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Cryptocurrency And The Shadow Economy: Facilitators of Illicit Financial Flows In Uganda

Parrots Media by Parrots Media
June 30, 2025
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By Our Reporter,

BUSINESS

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Uganda is at a critical juncture in its digital evolution. With the increasing adoption of cryptocurrency and other digital assets, the country has the opportunity to boost financial inclusion and technological advancement. But as this digital frontier expands, so too does the risk of illicit financial flows (IFFs), an invisible drain on Uganda’s economic stability, development prospects, and fiscal sovereignty.

The informal economy, which dominates more than half of Uganda’s economic landscape, is particularly vulnerable. It offers the perfect ecosystem for unregulated financial activities, especially through peer-to-peer cryptocurrency platforms that often operate beyond the reach of formal oversight.

Cryptocurrencies such as Bitcoin, Tether (USDT), and Ethereum are increasingly used in Uganda for everything from online trading to international payments.

For small business owners and freelancers, these tools offer a way to receive income globally with minimal cost. But in a country with a large unbanked population and limited regulatory control, they are also being used to move money anonymously, often for tax evasion, money laundering, and illegal exports.

A notable example is the rise in cross-border gold smuggling, where proceeds are allegedly converted into crypto and moved offshore. The money never touches a formal bank account, and authorities are left unable to track or tax the earnings.

Peer-to-peer exchanges like Binance P2P and Paxful are commonly used, often without proper Know Your Customer (KYC) checks.
This allows individuals to set up multiple accounts, mask their identities, and transfer substantial amounts of money—completely outside the banking system.

While some East African countries have begun to respond with clear regulatory frameworks, Uganda remains largely in a regulatory grey zone. The Bank of Uganda has issued public advisories warning citizens about the risks of dealing in cryptocurrencies, but these warnings have not been legally binding.
There are no formal licensing requirements for crypto exchanges, no dedicated supervisory body for digital asset activities, and no clear enforcement mechanisms for crypto-related crimes.
This lack of regulation has made it difficult to prosecute offenders or even to gather reliable data on how much money is leaving the country through unregulated digital channels.

Several African nations however offer models that Uganda can learn from:
• Nigeria, despite facing similar challenges, has taken a proactive approach. The Nigerian government banned crypto transactions through banks in 2021, but later pivoted toward regulation. It introduced a licensing framework for crypto exchanges under its Securities and Exchange Commission, and is investing in blockchain forensics and monitoring tools. The Central Bank of
Nigeria has also launched its own Central Bank Digital Currency (CBDC)—the eNaira to provide a controlled alternative to decentralized cryptocurrencies.

• South Africa has made significant progress by classifying cryptocurrency as a financial product under its Financial Advisory and Intermediary Services Act (FAIS). This means crypto platforms must be licensed and report suspicious activity.

• Kenya has adopted a more measured approach by creating a multi-agency task force to study blockchain and crypto technologies. The Central Bank is working with the Capital Markets Authority to create regulatory sandboxes, allowing startups to innovate under regulatory supervision.
In contrast, Uganda risks falling behind. Without clear rules, enforcement capabilities, and international partnerships, the country is becoming a haven for crypto-enabled illicit flows in the region.

We need a comprehensive, enforceable, and future-facing regulatory framework for digital assets with a framework that;
1. Defines and classifies cryptocurrencies and exchanges under national law.
2. Mandates KYC and AML compliance for all crypto service providers.
3. Empowers financial intelligence units with tools to trace blockchain transactions.
4. Fosters cross-border collaboration with regional partners and global financial watchdogs.
5. Invests in public awareness so that citizens can distinguish between legitimate crypto use and fraudulent schemes.

Training law enforcement, tax officials, and regulators in blockchain analytics should be a top priority. Law enforcement agencies like the Financial Intelligence Authority and Uganda Revenue Authority must be equipped to not only detect crypto-related IFFs but to prosecute offenders effectively.

The digital economy offers Uganda a real opportunity to leapfrog traditional financial barriers. But it must be managed with care. Cryptocurrencies are not inherently good or bad—they are neutral technologies. It is the policy environment, institutional strength, and public understanding that will determine whether they contribute to national development or silently undermine it.

Countries like Nigeria and South Africa are demonstrating that it is possible to regulate without stifling innovation. Uganda, too, can chart a path that embraces digital currency while protecting national interests.

Unchecked crypto flows cost Uganda more than money—they undermine efforts to build a secure and accountable economy.

Tags: Crypto CoinsCryptocurrencyFake CryptocurrencyFake Dollars

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