This coming Monday being the 18th May was meant to be the deadline for public comment on the new proposed draft with regarding crypto custody in South Africa. The South African Reserve Bank (SARB) did not expect so much publicity and back lash which has gone global. This was never going to be snuck through quietly and the public is very aware.
Some public groups were formed very quickly with the first crypto draft proposal with the BitcoinZAR Advocacy Group informing people of the proposed implications. The Property Rights Defense Group was created to protect the constitutional rights of investors in what was a clear over reach by the authorities. This is not just a crypto fight but includes the likes of gold and other investments.
Some of the proposals if you missed it besides the ones I mentioned previously like declaring crypto holdings when crossing border entry points and exits.
No peer to peer crypto transactions and only Treasury-authorised CASPs can handle crypto transactions. No retailers accepting crypto as a payment unless using a registered Treasury-authorised CASP. The Treasury controls the use of crypto through their regulated partners.
Every crypto holder or investor had a right to take issue with the draft proposals as the government was clearly over stepping the mark. They have since back tracked and softened the wording with their proposal, but the intent and damage has already been done.
The proposal mentioned that those in possession would have to declare their crypto when crossing the borders and in some cases could have laptops and phones searched for proof of ownership. This was fairly clear of their intent yet now they say the fears were misplaced and would only happen if an offence has been committed.
The government is so concerned and worried about capital outflow that another draft proposal is going to be released. The current regime is very strict on forex and capital outflow and they somehow expect to stop capital outflow in crypto which we know is impossible. The new draft cross border crypto asset framework is aimed at crypto sticking to the rules of capital outflow which they hope protects the integrity of their financial system. Basically they want to address a cross border crypto transaction stating it stays in the guidelines which are stipulated in the capital outflow laws.
South Africa has some of the harshest money flow rules around and they want to make sure crypto stays in those guidelines.
- Travelling you can have R25K cash ($1.6K)
- 1 person can transfer R1 million per year ($63K) without obtaining permission or tax certificates. This includes gifts, donations and off shore investments.
- If you need to send more overseas up to R10 million then you need to apply for permission from SARS also known as the tax man. R10 million is not a lot of money when you are dealing in foreign currency ($630K).
- Over R10 million and then you need permission from the South African Reserve Bank which are the ones doing the crypto draft proposal. This is also to ensure there is no money laundering.
If you are a non resident or emigrant and have closed your tax residency then there is no limits on funds being moved.
Taking those guidelines and now applying that to crypto transactions you can clearly see the problem because applying laws to how money flows across borders is not easily applied to crypto. The facts are you cannot stop the flow of crypto because it can already be outside the border on an international exchange. A cold wallet is or can be accessed wherever you are in the world as crypto is borderless.
If someone invests R1million ($63K) having purchased crypto on an international exchange no laws have been broken. That investment rises in value over R10 million and this is outside the border you still not have broken any laws. The capital has already flowed outside the country because no one is going to be stupid enough to bring that dollar value back to South Africa. The government would like to force those with crypto coming back through local regulated exchanges in Rands and that is never going to happen. They are not understanding how crypto works which is a good thing really.