The government wants control of your crypto in South Africa

The National Treasury’s new Draft Capital Flow Management Regulations aim to give the state control over ownership of crypto assets in South Africa. 

This overreach is out of touch with the realities of a modern economy and the need to make it easier for foreign investors to invest in South Africa and repatriate their funds. 

Furthermore, much of what the National Treasury aims to tackle through the draft regulations is already dealt with by existing legislation on fraud, money laundering, and other financial crimes. 

This is feedback from an economic researcher at the Solidarity Research Institute, Theuns du Buisson, who revealed that the organisation has submitted comments to the Treasury regarding its proposal. 

The National Treasury’s draft regulations include provisions that will enable the state to force individuals to sell their crypto assets to the government. 

These regulations effectively seek to make crypto assets subject to regulations similar to foreign exchange in South Africa. 

This means that South African residents who obtain possession of, or the right to sell, crypto assets exceeding a specified threshold must declare this to the National Treasury. 

The individuals, according to the draft regulations, must then also offer to sell the assets to the Treasury or an authorised dealer within 30 days. 

Du Buisson said that the proposed regulations also require all crypto holdings to be declared to the state. 

Failure to declare these assets or if the state believes they have been acquired through improper means could result in criminal prosecution and the forfeiture of the assets to the government. 

The Treasury has said this is to help prevent fraud and money laundering, with South Africa only recently being removed from the Financial Action Task Force’s greylist. 

However, Du Buisson said that the country already has extensive legislation that combats fraud, money laundering, and other financial crimes. 

“These proposed regulations create the impression that cryptocurrency is used primarily by criminals,” Du Buisson said. 

“In the process, the Treasury risks further undermining South Africa’s attractiveness as an investment destination in exchange for safeguards that are already provided for under existing legislation.” 

The state is out of touch

The National Treasury’s new regulations also have the potential to have severe negative consequences for the South African economy. 

These regulations seek to expand the state’s foreign exchange controls to crypto assets, with economic data showing that such policies deter investment. 

“Many potential investors look elsewhere because they have no assurance that they will be able to repatriate their returns from South Africa,” he said.

Du Buisson believes that the time has come for these controls to be fundamentally reviewed and ultimately abolished.

These comments echo those of Efficient Group chief economist Dawie Roodt, who warned the government that these regulations may even spell the end of the rand. 

Roodt said these regulations show that the National Treasury does not understand the nature of the technology that it is trying to regulate. 

“It just goes to show that the people who made these proposals simply do not understand what they are talking about,” Roodt said. 

“They are clueless about the nature of this technology and how it bypasses traditional financial oversight.” 

Roodt explained that crypto technology enables individuals to bypass the traditional financial system, effectively undermining the state’s authority. 

“How are they going to get their hands on that? They will have to force me to hand over my passwords and open my computer and sell my crypto at a price they determine,” Roodt said. 

“Don’t these people understand that the world has moved forward and that there are new technologies available? They cannot stop this.” 

The increasingly onerous regulations placed on crypto and foreign exchange in South Africa are likely to result in rising interest in the technology. 

As it becomes increasingly difficult to comply with regulations in the traditional finance sector, individuals will look for alternatives to bypass them. 

“These are not normal ‘rands’ or currencies that we are talking about, that are forced to go through the banking system,” Roodt said. 

“This is new technology, and the state does not have power over people any more. That means you have to get rid of foreign exchange regulations altogether.” 

“This is because if you don’t, I will stop using the rand completely and go to some other technology and use other currencies.”