In a case about the transfer of R182m in Bitcoin to overseas crypto exchanges, a Gauteng High Court (Johannesburg) ruling holds big consequences for digital assets, reports News24.

Judge Stuart Wilson found crypto is clearly subject to SA’s exchange control regulations.

The case centred on Square Mangundhla, who, between 2018 and 2020, moved R182m in bitcoin from Luno accounts to cryptocurrency exchanges outside SA.

Accusing Mangundhla of contravening exchange control laws, which include that securities, capital or currency cannot be exported without Treasury’s permission, the SARB laid claim to almost R6m in Bitcoin and money in his local accounts in 2022.

Among other objections, Mangundhla’s legal team contended Treasury did not have to give permission because cryptocurrency does not qualify as capital, currency or securities under existing regulations.

This followed last year’s High Court ruling, in a case between Standard Bank and the SARB, that cryptocurrency falls outside exchange controls, as it is neither money nor capital. 

But that ruling was ‘clearly wrong’, said Wilson in a strongly worded judgment on Monday. 

Wilson said the judge in the Standard Bank case put emphasis on the intangible and technological characteristics of crypto, which ‘entail a degree of magical thinking that misconstrues the nature of money, underplays the destructive effects of unregulated capital flows and ignores the fundamental purpose of the exchange control regulations’.

‘In my view, courts should be careful not to ascribe unusual or irreducibly exotic properties to phenomena which, though novel and perhaps unique in some respects, exhibit precisely the attributes an enactment is intended to regulate.’

He found that crypto is capital, as it can hold value and serve as a medium of exchange. Also, once the Bitcoin was placed beyond the SARB ’s jurisdiction, it was exported.

The judge also dismissed the argument that the SARB could not seize the Bitcoin in the Luno accounts because it wasn’t money.

‘For the crypto industry and its advisers, the implications are serious,’ ENS lawyers said in an analysis of the ruling.

They believe the courts may, in future, consider how Bitcoin works in practice when applying older financial laws, rather than whether it fits formal legal definitions. 

The court’s approach is clear: If an asset behaves like a financial asset, can hold value, and can be used as a medium of exchange to move capital beyond SA borders, then its technological novelty will not by itself place it outside the law’s reach.

That is likely to resonate beyond this case, notes News24.

But experts say the latest ruling does not eliminate legal uncertainty about the treatment of crypto.

In April, Treasury published new draft regulations that mark a significant departure from apartheid-era rules on the movement of money across SA’s borders. 

For the first time, the proposals, which have been submitted for public comment, also include cross-border transfers of crypto assets.

Full News24 report

Judgment