government’s decision to prioritize the implementation of payment service provider guidelines ahead of crypto. Find information on how to spot and avoid crypto scams here.