The Ugandan government is starting a countrywide crackdown on digital payment providers facilitating cryptocurrency businesses in the country this week.
The Bank of Uganda (BoU) issued a stern warning to all payment service providers, including mobile money operators, saying allowing crypto transactions opened the country to fraudulent deals, money laundering, sale of illicit goods, and online scams.
In a circular dated Apr. 29, BoU said it was concerned that advertising agents have been marketing mobile money for crypto transactions and vice versa, an illegal business in the country.
“We are also aware that such a conversion cannot happen without the participation of the payment service providers,” the regulator noted in a statement.
Uganda’s crypto scams and Ponzi schemes thrived during the pandemic
Last February, the Ugandan parliament began criminalizing Ponzi schemes which have always been associated with cryptocurrencies, and have led to loss of money by many citizens.
State Minister of Finance David Bahati said the government had established a task force to explore cryptocurrencies and their potential applications in Uganda but warned citizens against the rush to join online crypto exchange marketplaces such as Binance, Local Bitcoins, Kraken, Cex, Coinmama, OkCoin, and Changelly.
“The challenge is that operators of such schemes register as financial institutions but when they get on the ground, their operations are different,” he said.
Uganda is also moving fast to update its Anti-Money Laundering Act to include providers of virtual assets such as crypto, under the umbrella of regulations under the purview of the Financial Intelligence Authority.
Millions have been lost in Uganda to crypto scams
A petition lodged last January by 5,000 victims of the Dunamiscoins scam—that is alleged to have stolen approximately $2.7 million from Ugandans—is likely to have influenced the government’s recent directive against cryptocurrencies.
In November of last year, Dunamiscoins Resources Limited opened in Masaka—a city three hours away from Kampala—promising Ugandans huge returns in its plan to become the country’s “digital currency network.” But it closed shop after just one month, with more than 10,000 people having lost their money.
Five other cryptocurrency firms have reportedly closed shop and vanished with a total of more than $26 million of their clients’ money from October 2019 to February 2020.
Robert Bakalikwira, a criminal investigations officer probing the cases estimates that 200,000 Ugandans have lost about $1 billion, or almost 4% of the country’s GDP of $28 billion between 2018 and 2020.
The Criminal Investigations Directorate (CID) said in February that it was holding John Mwangutsya, the director of Crypto Bridge African Limited that is suspected to have defrauded Ugandans from different parts of the country of over $1 million. He reportedly defrauded more than 1,000 Ugandans through online digital transactions between 2018 and 2020 before vanishing.
Despite continued warnings from the government against the inherent risks of unregulated cryptocurrencies, similar to other parts of the continent, citizens keep falling prey to the elaborate scams.
