Users/apps have full control over which hosts they select. Though I personally recommend against staying inside of one country (it's definitely less secure), if national regulations force you to stay inside of a country than it's a rule that can easily by followed by checking a host's IP address before agreeing to upload to them.
You will need to make it easy, like "select from a list of countries you permit your data to be stored in". Users can't be bothered sifting through lists of IP addresses.
Client-side encryption makes this regulation unnecessary, but governments aren't always savvy enough to realize this.
The law is the law and companies are required to follow it, whether or not it makes sense technically. That's just an unpleasant part of the cloud storage market and Sia must allow companies to comply with the law if it's to be successful in entering this market at all.