By Lehlohonolo Lehana.
Image: Envato Elements.
The Gauteng Division of the South African High Court ruled that Bitcoin is classified as capital under exchange control regulations, stemming from a case involving R182 million in cryptocurrency.
The court found that Bitcoin is both “money” and “capital” under South African law and therefore falls within the country’s exchange control framework.
The case centred around a South African man who transferred nearly 1,680 Bitcoin, which he bought in South Africa.
Fullview understands the Bitcoin was worth about R182 million at the time.
He transferred them to cryptocurrency wallets that he could only access through exchanges outside the country. He did this between January 2018 and March 2020.
The South African Reserve Bank (SARB) argued that the transactions amounted to the export of both the Bitcoin and its rand value in contravention of South Africa’s Exchange Control Regulations.
The man used multiple cryptocurrency trading accounts on the Luno platform, including one belonging to a second applicant, to bypass trading limits.
In response, the SARB declared forfeited to the state around R6 million held in cryptocurrency assets, bank accounts and trading accounts linked to the applicants.
The central bank argued that the assets were either proceeds of unlawful conduct or were themselves in the process of being illegally exported.
The men in question challenged the forfeiture order in court, but their application was dismissed by the court.
The applicant sought to review and set aside the forfeiture orders, principally on the basis that the Exchange Control Regulations, 1961 do not apply to cryptocurrency at all.
The ruling is important because it shows that South African authorities and courts consider cryptocurrency to be part of the existing exchange control laws.
In his ruling judge Wilson J strongly rejected arguments that cryptocurrency exists outside South Africa’s financial regulatory framework.
He described the suggestion as a form 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.”
The judge emphasised that the regulations, which were issued under the Currency and Exchanges Act of 1933, exist to prevent South Africa’s financial resources from leaving the country without oversight.
Anyone wishing to move capital offshore must first obtain approval from the National Treasury.
A key aspect of the judgment was the court’s finding that Bitcoin clearly falls within the definition of “capital”.
The court noted that Bitcoin can be bought with rands, held as an investment, sold for profit, and, in some jurisdictions, used to pay for goods and services.