Government has warned the public against investing in cryptocurrency saying the investment is so “risky” and operates outside the purview of the Central Bank.
State minister of Finance for Planning, David Bahati told Parliament during Tuesday plenary that Ponzi, Pyramid schemes and Crypto-currencies is a fraudulent virtual investment where dishonest investors take advantage of innocent individuals by encouraging them to invest their savings (money) into ventures - that have no underlying product, with a promise of extraordinary returns.
Cryptocurrency is a virtual currency in which encryption techniques, based on Blockchain technology, are used to generate units of the virtual currency and verify the transfer of virtual funds. On the other hand, Ponzi and pyramid schemes are fraudulent investment scams promising high rates of return of between 30%-40% with little or no indication of risk to investors. Ponzi and Pyramid schemes reward investors mainly through new recruitments, with no underlying commensurate production of goods and services. According to Bahati, these schemes typically operate outside the purview of a Central Bank or any other Central Authority.
“Bank of Uganda and my Ministry [finance] has on several occasions, through the media, advised the general Public on the risks associated with cryptocurrency, To that end, we have continued to advise the public to desist from investing in cryptocurrencies, since they are yet to be supervised and regulated in Uganda. We have therefore strongly encouraged the members of the public to do their business transactions with only licensed financial institutions,” Bahati said.
During the debate, Kwame Rugunda, the son to Prime Minister Dr. Ruhakana Rugunda was cited to be among the top individuals who are allegedly luring the public into this scam. Kwame Rugunda is the Chairperson of Blockchain Association of Uganda. Blockchain technology is used to operate cryptocurrencies.
Minister Bahati cleared the air saying that Kwame Rugunda is not involved in ponzi and pyramid schemes but deals in block chain technology which can also be of beneficial application in various sectors such as land registration; industry and manufacturing; logistics and transport; and record keeping; among others.
A Blockchain is a decentralised technology spread across many computers that manage and record transactions in such a way that they are irreversible. In November 2018, Parliament adopted a resolution urging Government to ban Ponzi and Pyramid schemes in Uganda after some members of the public lost billions of shillings in the scheme.
In a bid to tame the vice, the Ministry of Justice has been urged to expedite amendment of the Penal Code Act to criminalise Ponzi and Pyramid schemes as well as anti-Money Laundering Act, 2013 to include Virtual Assets Providers on the list of accountable persons which will bring Virtual Assets Service Providers, including providers of cryptocurrencies, to be brought under the purview of the Financial lntelligence Authority.