The South African Reserve Bank (SARB) is appealing a Pretoria High Court ruling that set aside its forfeiture of more than R16.4 million held by Standard Bank, ruling that apartheid-era exchange control regulations can’t be used to deal with modern-day crypto-currency transactions.
Standard Bank had taken SARB to court, arguing that the central bank could not lawfully forfeit funds it held as collateral for a R40 million overdraft it granted to the now defunct Leo Cash and Carry (LLC).
The money was seized after SARB’s Financial Surveillance Department argued that LLC breached foreign exchange regulations by trading internationally in crypto-currency.
“Should the appeal be unsuccessful and the High Court's ruling stand, the practical implication is that crypto-currencies may continue to be exported without prior approval from the SARB. This reflects the current status quo, as the lack of clear regulatory guidelines has created a legal grey area that allows traders to operate amid uncertainty,” explains Megan Landers, senior manager at AJM.
In granting Standard Bank’s bid to reverse the central bank’s seizure of the money set aside, judge Mandlenkosi Motha stated that “the consequences of the massacre of black people in Sharpeville reverberated inside the corridors of the apartheid economy and shook the very foundations of the regime.
“To stem the tide of the resultant capital flight and a run on the rand, the apartheid regime passed the Exchange Control Regulations in 1961, which, save for a few changes, is still in place,” the decision reads.
The Gauteng North High Court was dealing with what it called the “vexed question” as to whether these old regulations “are fit for purpose to deal with the machinations in the world of crypto-currency”.
Landers points out that the ruling may provide temporary clarity on exporting of crypto-currencies, yet the legal and regulatory landscape is likely to evolve. Income earned from crypto-currencies does, however, need to be declared to the South African Revenue Service, she says.
In making the decision, Motha pointed out that SARB’s own 2020 position paper concluded that “exchange regulations do not govern the transfer of crypto-currencies in and out of South Africa. Any cross-border exchange can therefore not be authorised by SARB.”
The dispute centred on SARB’s argument that the regulations define money to include “foreign currency or any bill of exchange or other negotiable instrument”. Standard Bank countered that the seized funds had been pledged to cover an overdraft and were therefore its property.
It also argued that crypto-currencies do not fall within the definitions of "capital" or "currency" in terms of the Exchange Control Regulations.
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