The Protection Of Sovereignty Act, 2026: Business Is Back To Business As Usual

The controversial Protection of Sovereignty Act, 2026 (the "Act"), has now been assented to by the President and will become law upon publication in the Uganda Gazette. The law attracted considerable public concern, particularly among banks, insurance companies, international NGOs and other commercial entities, and Ugandans in the diaspora owing to its exceptionally broad definitions of "agent of a foreigner" and "foreigner," and its sweeping restrictions on the receipt and disbursement of monies from abroad.

During its passage through Parliament, the Bill underwent substantial amendment following the unprecedented massive public outcry. The Act as passed differs substantially from its original, and the key message for commercial clients is a reassuring one: the Act is now largely not a cause for concern for regulated commercial actors. The definition of "agent of a foreigner" has been significantly narrowed, broad exemptions have been introduced for regulated entities and lawful capital flows and the general tenor of the legislation has shifted from one of broad commercial regulation to one focused on foreign financing of political activities.

That said, residual areas of uncertainty remain, particularly for banks and money remittance agencies under section 25 of the Act and in respect of the absence of implementing regulations. These are addressed below. The Act is widely expected to face a strong challenge in the Constitutional Court, on both procedural and substantive grounds, which may further affect its implementation.

The amended definition of "agent of a foreigner"

The single most important change between the Bill and the Act is the definition of "agent of a foreigner." Under the Bill, the term was defined extraordinarily broadly. It encompassed any person who acts at the order, request, or under the direction or control of a foreigner or of a person, any of whose activities are directly or indirectly supervised, directed, controlled, financed or subsidised by a foreigner". Read literally, this definition was capable of capturing virtually any commercial entity that receives foreign investment or operates under a foreign parent company.

The Act has fundamentally recast this definition, and it now refers to "a person who engages in political activities on the order, request, supervision, or direction of a foreigner; or while being financed or subsidised by a foreigner.”

The effect of this amendment is transformative. Ordinary commercial, financial, and humanitarian operations, including banking, insurance underwriting, trade finance, and NGO programme delivery, do not constitute "political activities" within the meaning of the Act and therefore fall outside the definition of "agent of a foreigner" entirely.

A further notable change concerns the definition of "foreigner." Under the Bill, this term included "a Ugandan citizen residing outside Uganda," which had provoked considerable controversy by potentially capturing the entire Ugandan diaspora and their family remittances. The term "foreigner" is now confined to non-Ugandan citizens, foreign governments and diplomatic missions, foreign-incorporated entities, and international or multinational organisations, and only where such persons engage in, finance, or subsidise the political activities. Ugandans in the diaspora were fully heard and the offensive classification removed.

Exemptions for regulated entities and lawful capital flows

Beyond the narrowed definitions, the Act introduces two express exemptions which provide important additional comfort for business.

The Act exempts monies or funding received from a foreigner by any entity regulated by a regulatory body under an Act of Parliament, for its lawful activities. It also exempts funds received by a person, for commercial, domestic or family use. The Act further exempts all lawful foreign exchange inflow or outflow. Foreign direct investment and diaspora remittances are expressly mentioned as exempt.

These provisions mean that banks and insurance companies regulated by the Bank of Uganda or the Insurance Regulatory Authority fall squarely within exemption in respect of their ordinary regulated activities. International NGOs receiving development assistance, humanitarian aid, or technical assistance grants are similarly protected. Commercial entities engaged in trade finance, foreign direct investment, or portfolio investment are also excluded from the scope of the Act. The combined effect of the narrowed definitions and these express exemptions is that the Act is directed at foreign political interference, not at ordinary commercial or humanitarian activity. Business is back to business as usual.

An additional onerous obligation for banks and money remittance agencies

Notwithstanding the general comfort described above, banks and money remittance agencies (referred to in the Act as "supervised institutions," being persons licensed under an Act of Parliament to facilitate the cross-border transfer of money) face a specific additional obligation.

Before making any payments to an agent of a foreigner, a supervised institution must obtain from such person, proof that the source of funds has been declared to the Minister of Internal Affairs. A supervised institution that contravenes this requirement commits an offence and is liable, on conviction, to a fine not exceeding UGX 4 billion (a little over USD 1 million). The Act further requires supervised institutions to submit a monthly report to the Bank of Uganda relating to any funds paid to an agent of a foreigner through the institution.

This provision creates a gatekeeping function for banks and remittance agencies. Before paying out funds, they must satisfy themselves that the recipient is not an "agent of a foreigner" as defined under the Act, or, if the recipient is such an agent, that the requisite declaration and proof have been provided.

The practical difficulty is immediately apparent. Banks and remittance agencies have no reliable means of determining whether a given customer meets the statutory definition of "agent of a foreigner." Where the customer is an obvious political actor, for example, a registered political party or a well-known political organisation, the obligation is workable, if imperfect. In such cases, the bank can reasonably be expected to request the necessary declaration and proof before making payment.

However, in less obvious cases, where the political character of a customer's activities is not publicly known or readily ascertainable, the provision creates significant operational uncertainty. No register of agents of foreigners yet exists, and the Act does not prescribe any mechanism by which a bank may make the relevant determination with confidence.

This is an area in which the supervised institutions will need to develop pragmatic internal procedures, likely drawing on existing know-your-customer and anti-money laundering frameworks, whilst awaiting further regulatory guidance.

Funding limits and offences under the Act

The much-feared UGX 400 million annual funding limit that featured in the Bill is now limited to agents of foreigners. Even then, all that is now required is only a declaration to the Minister rather than a prior approval.

The offences under the Act including the nebulous economic sabotage are now mainly applicable to agents of foreigners.

Commencement and Absence of Regulations

As at the date of this alert, the Act has been assented to by the President but has not yet been published in the Uganda Gazette. Once gazetted, the Act will come into force immediately. This means that the Act's obligations, including the gatekeeping requirement for supervised institutions, will become immediately enforceable even before the necessary regulations and administrative mechanisms to implement the Act have been passed or set up.

The Act contemplates regulations in several areas. These include the procedure for registration of agents of foreigners, the requirements for declaring funds, and the procedure for obtaining approvals. Until such regulations are made, supervised institutions have no detailed regulatory guidance on how to comply with the Act. The Minister is empowered to make regulations for the further implementation of the Act, and such regulations are to be laid before Parliament, but no timeline for their promulgation has been indicated.

This creates a period of legal uncertainty that is common in Ugandan legislative practice but nonetheless unwelcome for compliance-conscious institutions.

Constitutional challenge

Even after the massive amendments, the law remains vague and overly broad in some areas and of doubtful necessity in others. There is concern around the definition of “political activities” which includes activities aimed at influencing, imposing or normalising ideologies which are inconsistent with the Constitution or conflict with any culture, customs or norms of Uganda’s communities. The Act does not provide a measurable standard for assessing this conflict with community customs creating uncertainty for businesses whose activities touch on social or policy matters. The Act is expected to face a strong challenge in the Constitutional Court on both procedural and substantive grounds. Such a challenge, if successful, could result in the Act being struck down in whole or in part, or in an interim order staying its operation pending the determination of the petition. This adds a further layer of uncertainty to the implementation landscape.

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