Crypto Regulations Vary Widely Across East Africa

In recent years, the use of stablecoins as a means of cryptocurrency payment has gained significant traction globally, with many companies adopting this new form of payment. However, several countries, including Indonesia, Russia, and Turkey, have prohibited cryptocurrency payments for retail users. Despite these domestic restrictions, legal experts and cryptocurrency regulatory observers have noted that using cryptocurrency for overseas payments may still be permissible under the law. This discrepancy arises because a country's laws typically apply only to events occurring within its borders or involving its own citizens, as stated by Meric Paldimoglu, a lawyer from Turkey and managing partner of the Paldimoglu Law Firm.

Some countries are implementing stricter regulations for digital asset firms, requiring them to obtain licenses for their overseas operations or exit foreign markets. For example, California has issued its first fine under a new crypto law, citing violations by a crypto kiosk operator. Similarly, Bolivia maintains its prohibition on cryptocurrencies as legal tender, despite an economic crisis that has driven underground adoption. In contrast, some regions have taken a more permissive approach. Bangladesh, for example, has not explicitly banned cryptocurrencies, although they are not recognized as legal tender. This legal grey zone has allowed cryptocurrencies to thrive in the country, with users and businesses finding ways to operate within the existing regulatory framework.

The situation in East Africa is particularly complex, with Kenya, Tanzania, and Uganda each charting different paths in their approach to cryptocurrency regulation. Kenya has taken a progressive stance with its Virtual Asset Service Providers (VASP) Bill, which aims to bring virtual asset exchanges, wallet providers, and traders into a formal regulatory fold. This bill includes a digital asset tax, which was later halved. Proponents argue that clear legislation will enhance Kenya’s compliance credentials on anti-money laundering (AML) and counter-terrorism financing (CTF), while also boosting its appeal to foreign investors. However, there are concerns that the bill could create unnecessary barriers for entry and stifle innovation.

Tanzania, on the other hand, has adopted a tax-first approach without a clear legal framework. The country has introduced a withholding tax on payments made for the exchange or transfer of digital assets, but the lack of regulatory backing has made enforcement and investor protection challenging. Despite these issues, some users equate taxation with legitimacy, and the Tanzania Revenue Authority’s approach has emboldened them to engage in cryptocurrency transactions.

Uganda presents a paradox, with a rapidly growing crypto market but no formal legal recognition of digital assets. The Ugandan government has warned against using crypto through mobile money platforms, and a High Court ruling has denied legal status to cryptocurrencies. This legal vacuum has led to a brain drain, with trained developers and fund managers seeking opportunities in regions with clearer regulatory frameworks. The fragmented regulatory structure in Uganda has made it difficult to handle the borderless nature of crypto, and there are calls for a twin-peaks regulatory model similar to South Africa’s.

The lack of a unified approach to crypto regulation in East Africa is beginning to affect regional commerce. Entrepreneurs engaged in cross-border remittances and decentralized finance (DeFi) face a maze of conflicting rules, making it difficult to build and scale crypto start-ups. Industry insiders and legal experts are calling for regional harmonization, arguing that an East African digital asset framework could standardize compliance, improve consumer protection, and attract global investment.

In summary, the regulatory landscape for cryptocurrencies is diverse and evolving. Some countries are tightening their grip on domestic cryptocurrency payments, while others are taking a more permissive approach. The situation in East Africa highlights the challenges and opportunities of a fragmented regulatory environment, with each country pursuing its own strategy. As the use of cryptocurrencies continues to grow, it is likely that more countries will grapple with the complexities of regulating this emerging technology.