South African authorities appear to be paying more attention to the cryptocurrency space in 2021 after a major Bitcoin (PTC) Ponzi program and increased trading activity. As a result, the South African Financial Sector Conduct Authority called for tighter control of the crypto space following the collapse of the largest Ponzi program the country has ever seen.
In December 2020, Mirror Trading International went into temporary liquidation after one of its directors allegedly skipped the country and took access to an ample amount of bitcoin that investors had entrusted to the company over the past few years. In January 2021, MTI said it had over 260,000 members around the world and had amassed 23,000 BTC in investor holdings, which is worth over $ 1 billion in today’s market.
The South African branch pretended to trade high-frequency derivatives with bots, but in late 2020, when CEO Johan Steynberg fled the country, investors were left empty-handed. The company’s other directors claim that Steynberg was the only one who had total control of MTI’s entire Bitcoin holdings and believe the CEO fled to Brazil.
The FSCA warned investors in South Africa last August against investing in MTI after discovering that the company operated without a license from a financial services company. The regulator was also concerned that the company was accusing customers of unusually high returns on capital. This was due to a move by regulators in Texas, US, to shut down MTI’s promoters last July.
While MTI’s collapse has prompted calls for a clear regulatory framework for the use of cryptocurrencies in the country, cheap cryptocurrency markets have also helped boost trade in the country, which has consequently attracted the interest of the South African tax authority.
Warning “Crypto Health”
In early February 2021, the FSCA sent a letter to the public noting that it had received a number of complaints from South African investors about an undisclosed “crypto investment” or “fraud package” as being Crypto investment “that promises high returns, which is understood as MTI.
The regulator stated in the letter that investments related to cryptocurrencies are not regulated by the FSCA or any other authority in South Africa, so there is a risk that, in the worst case scenario, investors have no recourse.
Brandon Topham, FSCA’s enforcement manager in South Africa, discussed with Cointelegraph how the FSCA is involved in the MTI investigation. The FSCA is now in direct contact with MTI’s liquidators and has also provided the South African Revenue Service with the details of all MTI investors. Topham told Cointelegraph that using cryptocurrencies is key for MTI to allow the perpetrators to scam investors:
“The importance of MTI is that they initially used crypto as a basis for arguing that the alleged investment business they run is not our responsibility because the payment method was crypto. Later, when they stopped trading forex based on our investigation, they stated they were trading crypto, and since crypto was known for high returns, it was easier for victims to believe that the high returns were real. “
Topham added that the situation was not due to a lack of understanding of cryptocurrencies by South African investors, but that people were “desperate and / or greedy” and continued to invest in MTI after the warning from the FSCA in mid-2020.
The MTI debacle has brought regulation in the country to the fore. Topham told Cointelegraph that there is currently no regulation in the room. However, in November 2020 the FSCA began to declare cryptocurrencies as financial products, which could be publicly commented on until the end of January 2020. According to him ::
“After this implementation, Krypto’s consultants and agents have to register with the FSCA for this change. This does not mean that crypto is regulated or very important that we advocate the existence of crypto. It will just be a mechanism to ensure that South Africans who choose to participate in crypto transactions are given appropriate advice and not deal with scammers. ”
Topham acknowledged that even registered financial services providers “sometimes become rogues” but insists the framework would be a first step in protecting the public from abuse in the region. He added that it is difficult to regulate something “that has no address, no business and no management in general”. This is exactly why regulators strongly advise investors to stay away from cryptocurrencies.
The tax officer calls
While the MTI issue has renewed the perception that cryptocurrencies are often associated with scams or scams for those unfamiliar with the space, cryptocurrency use and trading in South Africa is in a healthy place.
The recent boom in value in the cryptocurrency markets is a godsend for many traders and crypto holders. With a lot of profit to be made, there is also tax implication to consider, and recent local reports indicate that the South African Revenue Service is improving the space.
Local company Tax Consulting South Africa found that some of their clients had received audit requests from SARS, with a specific request on the use of cryptocurrencies. The company said it asked users to indicate the purpose taxpayers bought cryptocurrency for, as well as a letter from cryptocurrency exchanges confirming users’ investments and trading history, as well as bank statements. The company added that taxpayers should expect this request from SARS if they had previously reported crypto-related income or investments in their tax returns.
Marius Reitz, general manager for a local cryptocurrency exchange Luno, told Cointelegraph that SARS’s strategy with regard to cryptocurrency traders is unknown, but that any type of clampdown can encompass any type of trading profit or loss.
Reitz also stated that neither SARS nor SARB have indicated that they will ask exchanges to submit trading information from clients. Currently it is up to South African taxpayers to provide SARS tax information.
While cryptocurrency users in South Africa can rest assured that exchanges will not be pressured to divulge information about traders, Reitz stated that Luno will share customer information with law enforcement or other agencies to comply with valid requests from the relevant authority.
Topham said they are actively working on and supporting SARS efforts to enforce tax laws in the country and that cryptocurrency users should be aware of the tax implications of trading, holding, or transacting digital assets:
“Crypto is nothing new when it comes to the principles of taxation. If you are paying in rands, dollars, cows, or any other asset, the value of the transaction will still fall below the general value in the definition of income production. We work closely with all other regulatory authorities and institutions. Another is the South African Reserve Bank, as crypto is widely used to remove wealth from the coast. “
South Africa’s crypto thermometer
Reitz believes that the South African crypto landscape is fertile as there has been an influx of users on its platform over the past year. Over 6 million users have signed up for their exchange services in various jurisdictions around the world.
Luno has also played a role in shaping regulatory considerations in South Africa, having worked with the Intergovernmental Fintech Working Group that shapes regulation for space. Reitz believes the regulation will provide clarity and protection to businesses and consumers, while the MTI affair unfortunately involves cryptocurrency:
“The investment use case of cryptocurrencies remains fundamentally strong despite the MTI situation. People who invest directly through credible platforms can attest to their safety. When unscrupulous “middlemen” are involved, there are questions about cryptocurrencies. “
Reitz highlighted data from Statista showing that South Africa has a high rate of cryptocurrency ownership in the top 5 countries as another measure of growth in usage in the country.
Meanwhile, Topham told Cointelegraph that the FSCA still believes that cryptocurrencies are not a credible long-term store of wealth, describing investments in space as high risk as their value depends solely on sentiment and is fueled by anti-government thinking :
“We are passionate about the technology behind crypto assets and respect South Africans’ right to buy or invest in what they want. We don’t believe it is a credible long-term store of wealth and it is an extremely high risk and the public needs to be aware and keep their heads as they make decisions that may result in them having a long number that has no value. ”