Corporate & Commercial Law
Landmark judgment rules crypto 'freely transferrable' - Sarb moves to block it
The Pretoria High Court recently delivered a judgment in the case of The Standard Bank of South Africa v The South African Reserve Bank and Others (Standard Bank case), in which the litigants argued whether or not cryptocurrencies constitute “capital” for purposes of Regulation 10(1)(c) of the Exchange Control Regulations (issued under the Currency and Exchanges Act 9 of 1933).
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Regulation 10(1)(c) of the Exchange Control Regulations prohibits the transfer or exportation of capital or any right to capital from South Africa, unless such transfer or export has been approved by the Financial Surveillance Department of the South African Reserve Bank (Sarb) (per its authority delegated by the National Treasury). The Sarb’s position has always been that this prohibition extends to the externalisation or exportation of cryptocurrencies or right to cryptocurrencies.
However, the High Court in the Standard Bank case held that cryptocurrencies do not constitute “capital” for purposes of Regulation 10(1)(c) of the Exchange Control Regulations. Unsurprisingly, the Sarb has appealed the ruling of the High Court, with the effect that the Standard Bank case’s judgment is suspended and the Sarb’s position stands.
High Court rules crypto freely transferrable
Should the High Court finding be upheld, this could mean that cryptocurrencies are not subject to exchange control restrictions and therefore, cryptocurrencies and rights to cryptocurrencies are freely transferrable out of the country.
South African residents who seek to transfer money offshore for any purpose could buy cryptocurrencies within the country, externalise those cryptocurrencies and cash out the cryptocurrencies offshore – such residents would not have to observe the offshore transfer limits that the Sarb has prescribed for South African residents through the Currency and Exchanges Manual for Authorised Dealers pursuant to Regulation 10(1)(c) of the Exchange Control Regulations.
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They could also bypass the tax audits required when externalising amounts in excess of the prescribed offshore transfer limits.
Expected countermove
It is probable that the Sarb will request the Minister of Finance to amend the Exchange Control Regulations to expressly include cryptocurrency in the definition of “capital”.
The National Treasury 2025 Budget Review indicates that the Intergovernmental Fintech Working Group is finalising a set of regulatory recommendations in line with relevant international standards, including a framework for cross-border crypto asset transactions, which will be published for public consultation during 2025.
About the author
Bright Tibane, Partner, Andani Thovhakale, Associate, and Tony Misago, Candidate Legal Practitioner, Bowmans South Africa