Latest news with #ExchangeControlRegulations
Coin Geek
5 days ago
- Business
- Coin Geek
South Africa: Digital assets not subject to forex controls
Getting your Trinity Audio player ready... Digital assets are not capital or currency and are not covered by South Africa's foreign exchange controls, a local court has ruled. The high-profile court case pitted Africa's largest lender, Standard Bank (NASDAQ: SBGOF), against the South African Reserve Bank (SARB) and a local firm, Leo Cash & Carry (LCC). The central bank had seized over $1 million held in a Standard Bank account by the firm, which had been declared insolvent. Standard had placed a hold over the funds as the client owed an overdraft facility extended years ago. However, the central bank declared the funds in the account as forfeited to the state as, before it collapsed, LCC had purchased $37 million worth of BTC and transferred it abroad without official authorization, breaching forex laws. Standard Bank's legal team argued that 'crypto' is neither currency nor legal tender in South Africa, so the Exchange Control Regulations didn't apply. In his ruling, Judge M.P Motha sided with Standard Bank, and according to him, 'The answer lies in one's interpretation of the word currency.' 'Cryptocurrency is not money. The construction that cryptocurrency is money, by looking at the definition of money which includes foreign currency, is strained and impractical,' the Pretoria High Court judge ruled. The judge further ruled that 'crypto' 'falls outside the ambit of capital.' The judgement means that any flow of digital assets outside South Africa does not fall within the scope of the country's 'austere exchange control framework – at least for now,' says the local division of American law firm Baker McKenzie in its analysis. Wiehann Olivier, the head of digital assets at consulting firm Forvis Mazars, concurs, noting that the ruling creates a loophole that allows unlimited external transfers of digital assets. 'Currently, you can externalize as much cryptocurrency without any limitation as imposed from the exchange control perspective,' he told local outlet Moneyweb. 'Regulators will act swiftly' The loophole creates an easy workaround for South Africans seeking to move their money offshore. It also plays into the narrative that global central banks have held for years: that digital assets are used to circumvent capital controls, making them susceptible to abuse and criminal use. Experts expect the South African Reserve Bank to act swiftly and fix the flaw in its system. 'Given the risk this presents to the exchange control system as a whole, such legislative action seems inevitable, and it is likely that the Exchange Control Regulations will be amended in short order,' Baker McKenzie says. Olivier believes that even the central bank wasn't aware of the grey area, otherwise it would have plugged the loophole. 'In the background, [SARB] will most likely be making amendments to the exchange control regulations going forward, probably in the next 12-18 months because of the significance of the fact that you can externalize so much money without oversight,' he stated. The primary factor that supported the ruling is that the SARB, like most other central banks, has clarified that digital assets are not legal currencies. Even in pro-crypto nations like Russia, digital asset payments remain prohibited. This oversight could prove costly for South Africa as residents could purchase digital assets en masse and use them to send money offshore unchecked. The need for digital asset regulations in South Africa South Africa has the continent's most advanced digital asset laws, which has allowed regulators to issue licenses to over 200 VASPs. However, the ruling has exposed some of the gaps that still exist. In his ruling, Judge Motha noted that at this point, regulators could no longer claim digital assets as a nascent sector as their defense. 'Cryptocurrency has been in existence for over 15 years, one cannot say SARB has been caught napping,' the judge noted. Desiree Reddy, the South African director at global law firm Norton Rose Fulbright, noted, 'The decision underscores the pressing need for legislative reform to provide clarity and certainty in this rapidly evolving area.' Watch: Tech redefines how things are done—Africa is here for it title="YouTube video player" frameborder="0" allow="accelerometer; autoplay; clipboard-write; encrypted-media; gyroscope; picture-in-picture; web-share" referrerpolicy="strict-origin-when-cross-origin" allowfullscreen="">
The Citizen
27-05-2025
- Business
- The Citizen
Crypto not subject to exchange controls
High court rules that crypto is not 'capital' or 'currency' under exchange control regulations. An 'avalanche of cryptocurrency export' can now be expected … until a certain 'loophole' is closed. Picture: iStock Cryptocurrencies are not subject to South African exchange control regulations, according to a recent Pretoria High Court case brought by Standard Bank against the South African Reserve Bank (Sarb). Cryptocurrencies do not constitute 'capital' or 'currency' under SA's exchange control regulations. 'This means crypto assets are not subject to the country's strict exchange control regime, offering long-awaited clarity for the crypto industry,' says this analysis by law firm Baker McKenzie. 'While this judgment removes the need for Sarb approval to export crypto, the relief may be temporary, as future legislative amendments could reassert regulatory oversight. For now, the decision marks a significant shift in how digital assets are treated under South African financial law. 'This brings an end to a debate in the SA crypto asset industry as to whether cryptocurrencies require exchange control approval for their export out of South Africa. 'However, from experience on similar prior judgments on the Exchange Control Regulations, this reprieve may be short lived.' This judgment makes it clear that until the law is amended, cryptocurrency transfers outside SA are not covered by exchange control rules. 'The decision underscores the pressing need for legislative reform to provide clarity and certainty in this rapidly evolving area,' according to Desiree Reddy and Ntokozo Ngubane at Norton Rose Fulbright. ALSO READ: Bitcoin hits record high, surpasses R2 million Facts of the case Standard Bank was attempting to recover funds it had lent to Leo Cash and Carry (LCC) before it was liquidated in 2022. The bank extended a R40 million overdraft facility to LCC in January 2020 on certain conditions, one of them being that it move its banking business to Standard Bank and close its account with Nedbank. The company was also required to place R10 million as collateral in a money market call account. LCC started drawing down on the Standard Bank overdraft facility and immediately transferred R10 million to settle its overdraft with Nedbank. A few weeks later, Sarb's Financial Surveillance department (FinSurv) instructed Standard Bank to place a freeze on LCC's accounts due to suspected exchange control violations. FinSurv had been investigating a number of cryptocurrency transactions by individuals and entities linked to LCC. The cryptocurrencies, especially bitcoin (BTC), had been acquired on a local South African exchange and then transferred to foreign crypto exchanges. Standard Bank complied with the instruction and placed a hold on LCC's accounts. It later learned of a fraud perpetrated against it by several of its clients with links to LCC, and then launched a liquidation application against the company – which was granted in December 2021. In February 2023, the Sarb declared that two amounts of R16.4 million held by Standard Bank and R10 million deposited by LCC with Nedbank had been forfeited to the state for violations of exchange control regulations. It was this forfeiture that Standard Bank was attempting to have set aside. Standard Bank succeeded in having FinSurv's forfeiture of the R16.4 million set aside, but failed in its attempts to recover the R10 million from Nedbank. The court heard how, between September 2019 and March 2020, LCC sent more than 4 400 BTC, then valued at about R556 million, to Seychelles-based crypto exchange Huobi Global. ALSO READ: Are you making money with crypto assets? Sars is looking for you Ruling based on earlier case The court refused to be drawn into rewriting the law to include cryptocurrencies under the definition of 'capital' as part of exchange control regulations. It relied on a previous 2011 case, Oilwell v Protec International, where the Supreme Court of Appeal similarly refused Sarb's argument that intellectual property constituted 'capital' for exchange control purposes. Some 15 months after the Oilwell ruling, exchange control regulations were amended to include intellectual property. In light of the latest Standard bank ruling, the Sarb is expected to amend its regulations to include cryptocurrencies and close the loophole. But what happened after the Oilwell ruling in 2011 was an intellectual property export free-for-all – it 'was readily exported outside of South Africa without any fear of triggering any exchange control implications,' says Baker McKenzie. 'Standard Bank v Sarb will certainly hasten this amendment and reform. However, until then, if the experience from Oilwell holds true, an avalanche of cryptocurrency export is imminent.' This article was republished from Moneyweb. Read the original here.
