Shakhriyor Tojiboev

July 12, 2021

Image source: Bitcoin.com

Introduction

Cryptocurrency is a digital currency in which transactions are verified and records maintained by a decentralized system using cryptography, rather than by a centralized authority. It is a form of payment that can be exchanged online for goods and services. Many companies have issued their currencies, often called tokens, and these can be traded specifically for the good or service that the company provides. As of today, the total number of cryptocurrencies is 4,501 and their total market value is $ 2.48 trillion. The first and most popular cryptocurrency with the largest market capitalization was Bitcoin (BTC), which was first issued on January 3, 2009. As of February 2021, 1 BTC has exceeded $ 57,500 and is actively rising. Bitcoin has a total market capitalization of $ 982.93 billion and a daily turnover of $ 42 billion.

What is the current situation of regulation of cryptocurrencies in Uzbekistan? Is it legal to exchange them in the territory of the country? In this blog post, I discuss the policy of Uzbekistan towards cryptocurrencies and the regulation of the issues related to cryptocurrencies in the country.

A legal initiative

The President of Uzbekistan signed the Decree No. 3549 “On the organization of the Ministry of Information Technologies and Communications Development of the Republic of Uzbekistan” dated February 19, 2018. According to this Decree, the Central Bank, Ministry for Development of Information Technologies and Communications, Ministry of Finance, Ministry of Economy and relevant ministries were instructed to develop a draft law on the legal regulation of electronic money (cryptocurrency) in the territory of Uzbekistan by September 1, 2018.

Later on, the President of Uzbekistan signed a Decree No. 3832 dated July 3, 2018 “On measures to develop the digital economy in the Republic of Uzbekistan”. According to this Decree, the norms on currency regulation do not apply to foreign exchange transactions related to the turnover of cryptocurrencies. The Decree states that the turnover of crypto assets is regulated by special regulations. In addition, the National Agency for Project Management together with the Ministry for Development of Information Technologies and Communications was instructed to develop proposals to create conditions for the development of activities in the field of crypto-assets. According to these proposals, National Agency for Project Management together with the Ministry for Development of Information Technologies and Communications should have introduced the draft law “On the digital economy and blockchain technologies” by January 1, 2019. This draft law should have included the following information:

  • The basic concepts in the field of blockchain technology and the principles of its operation;
  • The authorities of government agencies and other participants in the process in the field of blockchain technology;
  • Regulations on liability for illegal use of blockchain technology;
  • The procedure for licensing activities in the field of crypto-asset turnover.

On September 2, 2018, the President signed another Decree No. 3926 “On measures to organize the activities of crypto exchanges in the Republic of Uzbekistan”. In accordance with this Decree, the norms of the legislation on currency regulation do not apply to foreign exchange transactions related to the turnover of cryptocurrencies. It also mentioned that the country needs to adopt a special law to regulate the turnover of crypto assets. However, in practice, this sphere in Uzbekistan is regulated by the currency legislation.

Why there is no single statute?  

In September 2017, the Central Bank of Uzbekistan expressed the opinion that it is inappropriate to allow transactions with cryptocurrencies due to the danger of terrorist financing and other criminal activities. On top of that, “Bitcoin is a decentralized digital currency used to make anonymous transactions for goods and services over the Internet. The legislation of the Republic of Uzbekistan does not provide for the use of digital currencies”– said the vice-chairman (former) of Central Bank, Timur Ishmetov.

Moreover, Article 6 of Law No. 660-II “On Combating Money Laundering, Financing of Terrorism and Financing the Proliferation of Weapons of Mass Destruction” provides information about internal control, which is the activity of organizations engaged in cash or other property transactions to identify transactions that must be reported to a specially authorized government agency. This provision also states that relevant regulatory, licensing, and registration authorities together with a specially authorized state body develop and approve the rules of internal control for organizations carrying out transactions with funds or other properties. “The main reason why the Central Bank links cryptocurrencies to this law is that the transaction does not have any internal or external administrators. This can lead to certain threats, the possibility of misappropriation of criminal capital, tax evasion, terrorist financing and the spread of fraudulent schemes”,- said Jahongir Ubaydullayev, an expert on international public and investment law. At the same time, it should be stated that persons engaged in activities in the field of cryptocurrency turnover are also included in the list of organizations carrying out transactions with monetary funds or other property defined by this Law.

Nevertheless, I argue that there should be a single law which regulates the sphere of cryptocurrencies.  The reason for this argument is that it is very difficult to make amendments in laws, which requires many steps; however, state authorities can change other legal acts easily. Also, single law guarantees the protection of the rights of persons engaged in cryptocurrency. It also serves to attract investors to the country, because when an investor invests in a particular sector, he or she pays attention to the extent to which the industry is regulated and their activities are guaranteed.

Is it possible to buy cryptocurrency in Uzbekistan? If so, is it legal to use cryptocurrency?

All crypto-assets in Uzbekistan must be licensed and operated on a crypto exchange opened in early 2020. Exchange participants can only sell previously acquired crypto assets to foreign users. It is not possible to buy crypto-assets on the stock exchange – the organizers explained this by the low financial literacy of the population.

Tariffs are available, legalization is not. This is because the purchases are prohibited, cryptocurrencies can only be obtained through Mining (mining is an activity which provides a distribution platform and creates new blocks that allow for rewards in the form of new units and commissions in different cryptocurrencies). In the spring of 2020, miners in Uzbekistan were required to pay increased tariffs for electricity. However, no procedure has been developed to identify and apply this tariff to Mining consumers. The legalization of Mining was supposed to be based on the creation of the Uzbekistan Cryptocurrency Mining Pool as part of mandatory membership, but the relevant documents have not yet been adopted.

What is the punishment for trading cryptocurrency?

Trading in cryptocurrencies is recognized as a crime under Article 177 of the Criminal Code of Uzbekistan. The title of this article is “the illegal acquisition or transfer of foreign currency”, and many individuals who trade in cryptocurrencies are prosecuted under this article. Such individuals were also charged under Article 190 of the Criminal Code, which provides for unlicensed activity. For example, in the summer of 2020, a criminal case was initiated against citizens engaged in bitcoin trading in Tashkent under Articles 177 (illegal sale or purchase of foreign currency) and 190 (engaging in unlicensed activities) of the Criminal Code. However, it can be considered incorrect to qualify under Article 177 of the Criminal Code for trading in cryptocurrency. The reason is that there is no legal basis which regulates and restricts cryptocurrency trading. Under the Decree “On measures to develop the digital economy in the Republic of Uzbekistan”, the norms of the legislation on currency regulation do not apply to foreign exchange transactions related to the turnover of cryptocurrencies conducted by persons licensed to carry out activities in the field of cryptocurrency assets. The turnover of crypto assets should be regulated by special regulations.

However, trading on crypto exchanges may be allowed in Uzbekistan.

Cryptocurrency exchanges are expected to be allowed in Uzbekistan. The relevant draft resolution has been posted on the portal for discussion of draft regulations. According to this draft resolution, citizens are allowed to register, issue, and (or) convert tokens issued by residents and (or) non-residents of Uzbekistan. Residents of Uzbekistan have the right to conduct all types of crypto-exchange trades with crypto assets and tokens in cryptocurrency exchanges in national and foreign currencies. In this case, the choice of crypto-assets as the object of purchase and the relevant consequences of this choice is considered the buyer’s own risk.

Conclusion  

The blogpost analyzed the regulatory policy of cryptocurrencies in Uzbekistan. In the first part, I clarified the concept of cryptocurrency and its impact on the global economy. Then, I explored the legal initiatives and learned several legal acts adopted by the Head of Uzbekistan. In particular, the blogpost identified a need for a special legislation on the cryptocurrency sector has been stated in all the above Presidential Decrees and instructions have been given to the relevant state bodies to develop such legislation. However, responsible authorities has not yet developed a single legal document, so in practice this area is still regulated by other legislation relating to currencies. Next, I also analyzed the reasons why Uzbekistan has not still allowed to buy cryptocurrencies and trading with them. Since it is not allowed to trade in cryptocurrencies, such activities are considered illegal. However, it is incorrect to qualify under Article 177 of the Criminal Code for trading in cryptocurrency. The reason is that there is no legal basis that regulates and restricts cryptocurrency trading. Recently, a draft resolution has been published on discussion portal. According to this document, trading on crypto exchanges may be allowed in Uzbekistan.

Cite as: Shakhriyor Tojiboev, “The regulatory policy of cryptocurrencies in Uzbekistan”, Uzbekistan Law Blog, 12.07.2021.