Webber Wentzel’s Joon Chong on the court ruling that’s left crypto assets in legal limbo. From Moneyweb.
You can also listen to this podcast on iono.fm here.
The Pretoria High Court ruled earlier this year that cryptocurrencies do not qualify as “currency” or “capital” under South Africa’s exchange control regulations.
This judgment makes it clear that until the law is amended, cryptocurrency transfers outside SA are not covered by exchange control rules.
Listen/read: Crypto not subject to exchange controls – for now
But that’s not the end of the story, as Webber Wentzel partner Joon Chong makes clear in this podcast.
The case was brought by Standard Bank against the South African Reserve Bank (Sarb), which is appealing the ruling. That appeal will be heard in 2026. Until then, the high court ruling is suspended, which means crypto transfers abroad fall under exchange controls. It remains a grey area, says Chong.
This all arose when a Standard Bank client under investigation by the Financial Surveillance (FinSurv) unit at the Sarb was found to have transferred 4 400 bitcoin to an exchange in the Seychelles.
The FinSurv unit then applied to forfeit more than R16 million belonging to the company (then undergoing insolvency proceedings), and held by Standard Bank – which successfully opposed the forfeiture in the high court.
What does all this mean for the future of crypto transfers?
“The legal status is in limbo and that is precisely the problem,” says Chong.
“The high court judgment ruled that crypto transfers fall outside the exchange control regulations because cryptocurrencies are not currency and they’re also not capital under the 1961 [exchange control] definitions. The court’s interpretation is in line with the Sarb and the Inter-governmental Financial Working Group [IFWG] position paper in 2021.”
The IFWG is a collaborative body of financial regulators formed in 2016 to understand and respond to the impact of fintech on the financial sector.
It advised in 2021 that exchange control regulations should be amended to include crypto assets.
“Yet, if we look at the Reserve Bank authorised dealers’ manual and the Sarb website, they provide that fintech cannot approve these crypto transfers,” says Chong.
“However, individuals can still buy crypto from abroad using their normal allowances. These are the R1 million a year without tax clearance or up to R10 million a year with tax clearance.
“If you also look at the IFWG frequently asked questions on crypto assets, they reflect a similar position. Externalising capital, which includes crypto assets, is covered already under the regulations.
“Contravening these regulations is a criminal offence. In other words, FinSurv already treats crypto transfers as if they fall under exchange controls.”
There is an apparent contradiction between what the Sarb is saying through the IFWG – that regulations must be amended to include crypto assets because they don’t exist, and what the Sarb argued in the Pretoria High Court – that they do exist.
“It depends on which interpretation you adopt. If you adopt the high court judgment view, then crypto asset transfers are not covered under the regulations,” adds Chong.
The alternate view is that these regulations are already in place.
Exchange controls still relevant?
This raises the vexed question of whether exchange controls still serve any useful purpose.
Many see them as a relic of the apartheid years, and yet they’re still with us.
This brings to mind a previous case involving South African tech entrepreneur Mark Shuttleworth, founder of Thawte, who sold his company for billions and was charged a 10% exit levy when he externalised his funds.
Shuttleworth took the Sarb to court and lost, with the Constitutional Court ruling that the 10% exit levy was within the Sarb’s regulatory powers.
Shuttleworth didn’t get much sympathy, perhaps because he is a billionaire, but it raised disturbing questions around the regulatory limits of Reserve Bank power.
Crypto is a different animal
Chong points out that there are fundamental differences between the Shuttleworth and Standard Bank cases: Shuttleworth was moving funds abroad in the conventional way through the banking system. The only question to decide was whether the 10% exit levy was constitutional.
“The Standard Bank case is very different,” she says. “We are dealing with a definitional dispute.
“Does bitcoin, a string of digital code that did not exist when the regulations were passed in 1961, qualify as capital?”
That, says Chong, is a very different question.
“There’s also a crucial procedural difference. Shuttleworth was purely a civil regulatory matter. There was no criminal liability, no forfeiture at stake.
“But the Standard Bank case involves potential criminal penalties and asset forfeiture.”
The 1961 exchange control regulations were designed for a world of physical money, bank transfers and airport declarations.
“As the recent high court judgment observed, how do you declare bitcoin at a border? How do you deposit it with the authorities? The regulations do not contemplate this technology.”
Read: Finance industry seeks global crypto rule overhaul for banks
Loophole blocked: Sarb appeals ruling on crypto not being subject to exchange controls
Are SA banks about to enter the crypto market?
The high court judgment in favour of Standard Bank emphasised that lawmaking is the function of parliament. Until parliament completes the process, we are left to regulators to provide clarity.
“Unfortunately, I imagine this grey area will still exist for some time until we get the [Supreme Court of Appeal] hearing in 2026,” says Chong.
For previous Moneyweb Crypto Pod episodes, click here.
