The Legislative Landscape of Cryptocurrency in Somalia Prior to 2023

The legislative environment for cryptocurrencies in Somalia leading up to 2023 was characterized by a notable lack of regulation and a general caution advised by the Central Bank of Somalia. This article explores the key elements of Somalia’s approach to cryptocurrency regulation during this period.

Ambiguous Legal Status and Absence of Regulation

In Somalia, there were no specific laws or regulations that explicitly banned or regulated the use of cryptocurrency. This regulatory vacuum meant that cryptocurrencies like Bitcoin, Ethereum, Litecoin, Dogecoin, Tether, Cardano, USDT, XRP, and Monero were neither illegal nor fully recognized by law. Consequently, the legal status of cryptocurrency in Somalia was somewhat complicated and unclear​​​​​​​​​​.

Central Bank of Somalia’s Cautious Stance

The Central Bank of Somalia played a pivotal role in shaping the country’s cautious stance towards cryptocurrencies. While not officially recognizing cryptocurrencies as legal tender, the Central Bank issued warnings about the potential risks associated with digital currencies. These risks included market volatility, the potential for fraud, and the lack of consumer protection. However, these warnings did not translate into formal regulations or guidelines for the use of cryptocurrencies. As a result, Somalis choosing to engage in cryptocurrency activities did so at their own risk, without any legal protection or guidance from financial authorities​​​​​​.

Absence of Penalties and Legal Protection

In the absence of specific cryptocurrency regulations, there were no explicit penalties or enforcement mechanisms for the misuse of cryptocurrency in Somalia. However, activities related to money laundering or financing terrorism were illegal and heavily penalized. Thus, if cryptocurrencies were used for such illegal activities, the individuals involved could face severe penalties under existing financial laws​​​​.

Risk Factors and Taxation Issues

The lack of regulation also brought with it several risk factors, including market volatility, the potential for hacking, and scams, similar to other countries. Moreover, the tax treatment of cryptocurrencies in Somalia was not explicitly defined, adding to the uncertainty in this sector. This lack of a regulatory framework posed risks for businesses and individuals involved in the cryptocurrency market​​​​​​.

Conclusion

In summary, the legislative landscape for cryptocurrencies in Somalia prior to 2023 was marked by an absence of specific laws or regulations, a cautious stance by the Central Bank, and a general lack of legal clarity. This created an environment where cryptocurrency activities were neither fully illegal nor officially sanctioned, leading to a situation where individuals and businesses operated in a gray area with respect to digital currencies. The absence of clear guidance or regulatory framework meant that those engaging in cryptocurrency in Somalia did so at their own risk, with little to no protection against the associated risks.