Ugandan Court Rules Cryptocurrencies Illegal

Landmark Ruling Declares Cryptocurrencies Not Recognized as Legitimate Payment Method

In a significant decision, the High Court of Judicature in Uganda has ruled that cryptocurrencies are not recognized or regulated as a legitimate form of payment in the country. The ruling was handed down by Justice Ssekaana Musa in the case of Silver Kayondo versus Bank of Uganda (Miscellaneous Cause No. 109 of 2022).

Key Takeaways

• Cryptocurrencies are declared illegal and not accepted as a general payment instrument under the National Payment System Act.
• The Bank of Uganda has the authority to issue directives to licensees, prohibiting them from facilitating cryptocurrency transactions without consultation with industry players and licensees.

Reasons for the Ruling

Justice Ssekaana warned that cryptocurrencies present a range of risks, including:

• Anonymity of real players: Cryptocurrencies allow users to remain anonymous, making it difficult to identify and prosecute illegal activities. • Money laundering: The anonymity of cryptocurrency transactions makes it easier for criminals to launder money and evade taxes. • Other illegal activities: Justice Ssekaana emphasized that the Bank of Uganda has a duty to warn the public about these risks before they fall prey to schemes disguised as digital economies.

Impact on Proponents of Cryptocurrency Use

The ruling is seen as a major setback for proponents of cryptocurrency use in Uganda, who had argued that it was a legitimate digital asset tradable in the country’s economy. However, experts have pointed out that:

• Broader provisions: The National Payment System Act does not necessarily require direct mention of the term “cryptocurrency” to show that it was designed with such assets in mind. • Electronic communications and transactions: Broader provisions related to electronic communications and transactions could be sufficient to cover cryptocurrencies.

Concerns about Anonymity

The ruling has also raised concerns about the anonymity aspect of cryptocurrency use, which can encourage criminal activity and erode the tax base for the government. The Uganda Revenue Authority and Financial Intelligence Authority have been collaborating with the banking industry to curb money laundering and protect the tax base, but the anonymity of cryptocurrency users makes it difficult for them to do so.

Need for Clear Regulatory Position

The case highlights the need for a clear regulatory position on the use of cryptocurrencies in Uganda, which is currently lacking. The lack of clarity has led to uncertainty among stakeholders, including banks, financial institutions, and individual investors.