00:00:06
Speaker 1: So as explained to you earlier, Listener's Choice, if you don't know about it, is an opportunity for you to co-curate the content of the show with us. So we decide with the team what we'll discuss on the show on a daily basis. Listener's Choice is an opportunity for you to tell us what we should be discussing. So if there's a topic that you think we've missed, or maybe there's an angle you think we haven't touched on, or maybe there's an issue you want to better understand, just write me on cm at 702.co.za. Send me an email and we'll bring that conversation on the radio. So today we're discussing South Africa's crypto laws. We're trying to understand better that Mark Burke Castello story. This is what one of our listeners has asked us to discuss. You'll remember that story that broke about a week or so ago involving the DA member of parliament, Mark Burke, and the fintech company Castello, which is being investigated by the South African Reserve Bank over suspected breaches of South Africa's exchange-controlled rules involving billions of rands and cryptocurrency arbitrage. And while the political controversy around Burke continues, the story has also sparked I think a much broader curiosity among South Africans about cryptocurrency itself. Like how exactly are you allowed to use it? What happens when you move crypto or money across borders and where does legitimate crypto trading potentially run into the law? Because for many people, cryptocurrency remains a relatively new and it's really quite a complicated financial space and and the rules around it aren't always clear. So we've invited Natalie Scott, who is the director at Workman's Attorneys, to guide us through this conversation and let us know what you as a South African need to know about our laws and regulations, say, when you're buying, selling, and trading cryptocurrency, and what you need to be careful of. So if you've got your own questions for my guest, Natalie, You're welcome to call us on 011-883-0702 or you can send them through on WhatsApp on 072-702-1702. Natalie, thank you so much for making time for us. Good morning.
00:02:31
Speaker 2: Sure. Good morning, Clement, and good morning to your listeners.
00:02:37
Speaker 1: Let's start right at the beginning so that some of us are not lost here who may not understand what exactly cryptocurrency is. So what is it? Like if you had to explain it to an ordinary South African who's heard about Bitcoin and crypto but doesn't really understand what it is or how it works, how would you explain it?
00:02:58
Speaker 3: Good question.
00:02:59
Speaker 2: Clement's in a great place to start. So cryptocurrency, just to clarify up front, is not recognized as money or legal tender in South Africa. So it's not a medium of exchange that you could use that benchmark effectively to rent.
00:03:15
Speaker 3: So that's the first thing.
00:03:16
Speaker 2: The other thing to just to think about is that it's effectively an asset. It's a digital asset because it doesn't exist in physical form. You can't touch cryptocurrency. So it's a digital asset that you can utilize as a medium of exchange, not currency. not money, to buy and sell.
00:03:40
Speaker 3: Goods and services effectively.
00:03:42
Speaker 2: So a lot of people see crypto as an investment, much like you could, you know, like stocks or futures or other asset classes. So they do see it in that fashion, which is also what I think is really attractive about crypto is that, you know, the value of crypto changes over time. It does go up and does go down. So there are those use cases for crypto.
00:04:10
Speaker 1: Okay, so it's a digital asset. The value can change, but what gives it value? And what are the circumstances under which its value changes?
00:04:22
Speaker 2: Okay, so let's take the easiest one, for example, and I think it's the one that's always in trouble in South Africa. So if we look at Bitcoin, Bitcoin is effectively, it's an algorithm. And the value of this algorithm changes over time depending on market perception. So it's not benchmarked to any, you know, any rand or to any currency. It has its own value. So it has an intrinsic value. And that is effectively what creates the volatility from time to time. So it's worth the market sentiment. There's no underlying asset. So if you look at cryptocurrency as in like the generalized term of cryptocurrency, it's an algorithm really. If you look at issues such as like stable coins, A lot of the stablecoins that we have in the market, like the USDC or USDT, those are linked specifically to a particular currency. So they will track the value of the currency. And in that way, you can determine the value of the stablecoins that you have. With cryptocurrency, generally, you don't have that because it doesn't benchmark any other currency or any fiat currency that we know of and that we recognize. So it's literally, it's an algorithm. Okay.
00:05:43
Speaker 1: So from a legal perspective, how does our country classify cryptocurrency? Is it an asset? Is it a financial product, a means of payment? Or does its legal treatment depend on what you're actually doing with it?
00:05:58
Speaker 3: So that's a great question. So it's a digital asset.
00:06:07
Speaker 2: We use it that it can be used for investment purposes or to buy and sell. It's not money.
00:06:14
Speaker 3: So you can use it as a medium of exchange.
00:06:16
Speaker 2: So we have some of the supermarkets as well as some of the other service providers and goods providers who say that they will accept cryptocurrency in exchange for providing you with a service. And they will then value their service based on the value of the cryptocurrency on that particular day. And in order to be able to trade the cryptocurrency or Bitcoin, as one of them is, you can do so. You can do that through your digital wallet. You can do it through an exchange. We have quite a few crypto exchanges. And it's It's a quasi-investment product depending on how it's structured and if you want to use it for investment purposes because the value can go up and down.
00:07:06
Speaker 3: It's not static.
00:07:08
Speaker 2: But you can also utilize it as a medium of exchange but not as currency as we know currency as insured currency or RAND or the digital RAND in that fashion.
00:07:24
Speaker 1: Yeah. Okay, so I think I get the distinction, which is important because owning crypto is one thing, but transacting with it is another. What laws and regulatory frameworks come into play when someone buys or sells or transfers or exchanges cryptocurrency in South Africa? Okay.
00:07:49
Speaker 2: So we can look at it from a number of perspectives. So we can look at it from the user perspective or the purchaser of the cryptocurrency. So if the user or the purchaser of the cryptocurrency is an individual, We have a look to see where they're purchasing that crypto from. What is it benchmarked to? So is it priced in US dollars? Is it priced in Rand? And we would have a look at it from that perspective because it becomes important from a cross-border evaluation to see whether or not, as I think everyone knows now, there are a number of exchange control considerations that come into play. If you are a business and you are buying and selling and you're doing so on a regular basis, there may be considerations under the Income Tax Act that need to be considered.
00:08:45
Speaker 3: And then the service providers.
00:08:47
Speaker 2: In respect of the cryptocurrency are regulated under the Financial Advisory and Intermediary Services Act. And they have to be licensed under that particular act in order to be able to buy and sell those crypto assets for and on behalf of users like you and me. So that is effectively the governance area. So it's the Income Tax Act. It's the exchange control regulations under the Currency and Exchanges Act currently. We would have a look at the Financial Advisory and Intermediary Services Act. And then that act is part of the umbrella legislation known as the Financial Sector Regulation Act. And so there are other considerations there that need to be complied with and need to be thought of.
00:09:37
Speaker 1: Yeah. So still on that cross-border element, if I acquire cryptocurrency in South Africa and transfer it to, let's say, an offshore exchange, what legally happens at that point? Does that transaction fall within South Africa's exchange control framework, even though I may not be physically sending like South African rents out of the country.
00:10:01
Speaker 2: Yes it does so i think there's there are a couple of things to think of there so effectively if you are a purchasing cryptocurrency there are a number of ways that you can purchase it. You can purchase cryptocurrency sort of off-exchange on your sort of peer-to-peer type transactions where you buy, you would enter into an exchange transaction with another individual. So Slowsby would go from their wallet, their digital wallet, into your digital wallet. So that is one way of doing it. You can also purchase cryptocurrency for short. So you can go through a local cast, like a Luna or a Vela, and you can purchase X amount of Bitcoin or whichever cryptocurrency or bundles or.
00:10:53
Speaker 3: Indices of crypto.
00:10:56
Speaker 2: And you can then, if you want, you can then externalize the value to an offshore account, or you can purchase crypto through a local exchange from a foreign crypto asset exchange. So there are a number of ways that you can do that. The one deals with it on a less formal and a more private basis where you would do it through your custodial, your own custodial wallet. Otherwise, you could do it through an exchange utilizing their wallets and through their systems, which is sort of the more formal way of doing it. That's sort of the intermediated way of doing it. Okay.
00:11:37
Speaker 1: So what is cryptocurrency? arbitrage because that's something that came up a lot um even when we were reading about this muckberg castello story um because it seems like that's where things really get interesting right so if someone is taking advantage of price differences between south african and you know international crypto markets what determines whether that is simply legitimate trading or whether the underlying movement of funds breaches the exchange control rules.
00:12:09
Speaker 2: Yeah, so if you have a look at your, if as an individual, you would have a look at it from the perspective of Does this fall within my single discretionary allowance? Is it part of my foreign asset allowance? And what is it that I am doing in order to make money? So it goes back to basic principles. You have to just fill it right down and the rationale for you doing that. So clearly you'd want to make money. How are you mobilizing your current money or money that has been made available to you, say, in the form of loans? How are you utilizing that to obtain offshore exposure? to an asset that trades at a say at a discount or at a at a premium to what that same asset would be priced for in south africa so that is that differential and that is where we need to start thinking about how is this would then be considered from an exchange control perspective whether or not am i externalizing south african rent technically or value that was derived from South African rand, am I externalizing that from the country or am I retaining it within the country? So crypto arbitrage is not directly regulated, but it's the transactions and the structure through which that arbitrage is taken advantage of that the regulators are actually having a look at more clearly.
00:13:39
Speaker 1: 011-883-0702 is the number to dial. If you've got a question, I see some of your WhatsApps coming through on 0727021702. We're discussing crypto laws in South Africa. In fact, we're doing this so that we can better understand the Mark Berg Castello story. We've been asked by one of our listeners to discuss just what the crypto laws are to better understand really what's at the core of of what Castello is investigated for by the South African Reserve Bank. So I'm taking your questions on 072702-1702. I'll come to them in a moment. But Natalie, I wanted us to also discuss, before I go to the listeners' questions, I wanted us to discuss the single discretionary allowance and a foreign investment allowance. What are those and how do they work when you're taking money offshore?
00:14:40
Speaker 2: So your single discretionary allowance is the allowance that you, it's the money effectively or the value in South African rands that you are entitled to spend offshore. So as part of the RAND ring fencing or the capital flow regime where the South African government or the Reserve Bank manages and monitors the inflow and outflow of capital, including the RAND value thereof in South Africa, that is the allowance that you are given almost as an automatic right to be able to utilize the RAND equivalent of foreign currency outside of South Africa. So that's your single discretionary allowance or your single asset allowance. Then you have the foreign allowance. That is over and above your single discretionary allowance, and that gives you additional headroom. It's currently contemplated at $ 10 million. So that is what you can use over and above. And for that, you need to be over the age of 18. You need to be a taxpayer in good standing. And that then is a reportable transaction that the SAR will then monitor. So they would want to then obviously understand why is it that you need more money other than your single discretionary allowance. Outside of that, because the $ 2 million for your single discretionary allowance would be added to the foreign allowance, which is $ 10 million. And there they're saying you need to explain why it is that you need an additional amount of money because we think that if you travel or if you go and visit friends overseas or even if you conduct business overseas, that your single discretionary allowance should be sufficient. So if it's not, we then need to understand why it isn't in order for you to be able to tap into that foreign allowance. That's effectively the difference.
00:16:46
Speaker 1: Thank you for that. There's another layer here involving intermediaries. If a person isn't simply trading their own cryptocurrency, but they're facilitating transactions or moving funds on behalf of other people, how does it work? When does that activity become a regulated financial service, and when does it potentially even require authorization? Sure.
00:17:13
Speaker 2: Any intermediary service that is offered is already regulated under the Financial Advisory and Intermediary Services Act, otherwise known as the Pays Act. So that's already regulated there. All that I think the Saab is at pains right now to point out to people is that crypto does actually fall within this regime. So it's not a disparate business. It does qualify as a financial service. Your crypto asset service providers do have to have a license in order to be able to facilitate any of the intermediary services that they provide. And that is what gives the individuals or even the companies currently comfort that what they are doing is lawful, it's legitimate, and they have the license to be able to do so and that they're operating within the confines of the law. Then obviously together with that goes sort of the framework within which they operate, that they have the wherewithal, that they have the means, that they have the knowledge, that they have the experience, as are all the requirements, as are requirements that apply to all intermediaries in respect to the financial advisory need. So you need to know that you're dealing with fit and proper persons that have knowledge and experience, that they're going to be providing you with any form of financial advice or they're going to be rendering these types of intermediary services, that they know and understand the markets that they're operating and they know and understand what the requirements are, what is a good thing to do, what is not a good thing to do, what … the outside of investments are, and they can give you advice accordingly or they can facilitate transactions for you in a legal, legitimate, and lawful way without creating a whole lot of unmanageable and untransparent or opaque type transactions that are unregulated and not visible to the public. So what we're seeing now with a lot of the draft capital flow management regulations and in terms of the draft manual that was published, what we're seeing is the surveillance by the SARB to make sure that the flow of funds, the origin of the funds and that where the funds flow to and originate from are legitimate. And I think the concerns that they've expressed have been We regulate legal tender in this way and crypto assets shouldn't be treated differently.
00:19:45
Speaker 1: So there's a question from Anonymous who says, can we get some advice there, Clem? If someone is already buying crypto, transferring it between exchanges or moving it across borders, what are the specific red flags that should make them stop and seek professional advice before proceeding? Are you able to advise on red flags that we should be aware of?
00:20:08
Speaker 2: Um, I think the red flag there, I suppose it depends on which perspective you're looking at it from. If you're really trading through your licensed exchanges, that should be fine.
00:20:25
Speaker 3: What you need to have a look at, particularly.
00:20:27
Speaker 2: As we've seen now in this Costello matter, is that if you are receiving funding, from an exchange or from an entity that's related to a CAF or a crypto exchange, they are providing you with incentives to utilize your single discretionary allowance or possibly your foreign allowance to use that. If they're offering you incentives, preferential rates, they're offering you some upside, they're offering you particular advantages that you wouldn't necessarily associate with that product or with the cryptocurrency, Start looking at that a little bit more carefully because it then goes to the model that the business is running or your crypto assets exchange or the companies associated with that.
00:21:17
Speaker 3: It goes to what it.
00:21:19
Speaker 2: Is, what product it is that they are providing you with versus the product that you think that you're acquiring or the product that you want to acquire versus the product that they actually sell you. So those are the things I would have a look at. If it's a straight, please buy X amount of Bitcoin and pop it into my wallet. And you're going through a licensed exchange, that's not an issue. If you're buying and selling and you're not doing it as your business and you're not using it as trading stock, that should be fine. It's an investment as it ordinarily is, and that will then be managed by the exchange and by any of the intermediaries that operate through that exchange, and that is then regularized. So, I wouldn't worry about that. It's the add-ons.
00:22:07
Speaker 3: It's the incentives.
00:22:09
Speaker 2: It's the additional advantages that you would receive from buying a particular product that may or may not be linked to crypto. And just assessing whether or not that looks typical in the market and whether that is something that A, you initially asked for, or B, has been promoted as a product or an advantage or something that you could use by structuring your transaction in a particular way.
00:22:40
Speaker 1: Natalie, you've been great. Thank you so much for joining us. Natalie Scott is the Director at Workman's Attorneys.
Speaker 1: So as explained to you earlier, Listener's Choice, if you don't know about it, is an opportunity for you to co-curate the content of the show with us. So we decide with the team what we'll discuss on the show on a daily basis. Listener's Choice is an opportunity for you to tell us what we should be discussing. So if there's a topic that you think we've missed, or maybe there's an angle you think we haven't touched on, or maybe there's an issue you want to better understand, just write me on cm at 702.co.za. Send me an email and we'll bring that conversation on the radio. So today we're discussing South Africa's crypto laws. We're trying to understand better that Mark Burke Castello story. This is what one of our listeners has asked us to discuss. You'll remember that story that broke about a week or so ago involving the DA member of parliament, Mark Burke, and the fintech company Castello, which is being investigated by the South African Reserve Bank over suspected breaches of South Africa's exchange-controlled rules involving billions of rands and cryptocurrency arbitrage. And while the political controversy around Burke continues, the story has also sparked I think a much broader curiosity among South Africans about cryptocurrency itself. Like how exactly are you allowed to use it? What happens when you move crypto or money across borders and where does legitimate crypto trading potentially run into the law? Because for many people, cryptocurrency remains a relatively new and it's really quite a complicated financial space and and the rules around it aren't always clear. So we've invited Natalie Scott, who is the director at Workman's Attorneys, to guide us through this conversation and let us know what you as a South African need to know about our laws and regulations, say, when you're buying, selling, and trading cryptocurrency, and what you need to be careful of. So if you've got your own questions for my guest, Natalie, You're welcome to call us on 011-883-0702 or you can send them through on WhatsApp on 072-702-1702. Natalie, thank you so much for making time for us. Good morning.
00:02:31
Speaker 2: Sure. Good morning, Clement, and good morning to your listeners.
00:02:37
Speaker 1: Let's start right at the beginning so that some of us are not lost here who may not understand what exactly cryptocurrency is. So what is it? Like if you had to explain it to an ordinary South African who's heard about Bitcoin and crypto but doesn't really understand what it is or how it works, how would you explain it?
00:02:58
Speaker 3: Good question.
00:02:59
Speaker 2: Clement's in a great place to start. So cryptocurrency, just to clarify up front, is not recognized as money or legal tender in South Africa. So it's not a medium of exchange that you could use that benchmark effectively to rent.
00:03:15
Speaker 3: So that's the first thing.
00:03:16
Speaker 2: The other thing to just to think about is that it's effectively an asset. It's a digital asset because it doesn't exist in physical form. You can't touch cryptocurrency. So it's a digital asset that you can utilize as a medium of exchange, not currency. not money, to buy and sell.
00:03:40
Speaker 3: Goods and services effectively.
00:03:42
Speaker 2: So a lot of people see crypto as an investment, much like you could, you know, like stocks or futures or other asset classes. So they do see it in that fashion, which is also what I think is really attractive about crypto is that, you know, the value of crypto changes over time. It does go up and does go down. So there are those use cases for crypto.
00:04:10
Speaker 1: Okay, so it's a digital asset. The value can change, but what gives it value? And what are the circumstances under which its value changes?
00:04:22
Speaker 2: Okay, so let's take the easiest one, for example, and I think it's the one that's always in trouble in South Africa. So if we look at Bitcoin, Bitcoin is effectively, it's an algorithm. And the value of this algorithm changes over time depending on market perception. So it's not benchmarked to any, you know, any rand or to any currency. It has its own value. So it has an intrinsic value. And that is effectively what creates the volatility from time to time. So it's worth the market sentiment. There's no underlying asset. So if you look at cryptocurrency as in like the generalized term of cryptocurrency, it's an algorithm really. If you look at issues such as like stable coins, A lot of the stablecoins that we have in the market, like the USDC or USDT, those are linked specifically to a particular currency. So they will track the value of the currency. And in that way, you can determine the value of the stablecoins that you have. With cryptocurrency, generally, you don't have that because it doesn't benchmark any other currency or any fiat currency that we know of and that we recognize. So it's literally, it's an algorithm. Okay.
00:05:43
Speaker 1: So from a legal perspective, how does our country classify cryptocurrency? Is it an asset? Is it a financial product, a means of payment? Or does its legal treatment depend on what you're actually doing with it?
00:05:58
Speaker 3: So that's a great question. So it's a digital asset.
00:06:07
Speaker 2: We use it that it can be used for investment purposes or to buy and sell. It's not money.
00:06:14
Speaker 3: So you can use it as a medium of exchange.
00:06:16
Speaker 2: So we have some of the supermarkets as well as some of the other service providers and goods providers who say that they will accept cryptocurrency in exchange for providing you with a service. And they will then value their service based on the value of the cryptocurrency on that particular day. And in order to be able to trade the cryptocurrency or Bitcoin, as one of them is, you can do so. You can do that through your digital wallet. You can do it through an exchange. We have quite a few crypto exchanges. And it's It's a quasi-investment product depending on how it's structured and if you want to use it for investment purposes because the value can go up and down.
00:07:06
Speaker 3: It's not static.
00:07:08
Speaker 2: But you can also utilize it as a medium of exchange but not as currency as we know currency as insured currency or RAND or the digital RAND in that fashion.
00:07:24
Speaker 1: Yeah. Okay, so I think I get the distinction, which is important because owning crypto is one thing, but transacting with it is another. What laws and regulatory frameworks come into play when someone buys or sells or transfers or exchanges cryptocurrency in South Africa? Okay.
00:07:49
Speaker 2: So we can look at it from a number of perspectives. So we can look at it from the user perspective or the purchaser of the cryptocurrency. So if the user or the purchaser of the cryptocurrency is an individual, We have a look to see where they're purchasing that crypto from. What is it benchmarked to? So is it priced in US dollars? Is it priced in Rand? And we would have a look at it from that perspective because it becomes important from a cross-border evaluation to see whether or not, as I think everyone knows now, there are a number of exchange control considerations that come into play. If you are a business and you are buying and selling and you're doing so on a regular basis, there may be considerations under the Income Tax Act that need to be considered.
00:08:45
Speaker 3: And then the service providers.
00:08:47
Speaker 2: In respect of the cryptocurrency are regulated under the Financial Advisory and Intermediary Services Act. And they have to be licensed under that particular act in order to be able to buy and sell those crypto assets for and on behalf of users like you and me. So that is effectively the governance area. So it's the Income Tax Act. It's the exchange control regulations under the Currency and Exchanges Act currently. We would have a look at the Financial Advisory and Intermediary Services Act. And then that act is part of the umbrella legislation known as the Financial Sector Regulation Act. And so there are other considerations there that need to be complied with and need to be thought of.
00:09:37
Speaker 1: Yeah. So still on that cross-border element, if I acquire cryptocurrency in South Africa and transfer it to, let's say, an offshore exchange, what legally happens at that point? Does that transaction fall within South Africa's exchange control framework, even though I may not be physically sending like South African rents out of the country.
00:10:01
Speaker 2: Yes it does so i think there's there are a couple of things to think of there so effectively if you are a purchasing cryptocurrency there are a number of ways that you can purchase it. You can purchase cryptocurrency sort of off-exchange on your sort of peer-to-peer type transactions where you buy, you would enter into an exchange transaction with another individual. So Slowsby would go from their wallet, their digital wallet, into your digital wallet. So that is one way of doing it. You can also purchase cryptocurrency for short. So you can go through a local cast, like a Luna or a Vela, and you can purchase X amount of Bitcoin or whichever cryptocurrency or bundles or.
00:10:53
Speaker 3: Indices of crypto.
00:10:56
Speaker 2: And you can then, if you want, you can then externalize the value to an offshore account, or you can purchase crypto through a local exchange from a foreign crypto asset exchange. So there are a number of ways that you can do that. The one deals with it on a less formal and a more private basis where you would do it through your custodial, your own custodial wallet. Otherwise, you could do it through an exchange utilizing their wallets and through their systems, which is sort of the more formal way of doing it. That's sort of the intermediated way of doing it. Okay.
00:11:37
Speaker 1: So what is cryptocurrency? arbitrage because that's something that came up a lot um even when we were reading about this muckberg castello story um because it seems like that's where things really get interesting right so if someone is taking advantage of price differences between south african and you know international crypto markets what determines whether that is simply legitimate trading or whether the underlying movement of funds breaches the exchange control rules.
00:12:09
Speaker 2: Yeah, so if you have a look at your, if as an individual, you would have a look at it from the perspective of Does this fall within my single discretionary allowance? Is it part of my foreign asset allowance? And what is it that I am doing in order to make money? So it goes back to basic principles. You have to just fill it right down and the rationale for you doing that. So clearly you'd want to make money. How are you mobilizing your current money or money that has been made available to you, say, in the form of loans? How are you utilizing that to obtain offshore exposure? to an asset that trades at a say at a discount or at a at a premium to what that same asset would be priced for in south africa so that is that differential and that is where we need to start thinking about how is this would then be considered from an exchange control perspective whether or not am i externalizing south african rent technically or value that was derived from South African rand, am I externalizing that from the country or am I retaining it within the country? So crypto arbitrage is not directly regulated, but it's the transactions and the structure through which that arbitrage is taken advantage of that the regulators are actually having a look at more clearly.
00:13:39
Speaker 1: 011-883-0702 is the number to dial. If you've got a question, I see some of your WhatsApps coming through on 0727021702. We're discussing crypto laws in South Africa. In fact, we're doing this so that we can better understand the Mark Berg Castello story. We've been asked by one of our listeners to discuss just what the crypto laws are to better understand really what's at the core of of what Castello is investigated for by the South African Reserve Bank. So I'm taking your questions on 072702-1702. I'll come to them in a moment. But Natalie, I wanted us to also discuss, before I go to the listeners' questions, I wanted us to discuss the single discretionary allowance and a foreign investment allowance. What are those and how do they work when you're taking money offshore?
00:14:40
Speaker 2: So your single discretionary allowance is the allowance that you, it's the money effectively or the value in South African rands that you are entitled to spend offshore. So as part of the RAND ring fencing or the capital flow regime where the South African government or the Reserve Bank manages and monitors the inflow and outflow of capital, including the RAND value thereof in South Africa, that is the allowance that you are given almost as an automatic right to be able to utilize the RAND equivalent of foreign currency outside of South Africa. So that's your single discretionary allowance or your single asset allowance. Then you have the foreign allowance. That is over and above your single discretionary allowance, and that gives you additional headroom. It's currently contemplated at $ 10 million. So that is what you can use over and above. And for that, you need to be over the age of 18. You need to be a taxpayer in good standing. And that then is a reportable transaction that the SAR will then monitor. So they would want to then obviously understand why is it that you need more money other than your single discretionary allowance. Outside of that, because the $ 2 million for your single discretionary allowance would be added to the foreign allowance, which is $ 10 million. And there they're saying you need to explain why it is that you need an additional amount of money because we think that if you travel or if you go and visit friends overseas or even if you conduct business overseas, that your single discretionary allowance should be sufficient. So if it's not, we then need to understand why it isn't in order for you to be able to tap into that foreign allowance. That's effectively the difference.
00:16:46
Speaker 1: Thank you for that. There's another layer here involving intermediaries. If a person isn't simply trading their own cryptocurrency, but they're facilitating transactions or moving funds on behalf of other people, how does it work? When does that activity become a regulated financial service, and when does it potentially even require authorization? Sure.
00:17:13
Speaker 2: Any intermediary service that is offered is already regulated under the Financial Advisory and Intermediary Services Act, otherwise known as the Pays Act. So that's already regulated there. All that I think the Saab is at pains right now to point out to people is that crypto does actually fall within this regime. So it's not a disparate business. It does qualify as a financial service. Your crypto asset service providers do have to have a license in order to be able to facilitate any of the intermediary services that they provide. And that is what gives the individuals or even the companies currently comfort that what they are doing is lawful, it's legitimate, and they have the license to be able to do so and that they're operating within the confines of the law. Then obviously together with that goes sort of the framework within which they operate, that they have the wherewithal, that they have the means, that they have the knowledge, that they have the experience, as are all the requirements, as are requirements that apply to all intermediaries in respect to the financial advisory need. So you need to know that you're dealing with fit and proper persons that have knowledge and experience, that they're going to be providing you with any form of financial advice or they're going to be rendering these types of intermediary services, that they know and understand the markets that they're operating and they know and understand what the requirements are, what is a good thing to do, what is not a good thing to do, what … the outside of investments are, and they can give you advice accordingly or they can facilitate transactions for you in a legal, legitimate, and lawful way without creating a whole lot of unmanageable and untransparent or opaque type transactions that are unregulated and not visible to the public. So what we're seeing now with a lot of the draft capital flow management regulations and in terms of the draft manual that was published, what we're seeing is the surveillance by the SARB to make sure that the flow of funds, the origin of the funds and that where the funds flow to and originate from are legitimate. And I think the concerns that they've expressed have been We regulate legal tender in this way and crypto assets shouldn't be treated differently.
00:19:45
Speaker 1: So there's a question from Anonymous who says, can we get some advice there, Clem? If someone is already buying crypto, transferring it between exchanges or moving it across borders, what are the specific red flags that should make them stop and seek professional advice before proceeding? Are you able to advise on red flags that we should be aware of?
00:20:08
Speaker 2: Um, I think the red flag there, I suppose it depends on which perspective you're looking at it from. If you're really trading through your licensed exchanges, that should be fine.
00:20:25
Speaker 3: What you need to have a look at, particularly.
00:20:27
Speaker 2: As we've seen now in this Costello matter, is that if you are receiving funding, from an exchange or from an entity that's related to a CAF or a crypto exchange, they are providing you with incentives to utilize your single discretionary allowance or possibly your foreign allowance to use that. If they're offering you incentives, preferential rates, they're offering you some upside, they're offering you particular advantages that you wouldn't necessarily associate with that product or with the cryptocurrency, Start looking at that a little bit more carefully because it then goes to the model that the business is running or your crypto assets exchange or the companies associated with that.
00:21:17
Speaker 3: It goes to what it.
00:21:19
Speaker 2: Is, what product it is that they are providing you with versus the product that you think that you're acquiring or the product that you want to acquire versus the product that they actually sell you. So those are the things I would have a look at. If it's a straight, please buy X amount of Bitcoin and pop it into my wallet. And you're going through a licensed exchange, that's not an issue. If you're buying and selling and you're not doing it as your business and you're not using it as trading stock, that should be fine. It's an investment as it ordinarily is, and that will then be managed by the exchange and by any of the intermediaries that operate through that exchange, and that is then regularized. So, I wouldn't worry about that. It's the add-ons.
00:22:07
Speaker 3: It's the incentives.
00:22:09
Speaker 2: It's the additional advantages that you would receive from buying a particular product that may or may not be linked to crypto. And just assessing whether or not that looks typical in the market and whether that is something that A, you initially asked for, or B, has been promoted as a product or an advantage or something that you could use by structuring your transaction in a particular way.
00:22:40
Speaker 1: Natalie, you've been great. Thank you so much for joining us. Natalie Scott is the Director at Workman's Attorneys.
