Share this article

High Court of Uganda upholds Central Bank’s ban on cryptocurrency transactions, stating that crypto assets are illegal and unrecognized under the National Payment Systems Act.

On the 29^{th of} April 2022, the Bank of Uganda issued a circular stating that it had not licensed any institution to sell the crypto currencies or to facilitate the trade in crypto currencies (the circular). The Central Bank therefore warned all licensees under the National Payment Systems Act to desist from facilitating cryptocurrency transactions.

The applicant, Silver Kayondo, filed a judicial review application in the high court seeking declarations that the circular issued by the Bank of Uganda was issued without prior consultation of the industry players /licensees was procedurally wrong, discriminatory, arbitrary, irrational, unfair, unjust and unlawful. Mr. Kayondo also sought a declaration that crypto assets and crypto currencies are legitimate albeit unregulated digital assets, tradable in the digital economy and can be liquidated/cashed out via mobile money and other payment systems in settlement for Uganda Shillings. In addition to these orders, the applicant sought an order quashing the circular issued by the Bank of Uganda and prohibiting its implementing, as well as damages for losses arising from market disruptions that the applicant attributed to the Bank of Uganda’s Circular.

It was argued for the Bank of Uganda that the Circular was issued pursuant to its powers under the National Payment Systems Act and the constitution of the Republic of Uganda which accorded the Bank of Uganda a broad mandate in ensuring economic stability in Uganda .It was further argued that by the virtue of its mandate under the law , the Central Bank could forbid its licensees under the law from any activity that it considers a threat or risk to economic stability.

Decision of the court

In deciding in favor of the Bank of Uganda, the High Court noted the following:

• The argument that crypto currencies are unregulated under the law and should therefore be allowed to operate freely under the National payments system is fallacious, misleading and baseless. Being unregulated does not mean that the application can operate without sanction under the present and existing currency and payments system.
• The applicant by bringing this case intended to legitimize digital assets in the National Payment System. Crypto currencies are indeed digital assets that are designed to effect electronic payments without participation of a central authority such as a Central Bank or licensed financial institution. Crypto currencies under the current National Payment Systems are illegal or unlawfully and they are not accepted as general payment system instrument. It would be wrong and illegal for the applicant to use court to impose the unrecognized crypto currency into the regulated framework k of the National Payment System.
• The applicant, as a crypto-currency holder, is unrecognized by the payments system and cannot demand to be heard before a directive or a guideline is issued. The bank could not consult an undefined group of stakeholders who thrive on anonymity in the economic system, like crypto-currency holders.
• The Bank of Uganda has a duty to protect the public, and the court should allow great flexibility to such public authorities to execute that duty to protect the public from the risks of unregulated and unrecognized schemes in the National Payment System. The Central Bank has a duty to warn the public about the attendant risks associated with crypto currencies before the public fall prey to schemes, particularly those which facilitate anonymity of the real players, money-laundering or other illegal activities.

The High Court of Uganda upheld the circular issued by the Bank of Uganda warning all licensees under the National Payment Systems Act to desist from facilitating cryptocurrency transactions. The court found that crypto currencies are illegal or unlawful under the current National Payment Systems and cannot be legitimized through the court. The Bank of Uganda has a duty to protect the public from the risks associated with unregulated and unrecognized schemes in the National Payment System, and the court has allowed great flexibility to such public authorities to execute that duty.