The SARB yesterday filed an appeal against a Gauteng High Court (Pretoria) ruling that cryptocurrencies are not subject to SA exchange control regulations.

Moneyweb reports that the legal loophole would have allowed unlimited funds to leave the country using cryptocurrencies.

The May ruling followed a case brought by Standard Bank against the SARB, the Minister of Finance, Nedbank and the liquidators of Leo Cash and Carry, in which the bank was attempting to recover funds it had lent to Leo Cash and Carry (LCC) before the company was placed in liquidation in 2022.

LCC had come under scrutiny by SARB’s Financial Surveillance Department (FinSurv) when it was discovered, among other things, that the company had shipped more than 4 400 bitcoin, then valued at about R556m, to Seychelles-based crypto exchange Huobi Global.

The court said it would not be drawn into rewriting the law to include cryptocurrencies under the definition of ‘capital’ as part of exchange control regulations. In its appeal filed yesteday, the SARB says the court erred in finding that LCC had not contravened exchange control regulations, and had likewise erred in its ruling that cryptocurrency does not fall within the ambit of these regulations.

This was despite the court finding that LCC was undeniably involved ‘in a scheme, and/or used as a conduit to directly or indirectly export funds, foreign currency, and capital from the Republic’.

The result of this was that LCC was able to export capital abroad.

Moneyweb notes the SARB also argues that the court was wrong to find that cryptocurrency was not ‘money’ or ‘foreign currency’ from an exchange control perspective.

It also takes issue with the court finding that cryptocurrency falls outside the ambit of ‘capital’ or the ‘right to capital’ as defined in the regulations. Based on these errors, the court should have dismissed Standard Bank’s application, it says.

Standard Bank was successful in setting aside Finsurv’s forfeiture of R16.4m held by the bank prior to the LCC liquidation, but failed to recover an amount of R10m paid by LCC to Nedbank in settlement of an overdraft facility.

The appeal by Sarb gives some insight into possible changes in exchange control regulations that would specifically extend definitions of capital, the right to capital, money and foreign currency to cryptocurrencies. 

Moneyweb notes that Harry Scherzer, CEO of Future Forex said it was relatively clear that the Reserve Bank made an error in the sense that it allows people to evade exchange control ‘which basically makes the whole of exchange control redundant’.

Full Moneyweb report