Sakeliga opposes proposed capital control regulations

Sakeliga has submitted written comments to the National Treasury opposing the Draft Capital Flow Management Regulations. The proposed regulations would grant the state sweeping new powers over private property that exceed its constitutional limits and lack sound economic justification.

The regulations would replace the Exchange Control Regulations of 1961, which currently govern cross-border money and asset flows. Although National Treasury presents the proposal as a modernisation of the regulations to include crypto assets, it would also significantly expand the state’s powers to monitor, search, seize, and even force the sale of private property. Much of this authority would rest on administrative discretion rather than judicial oversight.

Sakeliga's concerns include, but are not limited to:

1. An over-broad definition of "capital",
2. An infringement of basic constitutional rights,
3. Irrational and legally uncertain key provisions, and
4. Serious economic shortcomings.

Redefining almost anything as "capital"

The draft defines “capital” so broadly that it includes any good that can be exchanged for monetary value, except immovable property. While this is intended to bring cryptocurrencies under exchange control regulation, it also could, in principle, be used to expand the state’s control over almost all private property.

Furthermore, the proposed regulations go well beyond the cross-border transactions they are purportedly designed for, extending erroneously to domestic crypto holdings, peer-to-peer transfers, self-custody arrangements, and merchants who accept crypto payments from customers.

Infringement of basic constitutional rights

The draft's provisions infringe on basic constitutional rights without necessary safeguards.

Draft Regulation 25 empowers Treasury and authorised persons to compel the disclosure of any password, PIN, or private cryptographic key required to access a person’s crypto assets, without prior judicial authorisation. This constitutes a disproportionate intrusion into the private sphere, well beyond what is necessary to achieve the stated regulatory objective.

Placing such critically sensitive crypto access in the hands of the state renders

crypto property intolerably insecure. The state cannot provide adequate assurance that it can safeguard this information against corrupt actors who would abuse it, particularly where it could expose access to vast stores of private wealth.

Draft Regulation 24 allows Treasury to attach assets, including immovable property, through title deed registration, merely on “reasonable grounds to suspect” a violation. Property could therefore be restrained without a court order, forcing owners to seek costly legal relief after the fact.

The draft also allows the state to compel owners to sell crypto assets or gold at administratively determined prices. In effect, this can amount to expropriation without due regard to the just and equitable compensation required by section 25 of the Constitution.

Irrational and legally uncertain requirements

Many of the proposed regulations depend on a monetary threshold above which assets must be declared, transactions must pass through authorised providers, and the state’s enforcement powers apply. However, Treasury has not yet published this threshold. The public is therefore expected to comment on a regulatory system without knowing one of its central features. This is a significant hindrance to meaningful public participation and casts serious doubt on the legitimacy of the process.

The proposed penalties are equally disproportionate. A contravention may result in a fine of up to R1 million, imprisonment for up to five years, or a penalty equal to the full value of the asset, regardless of whether the offence involves deliberate evasion or a simple administrative error in not submitting a declaration within 30 days.

Economic shortcomings

Besides its constitutional defects, the draft has numerous economic shortcomings.

Capital controls of this character inappropriately shift responsibility for maintaining the value of the rand from the state – which has failed to protect its value – onto private currency and asset owners. They also erode the very ability of individuals, businesses, and communities to use foreign currency and a range of assets to protect themselves and their wealth from state economic mismanagement, abuse of power, and corruption.

Weakening this check on state mismanagement undermines the fiscal and monetary discipline necessary to maintain currency integrity, thereby actually increasing its vulnerability to devaluation.

You can access Sakeliga's full submission here