Cryptocurrency cross-border arbitrage may breach exchange control regulations

Author: Ernest Marais

Service: Andersen Tax

With reference to recent articles discussing Standard Bank terminating accounts of several clients offering automated cryptocurrency arbitrage services, we highlight a few kew points on the matter in this post.

The South African Reserve Bank's position is simple:

The Exchange Control Regulations prohibit transactions where capital or the right to capital is, without permission from National Treasury, directly or indirectly exported from South Africa. This includes transactions where an individual purchases crypto assets in South Africa and uses them to externalise 'any right to capital'. Contravening these regulations is a criminal offence.

The repatriation of value to South Africa through crypto assets is not permitted as part of an individual’s single discretionary allowance and/or foreign capital allowance. This is because of the nature of the assets and because the transaction is currently not reportable on the FinSurv Reporting System.

Crypto traders tend to accept fiat currency from clients in their commercial bank account. These funds will then be utilised to acquire crypto on an exchange in South Africa to be arbitraged on a foreign crypto exchange, before being repatriated into South Africa and sold (or transferred to fiat currency). The moving of these cryptocurrencies abroad without permission is a contravention of the Exchange Control Regulations and a criminal offence.

Commercial banks often serve as gatekeepers for money laundering purposes, and they are not allowed to facilitate any criminal activity. A lot of these crypto traders are, often unknowingly, in breach of South African Exchange Control regulations by making use of cross-border arbitrage opportunities. These are high-risk clients for the commercial banks and hence it is not a surprise to see a stance taken such as the one by Standard Bank.

It is also worth noting that exchange of one crypto currency for another is a taxable event in South Africa. The taxing rights of the South African Revenue Service is not restricted to the conversion of a cryptocurrency to fiat currency.

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