Mitigating BoU concerns: Refining Sovereignty Bill without hurting foreign inflows

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OPINION

By Kalule Ahmed Mukasa, Advocate

I have followed the parliamentary debate around the Protection of Sovereignty Bill, 2026, closely since my last article on these pages, and I am encouraged by the seriousness with which Ugandans of all stations have entered the conversation. Many submissions have been made; many concerns have been ventilated.

One intervention in particular caught my attention, and it is the one I wish to address today: the cautionary note sounded by the Bank of Uganda regarding the Bill’s potential effect on Uganda’s balance of payments.

As I argued last week, the position cannot be that we should have no law at all. We need this law. We must have it. The only question before Parliament is what kind of law we should have. The Bank of Uganda’s concern is, in my respectful view, the most serious concern raised so far. It is also the most easily answered.

The concern, stated plainly

The Bank of Uganda’s worry is not philosophical; it is operational. Uganda’s balance of payments depends on a substantial and steady volume of foreign inflows — foreign direct investment, concessional loans, grants, project funding to non-governmental organisations, diaspora remittances, development-partner funds, export pre-financing, donor-financed public projects and routine private-sector cross-border financing.

These are the lifeblood of our foreign-exchange position. Anything that introduces uncertainty, delay or the perception of capital-control risk into those flows will reverberate through the foreign exchange market, the banking sector, and ultimately the cost of doing business in Uganda. That is the Bank’s concern, and it is right to raise it.

The Bill, as currently drafted, does generate that uncertainty. Clause 22 prohibits a person or “agent of a foreigner” from receiving foreign financial support, donations, loans or assistance exceeding twenty thousand currency points within any twelve-month period without the prior written approval of the Minister. One currency point under our laws is twenty thousand shillings, so the threshold is approximately four hundred million shillings. For an individual remitter, that figure may sound generous. For a foreign-funded project, an NGO with a multi-year donor agreement, a private company taking on cross-border commercial financing, or a contractor pre-financed by a foreign client, four hundred million shillings is not a high threshold at all — it is, in many cases, a single tranche of routine business.

The objective of the Bill is not the problem. The drafting is. The breadth of “foreigner,” “agent of a foreigner,” “foreign funding,” “loans,” “donations”, and “other assistance,” coupled with prior-approval, reporting, declaration, payout, forfeiture and criminal-liability requirements layered on top of those terms, captures far more than the Bill’s promoters intend to capture. That over-capture is what creates the balance-of-payments risk. And that over-capture is fixable.

The core distinction parliament must draw

The mitigation is conceptual before it is textual. The Bill must distinguish — clearly, on its face — between two categories of foreign funding. The first category is funding directed at unlawful political interference, electoral manipulation, violence, economic sabotage, the disruption of governmental operations, terrorism, money laundering or threats to national security. That category should be regulated strictly, monitored intensively and punished severely. That is what the Bill is for. That is what every comparable law in the United States, the United Kingdom, Australia and Canada is for.

The second category is the ordinary, lawful foreign inflow — foreign direct investment, commercial loans, trade finance, donor grants, remittances from a son in Atlanta to his mother in Mende, humanitarian aid responding to a refugee influx in the West Nile, scholarship money, research funding to our universities, technical assistance to ministries, development cooperation under bilateral and multilateral agreements. That category must be expressly preserved. It is the engine of our economy, and the Bill should not, even by accident, lay a finger on it.

This distinction — between regulated foreign influence on the one hand and ordinary foreign inflow on the other — is the conceptual fix. Everything that follows is the legislative drafting that makes the fix real.

Eight drafting changes parliament should adopt

Let me address the eight specific drafting concerns the Bank’s intervention exposes, and the amendments I propose for each. I offer these not as criticisms of the Bill’s promoters but as the constructive engagement Parliament has expressly invited from the public at this consultation stage.

The first concern is the breadth of “foreigner.” As currently drafted, the term arguably reaches Ugandan citizens resident abroad. The risk this creates is straightforward: it could interrupt diaspora remittances, family support and diaspora-led investment. The amendment is equally straightforward. The definition should expressly exclude diaspora remittances, family support, business capital, charitable support and lawful investment, save where any such funds are connected to prohibited activities under the Act.

The second concern is the breadth of “agent of a foreigner.” As written, the term could capture lawyers in ordinary client retainers, accountants performing routine audits, consultants, NGOs, universities, churches, contractors and companies engaged in entirely conventional commercial or professional relationships with foreign counterparties. That definition is unworkable. The term should be narrowed to persons knowingly acting under foreign direction, control or substantial financing for political, electoral, policy-influence or otherwise prohibited activities. That narrowing keeps the Bill faithful to its sovereignty purpose without sweeping the entire professional services sector into a registration regime.

The third concern is the prior-approval requirement in clause 22 above the threshold. Prior approval, in the foreign-exchange context, is the language of capital control — and Uganda is not a capital-controls economy. Even the perception that we have become one will damage investor confidence. The amendment is to replace the broad prior-approval model with a post-receipt notification model, except where the funds are connected with prohibited or suspicious activities. That keeps the regulator informed without turning the Bank of Uganda’s currency window into a permission desk.

The fourth concern arises from clause 25’s restriction on payouts by supervised financial institutions. As drafted, that clause may slow banking, payment, remittance and foreign-exchange channels. The amendment is to require reporting by supervised institutions through mechanisms prescribed in consultation with the Bank of Uganda and the Financial Intelligence Authority — and to make it clear, on the face of the statute, that supervised institutions are not to delay lawful transactions unless legally prohibited from processing them or unless those transactions are themselves suspicious.

The fifth concern is forfeiture under clause 22(3). Forfeiture is a powerful sanction, and rightly so where funds are demonstrably tied to prohibited activity. But the present drafting risks forfeiture for ordinary administrative non-compliance, which would cast a real chill into donor, lender and investor circles. Forfeiture should be limited, by statute, to funds proved by a court to be connected with prohibited activities under the Act — not to funds caught up in paperwork lapses.

The sixth concern is the breadth of the regulation-making power without mandatory consultation with the financial-sector regulators. Cross-border transfer regulation that is made without input from the Ministry of Finance, the Bank of Uganda and the Financial Intelligence Authority will, almost by definition, sit awkwardly alongside the Anti-Money Laundering framework, the National Payment Systems framework and the Financial Institutions framework. Mandatory tripartite consultation should therefore be written into the Bill for any regulation affecting cross-border transfers or supervised institutions.

The seventh concern is the absence of timelines on ministerial approval. Open-ended approval processes are the natural enemy of predictable foreign investment. The amendment is to insert a thirty-day decision period, with deemed approval where no decision is communicated within that window, subject to one written extension supported by reasons. That is a fair, conventional structure used in numerous comparable jurisdictions and would substantially blunt the perception of administrative discretion run loose.

The eighth concern is the absence of an express exemption for humanitarian and development funding. Humanitarian operations — emergency response, refugee assistance, public health, education, climate response — cannot wait for ministerial calendars. An expedited notification and clearance mechanism for humanitarian and public-benefit funding should be written expressly into the Bill, so that aid arrives when it is needed rather than when a file has been signed.

“The Bill should not say, in effect, ‘foreign funding is prohibited unless approved.’ It should say: lawful foreign funding is permitted; foreign funding connected to prohibited activities is restricted, reportable and punishable.”

A savings clause for lawful foreign inflows

The cleanest way to anchor these amendments in the body of the Bill is by inserting a savings clause that expressly protects ordinary foreign-exchange inflows. I propose the following formulation:

Nothing in this Act shall be construed as restricting, delaying, prohibiting or requiring political approval for lawful foreign direct investment, portfolio investment, diaspora remittances, export proceeds, trade finance, commercial loans, donor funding, humanitarian assistance, technical assistance, grants, concessional financing, development assistance, or any other lawful foreign exchange inflow, unless such inflow is reasonably suspected to be connected with disruptive activities, unlawful political interference, electoral interference, money laundering, terrorism financing, or any offence under this Act.

Such a clause performs two functions simultaneously. It reassures the foreign-exchange market and the international donor community that Uganda has not adopted a capital-controls posture. And it preserves, untouched, the Bill’s authority to act decisively against funds connected to prohibited activities. That dual function is precisely what the Bank of Uganda’s intervention calls for.

A Reformulated Clause 22

Clause 22, as currently drafted, anchors the balance-of-payments concern. It should be replaced with a risk-based notification model. I propose the following reformulation:

22. Regulation of foreign funding

(1)  A person or agent of a foreigner who receives funding, financial support, donation, loan or other assistance from a foreigner exceeding the prescribed threshold shall submit a notification to the Minister in the prescribed form within thirty days of receipt.

(2)  Prior approval shall only be required where the funding, financial support, donation, loan or other assistance is intended for, or is reasonably suspected to be connected with, disruptive activities; unlawful interference with electoral processes; unlawful interference with the operations of Government; activities prejudicial to national security; money laundering or terrorism financing; economic sabotage; or any other prohibited activity under this Act.

(3)  This section shall not apply to lawful foreign direct investment, portfolio investment, trade finance, export proceeds, commercial loans, shareholder funding, diaspora remittances, family support, humanitarian assistance, development assistance, technical assistance, professional fees, education grants, medical support, or other lawful foreign exchange inflows regulated under any other written law.

(4)  Regulations under this section shall be made in consultation with the Minister responsible for finance and the Bank of Uganda.

(5)  A person who knowingly receives foreign funding for a prohibited activity commits an offence and is liable on conviction to the penalties prescribed under this Act.

(6)  Forfeiture of funds shall only be ordered by a court where the court is satisfied that the funds were intended for, used for, or connected with a prohibited activity under this Act.

This reformulation does what good legislative drafting should always do: it aligns the architecture of the law with the objective of the law. The objective is to interdict harmful foreign influence. The architecture should not interdict everything else along the way.

A Reformulated Clause 25

Clause 25, governing supervised financial institutions, should be similarly tightened. I propose:

25. Reporting of foreign funding by supervised institutions

(1)  A supervised institution shall report suspicious or prescribed foreign funding transactions in accordance with regulations made in consultation with the Bank of Uganda and the Financial Intelligence Authority.

(2)  A supervised institution shall not be required to delay, refuse or block a lawful foreign exchange transaction solely on the ground that the recipient is an agent of a foreigner, unless the transaction is subject to prior approval under section 22 or is otherwise prohibited by law.

(3)  Reporting under this section shall, as far as practicable, be integrated into existing reporting obligations under the Anti-Money Laundering Act, the National Payment Systems Act, the Financial Institutions Act, and any other applicable written law.

That formulation respects what our banking sector already does, builds on the existing reporting architecture, and avoids creating a parallel and potentially conflicting compliance burden on supervised institutions.

Answering the Bank of Uganda

The best policy answer to the Bank of Uganda is not to abandon the Bill. It is to refine it so that it does not operate as a general restriction on foreign-exchange inflows. The Bill should target — surgically — harmful foreign influence, prohibited political funding, electoral interference, disruptive activities and threats to national security. It should not, even inadvertently, restrict ordinary commercial inflows, development assistance, diaspora remittances, humanitarian support, foreign direct investment, trade finance or regulated banking transactions.

That refinement is achieved through four moves: replacing the broad prior-approval model with a risk-based notification model; expressly exempting lawful foreign inflows; involving the Bank of Uganda and the Minister of Finance in any regulations affecting cross-border transfers; and requiring prior approval only where funds are connected with prohibited activities.

The Bill, as it should ultimately read, must not say in effect that foreign funding is prohibited unless approved. It must say, plainly: lawful foreign funding is permitted, but foreign funding connected to prohibited activities, unlawful political interference, electoral manipulation, economic sabotage or threats to national security is restricted, reportable and punishable. That single conceptual shift answers the Bank of Uganda. It preserves the Bill’s sovereignty objective. And it gives Parliament a law worth passing.

The incision must be made. Let us make it precisely.

The writer is a Member of the Uganda Law Society | Partner, Crane Associated Advocates, Kampala