The South African Reserve Bank will take a crypto-currency matter to the Supreme Court.
In what could be a precedent-setting case, the Supreme Court of Appeal (SCA) will next year hear arguments as to whether an ‘apartheid-era’ law can be applied to digital money.
This could mean that foreign exchange regulations will need to be redrafted.
The South African Reserve Bank’s (SARB’s) appeal to enforce 64-year-old regulations, leaves businesses and consumers alike in the dark as to what permissions they need – if at all – to trade in crypto outside of South Africa’s borders.
Clarity is required, because crypto-currencies are becoming more mainstream across the globe.
The matter relates to a case earlier this year in which the central bank lost a North Gauteng High Court bid to defend its forfeiture of more than R16.4 million held in a Standard Bank account.
Standard Bank took 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 Leo Cash and Carry.
When finding in favour of Standard Bank, judge Mandlenkosi Motha said the foreign exchange regulations, which were introduced in 1961, had no bearing on modern day transactions in digital currencies.
SARB told the High Court that leaving crypto outside the regulatory framework weakened its Constitutional role to protect the currency’s value and stop capital flight. It said this created a loophole that could be used to dodge exchange controls.
Standard Bank pushed back, pointing out that the law doesn’t recognise crypto as legal tender, so these assets aren’t formally recognised.
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.”
Explaining the significance of the appeal to the SCA, law firm ENS Africa says in a blog post that the matter, set to be heard next year, had the effect of suspending the High Court’s judgement.
As a result, the lawyers wrote, “the legal position on crypto-currencies remains potentially unsettled”.
It also means that the clarity previously provided by the High Court on whether crypto-currency is regarded as capital will be subject to reconsideration by the Supreme Court of Appeal or, alternatively, a full bench of the Gauteng Division of the High Court, ENS explains.
“Unless legislative amendments are made, the ultimate ruling from an appellate court is likely to have far-reaching implications for businesses and individuals engaged in crypto-currency transactions. It may also renew calls for more explicit regulation or statutory intervention to address the rapidly-evolving nature of digital assets,” says ENS.
Earlier this year, Motha stated that the regulations were brought into effect in 1961 “to stem the tide of the resultant capital flight and a run on the rand”. Apart from a few changes, these Exchange Control Regulations are “still in place,” the judge says.
These regulations were “the consequences of the massacre of black people in Sharpeville [which] reverberated inside the corridors of the apartheid economy and shook the very foundations of the regime,” the ruling notes.
On 21 March 1960, 69 people were killed and almost a hundred more injured when police fired on a crowd of black people in Sharpeville near Vereeniging, in response to a peaceful march protesting pass laws. It was one of the first and most violent demonstrations against apartheid in South Africa.
SARB seized the money after its Financial Surveillance Department argued that now defunct Leo Cash and Carry breached foreign exchange regulations by trading internationally in crypto-currency.
As a result of the filing timeframes, the matter will only be heard next year, says ENS.
