Regulatory lessons from a R556 million bitcoin bungle
It is near impossible to figure out why global investors and speculators have driven bitcoin north of USD100000 per coin, though tracking its price is easy. You need only Google “bitcoin price today” or log into your preferred trading platform and initiate a trade. The price you are quoted is being set in real time on a digital market that transcends in-country regulatory practices, for now.
Carving out a fintech framework
South Africa, through the National Treasury and South African Reserve Bank (SARB), assisted by the Financial Sector Conduct Authority (FSCA) and Prudential Authority (PA), is hard at work to align local financial sector regulations to the ever-expanding use cases for crypto assets. These institutions, along with the Financial Intelligence Centre (FIC), form part of the country’s Intergovernmental Fintech Working Group (IFWG), which is tasked with shaping policy responses to fintech developments.
Readers often forget that bitcoin and other blockchain-linked technologies have been around for over a decade, and under regulatory scrutiny for almost as long. Case in point: the IFWG Crypto Assets Regulatory Working Group published its recommendations for crypto regulation back in June 2021. That paper served as a basis for approaches to crypto activities, including anti-money laundering measures, exchange controls, the licensing of Crypto Asset Services Providers (CASPs) by the FSCA and tax compliance, to name a few.
As South Africa’s regulatory framework around crypto assets begins to take shape, market participants are testing both its interpretation and the reach of enforcement. One such legal test came in May 2025, when the Pretoria High Court was indirectly asked to consider whether crypto asset transfers fall under South Africa’s exchange control laws.
In Standard Bank of South Africa Limited v. The South African Reserve Bank and Others, the court noted that crypto assets do not meet the definition of ‘capital’ or ‘currency’ under the Exchange Control Regulations of 1961, in turn issued per section 9 of the Currency and Exchanges Act.
The R556 million bitcoin bungle
The details are worth exploring. Between September 2019 and March 2020, a company called Leo Cash and Carry (LCC) was alleged to have transferred 4405 bitcoins to an offshore wallet held at Seychelles-based crypto exchange Huobi Global. According to the court papers, these transfers aggregated to around R556 million at the time.
The SARB Financial Surveillance Department investigated LCC for suspected exchange control contraventions related to these transfers and obtained a hold on LCC’s bank accounts, including R16.4 million in a Standard Bank Money Market Account and R10 million in LCC’s Nedbank account. The SARB eventually declared the money in both of the above accounts forfeit to the State.
Standard Bank approached the court to challenge the forfeiture of funds in its Money Market Account, arguing that the cryptocurrency transactions on which SARB based its forfeiture did not fall within the ambit of exchange control regulations. The court’s brief analysis of crypto assets and exchange control arose from this argument. The court was unconvinced by SARB’s attempt to link the R26.4 million in LCC’s local bank accounts to the ‘export’ of the bitcoin.
The judge noted: “It is unclear how the funds presently in the LCC bank accounts are proceeds of the exported cryptocurrency; the SARB has not established a link between the proceeds of the exported Bitcoin and the money in the bank accounts it has declared forfeit.” This undermined the SARB’s case, not only on the definition of crypto, but also on the application of its forfeiture powers.
Ultimately, the court determined that, “The forfeiture order issued by the first respondent in terms of regulation 22E(1) of the Exchange Control Regulations published in Government Notice R1111 in Government Gazette 3097 of 1 December 1961 is reviewed and set aside.”
Another appeal loading
The SARB has already appealed the ruling, arguing that the High Court erred in its interpretation and that cryptocurrency transfers should fall under exchange control regulations. Financial advisers will have to pay close attention to this matter as it winds through the courts to determine how clients’ cryptocurrency transfers will be treated, because your writer’s gut tells him that the Supreme Court will undo this bungle.
That means that your clients should be subject to the rules whether they transfer cash or cryptocurrency offshore. Presently, South African tax residents can transfer up to R1 million per calendar year offshore without needing clearance from the South African Revenue Services (SARS), and an additional R10 million under the Foreign Investment Allowance (FIA), subject to SARS tax compliance status and prior approval. Beyond that, your clients must seek special clearance from the SARB, with supporting documentation on the source of funds.
Our regulators have been hard at work integrating crypto assets into the various regulatory frameworks. The FSCA declared crypto assets as financial products under the Financial Advisory and Intermediary Services Act (FAIS) in October 2022, requiring CASPs to obtain licences. As of December 2024, the FSCA had received 420 CASP licence applications, approving 248 and declining nine, with the remainder either under review or voluntarily withdrawn. The FSCA has extended the exemption period for CASPs and their key individuals from certain regulatory examination requirements until 30 June this year.
This has relevant to the grey listing debacle
The FIC has been busy too, issuing Directive 9, mandating CASPs to implement the ‘Travel Rule’ for crypto asset transfers from 30 April 2025. CASPs now have to collect and share information about the sender and receiver for all crypto asset transfers, regardless of the transaction size. CASPs must also have risk-based policies for handling transactions involving self-hosted wallets. These changes were made to align South Africa with international anti-money laundering standards, as part of the country’s ongoing efforts to be removed from the Financial Action Task Force (FATF) grey list.
The income tax on crypto assets is easier to explain, and the SARS has already indicated that crypto assets will be subject to standard income tax rules. Taxpayers must declare gains or losses from crypto transactions as part of their taxable income. Depending on the nature of the transaction, these gains may be taxed under normal income tax provisions or as capital gains, as outlined in the Eighth Schedule to the Income Tax Act. SARS is taking a tough stance on compliance and enforcement and has warned that failures to declare crypto-related income could result in interest and penalties.
The evolving regulatory landscape presents challenges for financial advisers. Your clients may, for example, be using cryptocurrencies to move funds offshore under the mistaken belief that these transactions are not subject to exchange controls. For deals exceeding the R11 million annual thresholds, it seems sensible to proceed carefully until such time as the SARB’s appeal is resolved and legislative clarity is achieved. PS, it seems a no-brainer that the eventual court decision will find that cash or crypto be subject to the same exchange control dispensation.
The tax authority is watching, always
So, the next time one of your clients sits across the room from you and denies having crypto asset exposures, it may be worth reminding him or her that SARS can obtain information directly from local crypto asset exchanges. Furthermore, through multilateral agreements, SARS is exchanging information with other tax authorities globally, facilitating the identification of offshore crypto holdings by South African taxpayers. If you or your clients are holding or trading crypto assets, then you can be sure the local tax authorities will be aware of it.
Writer’s thoughts:
Your clients’ crypto asset transactions are not as invisible as they believe, and the regulators are catching on fast. Are you confident that your offshore and exchange control advice is up to speed? Please comment below, interact with us on X at @fanews_online or email us your thoughts [email protected].
