Cryptocurrency & Exchange Control – do I need SARB approval to transfer cryptocurrency offshore?

South Africa operates a complex exchange control regime, governed primarily by the Currency and Exchanges Act, 1933 and the Exchange Control Regulations, 1961. The principle object of the exchange control regime is to regulate inward and outward flows of ‘capital’ from South Africa, each of which are subject to the oversight of the South African Reserve Bank.

Two conflicting decisions of the High Court have now brought into sharp focus the issue of whether digital assets such as cryptocurrencies constitute ‘capital’ for purposes of the Exchange Control Regulations, with the result that any inward and outward flows are subject to oversight of the South African Reserve Bank.

In its judgment in Standard Bank v SARB the North Gauteng High Court held that cryptocurrencies are nothing more than ‘codes on a digital ledger’ existing globally and are neither ‘currency’ nor ‘capital’. Adopting a restrictive interpretation, the court found that cryptocurrencies are therefore not subject to the Exchange Control Regulations.

In stark contrast, the South Gauteng High Court in Mangundhla & Dangaiso v SARB held that cryptocurrencies plainly constitute ‘capital’ in that they are financial assets capable of holding value and being used as a medium of exchange. Adopting a practical approach, the court held that if Rands can be converted into cryptocurrencies and used as a medium of exchange through which capital (in the form of Rands) can be exported from South Africa, they must be subject to our exchange control regime and South African Reserve Bank oversight.

The High Court’s decision in Standard Bank v SARB has been taken on appeal to the Supreme Court of Appeal, which will provide much needed clarity on the treatment of cryptocurrencies for exchange control purposes. Until then, the position remains entirely unclear, and parties should take specialist advice to avoid any potential non-compliance.