Bitcoin regulation blunders bite South Africa

The Financial Action Task Force (FATF) and the Eastern and Southern Africa Anti-Money Laundering Group (ESAAMLG) have published a report indicating significant issues with cryptocurrency regulation in South Africa.

The Mutual Evaluation Report highlighted “major deficiencies” in the country’s cryptocurrency regulations where “no risk-based measures are taken” with regards to crypto asset service providers (CASPs).

South Africa is expected to take remedial steps within 18 months to address deficiencies identified in the report.

Among the problems highlighted was that CASPs are not required to take any anti-money laundering (AML) or counter-terrorist financing (CTF) measures — known as FICA in South Africa — are not supervised, nor are they subject to licensing or registration.

When it comes to crypto assets and CASPs, South Africa has begun setting up a risk mapping exercise but is not adequately identifying and understanding risks yet.

According to the report, the country cannot show it has identified and assessed the money laundering and terrorist financing risks emerging from crypto asset activities, and the activities or operations of CASPs. South Africa also cannot show that it has taken measures to mitigate such risks.

Cabinet was informed of the findings on 1 September 2021 and agreed with the outcomes of the report.

“The government is fully committed to implementing the recommendations contained in the report, and strengthening the entire system for investigating financial crimes, including the fight against corruption,” the National Treasury and the Financial Intelligence Centre said.

“National Treasury will report regularly to Cabinet on the country’s progress. The continuous strengthening of the country’s AML/CFT/CFP [counter financing of proliferation] system is central to protecting and helping to make the financial system intolerant to abuse.”

The assessment also found a lack of understanding amongst authorities regarding the scale of money laundering crime threats and respective vulnerabilities.

Other findings include Law Enforcement Agencies’ lack of skills to investigate money laundering or terrorist funding, risks associated with cash prevalence in South Africa, and the limited success of assets recovery from State Capture activities.

The world’s largest cryptocurrency exchange platform, Binance, announced this week that it had disabled margin, options, futures, and leveraged tokens trading services for South African users.

The South African Reserve Bank also recently made it more difficult for South Africans to use Binance by blocking credit and debit cards purchases of cryptocurrency from offshore exchanges.

Furthermore, Sarb’s financial surveillance department issued a warning earlier this year that it is a criminal offence to transfer cryptocurrency from South Africa to offshore exchanges and wallets.

The full FATF and ESAAMLG mutual evaluation report on anti-money laundering and counter-terrorist financing measures in South Africa is embedded below.

Now read: Bitcoin crackdown in South Africa — what you should know

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Bitcoin regulation blunders bite South Africa