Uzbekistan

Welcome to our guide into the regulatory landscape for crypto in Uzbekistan, brought to you through a collaborative effort between Praelegal Uzbekistan, an international law firm with a dedicated crypto practice, and Heemera, a global provider of crypto investigative and asset recovery services. You can reach out to us at [email protected] and [email protected].

Summary

Crypto assets are officially recognized and regulated in Uzbekistan, although they are not considered legal tender. Starting on January 1, 2023, residents of the Republic of Uzbekistan can engage in crypto transactions exclusively through domestic Crypto Asset Service Providers (CASPs). Only entities that are legally registered in Uzbekistan and have obtained the necessary licenses are permitted to operate as CASPs. There are four distinct categories of CASPs: crypto exchanges, crypto stores, crypto depositories, and mining pools.

Residents of Uzbekistan are restricted to buying and selling crypto assets solely through domestic CASPs (with the sole exception being the sale of NFTs, which can be conducted on foreign platforms). Domestic CASPs are not restricted to serving residents only and can facilitate transactions with non-residents, enabling the purchase, sale, and exchange of crypto for both national and foreign fiat currencies, as well as crypto-to-crypto exchanges. Licensed domestic CASPs essentially serve as a bridge connecting residents of Uzbekistan to the global crypto market.

Uzbekistan stands out as one of the few jurisdictions where the traditional banking and financial sectors have embraced the concept of crypto with acceptance and understanding. Domestically licensed CASPs enjoy smooth access to banking services and straightforward fiat transactions related to their crypto activities.

All crypto transactions, whether conducted by individuals or legal entities, including non-residents, are exempt from taxation in Uzbekistan. The income generated from these operations is not considered part of the taxable base for taxation purposes.

Legal Status: Regulated

Uzbekistan's crypto industry is regulated, featuring a relatively comprehensive and recently established regulatory framework that covers various aspects, including mining, licensing and operations of CASPs, anti-money laundering in the crypto industry, and the issuance, marketing, and circulation of crypto assets. Additionally, a regulatory sandbox is in place to facilitate the pilot implementation of new blockchain technologies and the testing of innovative regulatory mechanisms. Participants in the regulatory sandbox benefit from tax exemptions and other advantages.

Primary Regulator

The National Agency of Perspective Projects (NAPP), reporting directly to the President of the Republic of Uzbekistan, is the government agency responsible for regulating and licensing the crypto market in Uzbekistan, and holding the authority to introduce new rules and regulations pertaining to this sector. Aside from crypto, NAPP also serves as the regulator for the capital markets and insurance industry in the country.

Regulator's Approach Towards Foreign CASPs

In April 2022, a presidential decree restricted Uzbekistan residents from using foreign CASPs for crypto transactions. This came with an eight-month grace period.

In December 2022, NAPP issued warnings to major foreign CASPs regarding the necessity of complying with local licensing requirements, particularly prohibiting serving residents of Uzbekistan without obtaining the requisite license, and informing about the consequences of failing to do so.

During 2023, NAPP exercised a flexible approach while considering potential market entries. However, access to the websites of major foreign CASPs was restricted by the government.

In 2024, NAPP adopted a stricter approach which involves conducting proactive inspections of major foreign CASPs catering to Uzbekistan residents. Legal actions were taken against CASPs operating without establishing a local legal entity and securing the necessary licenses while continuing to serve Uzbekistan residents. Notably, a fine imposed and a lawsuit brought against Binance earlier in 2024 for non-compliance, signalling stricter regulatory enforcement and establishing a precedent for similar actions against other foreign crypto exchanges.

Despite the increased regulatory enforcement against foreign CASPs, NAPP demonstrates an openness to collaboration with any foreign CASPs looking to operate within Uzbekistan’s regulatory framework. NAPP is expressing readiness to welcome reputable foreign CASPs and extend support for their market entry.

Foreign CASPs serving Uzbekistan residents can mitigate negative legal consequences by establishing a local legal entity and obtaining the necessary licenses to operate as a CASP. If local registration is not feasible, implementing an exit strategy is crucial to avoid or minimize negative reputational consequences and further legal complications. Such an exit strategy involves restricting services for Uzbekistan residents, accompanied by transparent communication and a well-defined withdrawal procedure.

NAPP's stance is likely to evolve further as they refine regulations and assess the actions of foreign CASPs.

Types of CASPs / Crypto Activities

The legal framework distinguishes between two primary types of crypto activities:

1. Mining: Mining operations are allowed for legal entities that utilize electricity generated by solar photovoltaic stations. If electricity is sourced from a centralized power grid, miners are subject to a double tariff rate and additional surcharges. Registration with NAPP is required for mining activities.

2. Crypto Asset Service Providers (CASPs): There are four categories of CASPs, all of which require licensing by NAPP:

Crypto Exchange: Crypto exchange operates as an intermediary facilitating trades between customers, maintaining quotation lists, and ensuring settlement and clearing of transactions. It caters to both legal entities and individuals. Crypto exchange license enables various crypto-to-fiat and crypto-to-crypto exchanges, allows custody of customer assets, permits margin trading, and acting as an intermediary for customer transactions. State duty for the license issuance is approximately USD 1 977 500, with a monthly operational fee of around USD 19 940.

Crypto Store: Crypto stores, which can be either online or physical, can only act as a direct counterparty to customers willing to buy or sell crypto assets. Crypto stores can service individuals only and their services are limited to crypto-to-fiat and vice versa exchanges, without custody of customer assets. State duty for the license issuance is approximately USD 99 700, with a monthly operational fee of roughly USD 5 000.

Crypto Depository: These organizations offer services related to the issuance, initial offering, and storage of crypto assets. State duty for the license issuance is approximately USD 188 600, and the monthly operational fee is around USD 135.

Mining Pool: Mining pools operate electronic platforms that consolidate computing power to support the crypto mining process. State duty for the license issuance is approximately USD 80 830, and the monthly operational fee is about USD 2 700.

NAPP provides detailed CASP licensing guidelines on their website.

Gradual elevation of market entry standards and requirements for crypto businesses is anticipated going forward, with NAPP aiming to foster the presence of high-quality reputable CASPs, prioritizing them over smaller, less reputable players.

Key Players

UzNEX: The first licensed crypto exchange operating in Uzbekistan, owned and operated by Kobea Group.

Coinpay LLC: Another entity operating a crypto store, which has secured crypto exchange license as well.

Lockton Hub: The licensed crypto depository in Uzbekistan, with technical support from Distributed Lab.

JapanDXT: The third licensed crypto depository in Uzbekistan.

Paynet Crypto, a subsidiary of payment services provider Paynet, which secured crypto store and crypto depository licenses.

Crypto Stores: Uzbekistan has 10 licensed crypto Stores, including Paynet Crypto, Crypto Express, Crypto Trade Net, Crypto Market, Coinpay, C-Base, Cryptocorp, C-Cash, T-Firm, and T-Rex.

Uzinfocom: A participant in the regulatory sandbox, introducing NFT certificates for domain names within the ".UZ" domain zone, and developing www.token.uz, a universal blockchain platform for various use cases for businesses and government.

Kapital Bank and Octobank: These commercial banks are also part of the regulatory sandbox, developing and implementing "Crypto Card" banking card products.

Tether: Signed MOU with NAPP aimed to promote the development and adoption of blockchain technology, improve the regulatory framework, introduce technologies for CBDC (Central Bank Digital Currency) and tokenization of assets in Uzbekistan.

NAPP maintains public lists of all licensed CASPs and participants of the regulatory sandbox.

Classification of Crypto Assets

The legislation of Uzbekistan defines a "Crypto Asset" as a property right comprising a set of digital records in a distributed data ledger, having value and an owner, while a "Token" is a type of crypto asset that serves as a unit of account in a distributed data ledger, used to certify an obligation or property right over a specific asset, managed through a smart contract.

Tokens are further categorized into secured and unsecured types:

1. Secured Token: A token backed by some form of property (tangible or another). Secured tokens include:

2. Unsecured Token: A token not backed by any tangible or other property.

In the territory of the Republic of Uzbekistan, residents are prohibited from issuing Stable Tokens and Unsecured Tokens, and the registration of their issuance by crypto depositories is not allowed.

The issuance of certain types of Utility Tokens (which are Unsecured Tokens designed for specific actions within the issuer's ecosystem, often expressed as a unit of measurement with value) is permitted:

It is not permitted to use Utility Tokens outside the issuer's ecosystem (the issuer's information system designed for the issuance, distribution, and circulation of crypto assets).

Furthermore, crypto exchanges are prohibited from:

Marketing of Crypto Assets

The legislation makes it clear that the regulations governing traditional securities and stock exchanges do not apply to crypto assets and crypto exchanges. It mandates specific guidelines for promoting crypto assets.

Crypto advertisements must provide comprehensive warnings about the risks associated with crypto assets, including potential losses, volatility, and their non-recognition as legal tender in Uzbekistan. Additionally, any terms and steps related to crypto offerings must be clearly outlined. When referring to past or future performance, advertisements must transparently explain the basis and nature of such claims. Moreover, advertisements are restricted from guaranteeing success, mentioning bonuses as incentives for crypto involvement, portraying crypto as a quick wealth-building avenue, making unsupported claims about crypto's importance, or criticizing individuals who opt not to participate in crypto activities or services.

Anti-Money Laundering and Crypto Crime Prevention

Internal control rules are established for CASPs, aligning with FATF Recommendations and regulating the "know your customer" procedures and risk-based approach.

CASPs are prohibited from engaging in transactions without mandatory customer identification. Due diligence is required for all new customers and selecting existing customers, based on their risk level.

Any suspicious transactions or attempts thereof must be reported by CASPs to the Department for Combating Economic Crimes at the General Prosecutor’s Office of the Republic of Uzbekistan within one business day of their detection. In certain cases (i.e. involvements of sanctioned entities) transactions must be immediately suspended, reported and assets frozen by CASP.

A recent amendment to the Criminal Code and Administrative Responsibility Code of the Republic of Uzbekistan, effective from April 20, 2024, introduces penalties for various illegal activities related to crypto assets. These include illegal (i.e. outside of domestic licensed CASPs) acquisition, sale, or exchange of crypto assets, providing CASP services without proper licensing, engaging in transactions with or mining of anonymous crypto assets, and other illegal mining activities. Penalties range from administrative arrests, fines, and corrective labour to restriction of freedom or imprisonment. Repeated, large-scale offenses or actions committed in conspiracy or by organized groups incur harsher penalties, with imprisonment for up to 5 years being the maximum criminal punishment. Individuals who voluntarily report an impending or committed crime and actively contribute to its investigation are not held liable.

In 2021, a collaborative resolution involving the General Prosecutor's Office, Ministry of Internal Affairs, State Security Services, and State Customs Committee was enacted, endorsing the protocol for freezing, securing, and seizing crypto assets. This interagency document outlines an approach for law enforcement agencies (LEAs) to identify information related to the circulation of crypto assets. Crypto assets are subject to temporary freezing and attachment until their origin is clarified or a court decision is rendered. This seizure process entails the transfer of crypto to the LEA's crypto wallet, with the value of the assets assessed at the time of seizure based on crypto assets exchange rates, and for non-convertible assets, evaluated in accordance with prices from financial service platforms.

Key Regulations

Contacts