South Africa Proposes New Crypto Rules to Tighten Cross-Border Capital Controls

South Africa’s National Treasury  has published draft Capital Flow Management Regulations that would bring crypto assets directly into the country’s exchange control framework for the first time, introducing new requirements for cross-border transactions, asset declarations and compliance.

The proposed regulations are made under section 9(1) of the Currency and Exchanges Act, 1933, and would repeal and replace the existing regulations introduced in 1961. The draft seeks to extend controls traditionally applied to money, bank balances and securities to crypto assets, allowing authorities to regulate their movement across South Africa’s borders.

Under the proposed framework, a crypto asset would be defined as a digital representation of value that is not issued by a central bank, can be traded, transferred or stored electronically, uses cryptographic techniques and relies on distributed ledger technology. Although crypto assets would remain outside the definitions of currency and foreign currency, they would be included in the definition of capital, bringing their movement within the scope of exchange controls.

The draft regulations would introduce a new category of authorised crypto asset service providers. These providers, already recognised under the Financial Intelligence Centre Act, would require specific authorisation from National Treasury to facilitate transactions involving the import or export of capital through crypto assets. Their role would be similar to that of authorised dealers in foreign exchange and gold.

Under the proposed rules, transactions involving the buying, selling, borrowing or lending of crypto assets above a threshold set by the authorities could be restricted unless conducted through an authorised provider or approved by Treasury or another authorised person. Providers could also be prohibited from dealing with specified individuals or entities, or from facilitating transactions for particular purposes.

Ordinary users would be required to conduct relevant transactions through authorised providers and supply information needed to demonstrate compliance. Crypto assets purchased through these providers would have to be used for the purposes stated in the original application. Any portion no longer required would have to be offered for sale in rand to Treasury or an authorised provider.

The draft also proposes tighter controls on transferring crypto assets across South Africa’s borders. Sending or transferring crypto out of the country, taking it across the border or making crypto payments to non-residents would generally require permission, unless the transaction falls below a prescribed threshold.

Travellers could be required to declare crypto holdings when entering or leaving the country. Customs, immigration, police and border management officials would also be empowered to search individuals and consignments and seize crypto assets suspected of being moved in breach of the regulations. Seized assets could be forfeited to the National Revenue Fund, although Treasury would retain discretion to return them after considering hardship and following applicable administrative justice procedures.

The proposed framework would introduce additional disclosure obligations for crypto holders. Anyone in South Africa who holds or becomes entitled to crypto assets above the prescribed threshold would have to declare them in writing within 30 days. A separate provision would require declarations of foreign or crypto assets, including details of when and how they were acquired, where they are held and whether they relate to a foreign liability.

Once declared under the relevant provision, such assets could not be sold or transferred without permission. Treasury, an authorised dealer or an authorised crypto asset service provider could also purchase declared crypto assets or the rights to receive them, at a price no lower than their market value in rand. The draft further seeks to restrict purchases or transfers of crypto to non-residents where the assets can be redeemed for money outside South Africa.

The regulations would grant authorities extensive enforcement powers, including attaching crypto assets suspected of being linked to a contravention, transferring them to designated deposit addresses and blocking accounts. Assets could ultimately be forfeited to the state following notices in the Government Gazette and on the South African Reserve Bank’s website, followed by a 90-day waiting period before disposal.

Individuals who owned or controlled forfeited crypto assets could also be compelled to provide passwords, PINs or access codes needed to access and dispose of the assets. Decisions to attach or forfeit assets would be treated as administrative action and remain subject to judicial review.

Crypto asset service providers that breach the proposed requirements could face administrative sanctions, including fines, public censure, suspension or revocation of their authorisation, and the disqualification of directors or senior staff.

The draft sets out criminal penalties for contraventions, including fines of up to R1 million, imprisonment for up to five years, or both. Where an offence involves crypto assets or other property, the fine could instead be equivalent to the value of the assets if that amount is higher.

The proposed regulations also provide a route for individuals to disclose certain past contraventions involving crypto assets treated as foreign property and apply for regularisation through a sworn affidavit. Relief could involve a levy or penalty and, in some cases, repatriation of assets. However, the route would generally be unavailable to people already under investigation or prosecution, unless Treasury exercises its discretion.

Several details remain unresolved in the draft. The threshold that would trigger many of the obligations has not yet been specified and would be determined by the Minister of Finance through a notice in the Government Gazette. Forms, prescribed periods and other conditions would also be established through subsequent notices.

The regulations remain in draft form and would take effect upon publication in the Government Gazette. Their final provisions and thresholds could therefore change before implementation.