Cryptocurrency was first introduced to the global market in 2009, with its most well-known form being bitcoin
On 15 May, the high court handed down a landmark judgment in the case of Standard Bank of South Africa vs South African Reserve Bank and Others. The judgment addressed the position of cryptocurrency assets in light of South Africa’s Exchange Control Regulations.
Cryptocurrency was first introduced to the global market in 2009, with its most well-known form being bitcoin. In an October 2024 publication by the South African Revenue Service it was estimated that more than 5.8 million South Africans hold a crypto asset. As new technologies emerge, the government faces several challenges in determining how to integrate them into existing legislation.
This article examines an application by Standard Bank to set aside a forfeiture order issued by the Reserve Bank against Leo Cash and Carry (LCC), following multiple cryptocurrency transactions that allegedly violated the South African Exchange Control Regulations. The judgment is being taken on appeal by the Reserve Bank after it was ruled that cryptocurrency is not subject to the regulations.
The high court analysed the legality of a forfeiture order issued in respect of R16 404 700.37 and R10 000 000, which was due to Standard Bank, in accordance with a prior pledge and cession agreement concluded between the bank and LCC. The forfeiture order follows an investigation from the central bank’s financial surveillance department which found that LCC had contravened exchange control regulations.
Passed in 1961, the exchange control regulations promulgated in terms of section 9 of the Currency and Exchange Act, aim to discourage the export of capital from South Africa and protect the economy. The court in South African Reserve Bank vs Leathern N.O. and Other held that the purpose of the regulations are threefold: to prevent loss of foreign currency resources through the transfer abroad of financial capital assets held in South Africa; to ensure effective control of financial and real assets in and out of the country and to avoid interference with the commercial, industrial and financial systems of the country.
It is apparent that the legislative intent of these regulations is protective and forward-looking, which may support an expansive interpretation that includes digital finance instruments. In the matter before the high court, Standard Bank provided multiple arguments as to why they felt that cryptocurrency is not subject to these provisions. While logically sound, the arguments undermine the purpose of the legislation and the economic stability the regulations were designed to preserve.
When assessing Standard Bank’s claim, the high court swiftly dismissed the claim for R10 million held in a Nedbank account, ruling that it does not have legal standing to challenge this claim and thereafter only considered a claim for R16 404 700.37 which was held in a money market account. The key to Standard Bank obtaining judgment and setting aside the forfeiture order was proving that LCC had not contravened any exchange control regulations in dealing with cryptocurrencies — enabling them to successfully cede the monies as per their agreement with LCC.
In doing so, Standard Bank argued that cryptocurrency is neither a currency nor legal tender in South Africa and, consequently, the regulations did not apply to it. Further to this argument, it argued that definitions in the regulations should be given restrictive interpretation and only if the legislation was amended to include cryptocurrency would it be subject to the regulations. Taking the argument even further, the bank argued that cryptocurrency was not capital and that it could not be applied to the exchange control regulations without a dedicated framework regulating cryptocurrency as an asset.
At this point, one might ask why Standard Bank felt cryptocurrency was not money or a form of capital. In answering this, the bank submitted that the fundamental difference is that, when one purchased cryptocurrency, a blockchain recorded your purchase, and the record of this purchase would be stored on thousands of computers globally. In addition, the transfer of cryptocurrency to another was not payment. It was argued that, in this sense, cryptocurrency was not a sum of money.
On the other hand, the Reserve Bank’s argument attempted to future-proof regulation in light of the digital economy, arguing for the acceptance of cryptocurrency in the exchange control regulations. In doing so the central bank argued that both the PwC report on which the investigation into LCC was made, and the allegations made against LCC, were uncontested. Drawing from South African Reserve Bank vs Leathern N.O, the Reserve Bank submitted that, because there was a reasonable suspicion of a contravention, the high court was not entitled to set aside the blocking order.
In response to the argument that cryptocurrency was not subject to the regulations, the Reserve Bank argued that a contravention of regulation 3(1)(c) did not require a payment or the identity of any receipt. Furthermore, that cryptocurrency was covered by the regulations, noting that in the definitions of the regulations, money was defined as “foreign currency or any bill of exchange or other negotiable instrument”. Counsel for the respondents (the central bank and others) argued that cryptocurrency was an instrument which permitted payment in currency, which is not a legal tender in South Africa.
In highlighting the importance of regulating cryptocurrency under exchange control regulations, the Reserve Bank submitted that when rands are paid into a South African cryptocurrency wallet, the rands would become cryptocurrencies, and the rand value would be lost from the South African balance sheet. Subsequently, in a foreign jurisdiction that cryptocurrency enabled the holder of the cryptocurrency to withdraw a sum of money equal to that cryptocurrency, operating as a form of payment.
Last, when considering whether Standard Bank was entitled to the funds in the money market account, the Reserve Bank argued that Standard Bank was not entitled to the money because in terms of the cession and pledge agreement between the Standard Bank and LCC, express consent was required to realise any collateral held by Standard Bank.
In reviewing the arguments presented before the high court, Judge MP Motha noted that it was undeniable that the LCC was involved in a scheme to directly or indirectly export funds, foreign currency and capital from South Africa. The court set out the extent of the LCC’s transactions, noting that during 2019 LCC sent 4 405.9783 of bitcoin, amounting to R556 020 356, 68, to Huobi Global and concluding that it was therefore incontrovertible that the LCC partook in cryptocurrency transactions.
The court highlighted that the answer lies in one’s interpretation of the word “currency” and held firm that cryptocurrency is not money. It noted that trying to view cryptocurrency as money leads to strained and impractical results and, if it were to be viewed as money, cryptowallets would be attached in terms of regulation 22B. Some of the practical questions raised by the court were whether one can deposit cryptocurrency and whether one must declare it when entering or leaving South Africa.
The judge held that, on any interpretation, cryptocurrency fell outside the ambit of capital in regulation 10(1)(c) and that, as Standard Bank argued, a regulatory framework dedicated to addressing cryptocurrency is overdue. He cited a published paper by the Reserve Bank itself highlighting the lack of a proper regulatory legal framework, specifically highlighting that “there is no regulatory protection that would compensate the owner or user of cryptocurrency for any loss that may be suffered”.
Considering the above, the judge held that LCC did not contravene any regulations and the forfeiture of the money held in the money market account was set aside.
On 23 May, the Reserve Bank filed an application for leave to appeal, seeking to overturn the ruling. Its main argument is that the high court should have concluded that, although not considered money, cryptocurrency could, at the very least, be seen as “capital”, triggering the provisions of regulation 10(1)(c). As a result of the appeal, section 18(1) of the Superior Courts Act provides that the court’s decision is suspended, pending the outcome of the Reserve Bank’s application for leave to appeal.
Given this prevalence, the ruling has profound implications, not only for financial institutions and regulations, but also for citizens whose assets may be subject to the regulations. Without legislative intervention, the South African government could find itself powerless in monitoring and regulating the significant volume of digital wealth cryptocurrency holds.
Charlise Finch is a candidate attorney and Raffique Motala is a director at Herold Gie Attorneys.