DEON GRIESSEL: Exchange control regime is alive and well in SA

Much like certain former Soviet republics, the People’s Republic of China, India, certain South American jurisdictions, a number of other countries in Africa with “transitional economies” and countries such as the Bahamas, Cuba, Iran, North Korea and Sudan, and SA have an exchange control regime in terms of which cross-border money flows are regulated by government. 

In the case of SA the regime is in place by virtue of the Exchange Control Regulations of 1961, published about 62 years ago. There are a plethora of exchange control rules SA residents must comply with and that affect cross-border transactions and money flows. 

Not many SA residents are aware of the exchange control rules, and even fewer are aware that every person who contravenes or fails to comply with these rules is guilty of an offence and liable upon conviction to a fine not exceeding R250,000 or imprisonment for a period not exceeding five years, or both.

In addition, the exchange control regulations make provision for the attachment of money and goods, and blocking of bank accounts (regulation 22A), forfeiture to the state and disposal of money or goods attached or in respect of which orders have been issued or made (regulation 22B), and the recovery of certain amounts by the National Treasury, or in effect the SA Reserve Bank (regulation 22C). 

For many decades there have been rumours that the SA exchange control regime may be abolished to allow for a free flow of money across our borders, or that some of the harsh provisions would not be used or implemented by the exchange control authorities. In some circles it has even been suggested that the validity or enforceability of the exchange control regulations might be susceptible to attack in view of the fact that they are so far-reaching.

In the recent judgment handed down by the Supreme Court of Appeal (SCA) in the matter of SA Reserve Bank and Another v Johnine Winsome Elisie Maddocks and another, Zondi JA (with Mocumie and Gorven JJA, and Nhlangulela and Basson AJJA concurring) upheld an appeal by the Bank and Treasury against the decision of the KwaZulu-Natal division of the high court sitting in Durban. 

The liquidators of Sun Candle Products and Xinming Mountain Textile brought an application for an order declaring null and void certain forfeiture orders made pursuant to the provisions of regulation 22B of the exchange control regulations, and directing the National Revenue Fund to pay the forfeited monies into the liquidators’ bank account. 

Legal consequences

The court granted the orders as sought by the liquidators, and the Reserve Bank and National Treasury appealed to the SCA. This brought into focus the legal consequences of the forfeiture orders made by the Reserve Bank pursuant to the provisions of regulation 22B in respect of monies standing to the credit of the companies in various SA bank accounts.

Though the forfeiture orders were issued by the Bank after the liquidation of the companies, the facts were that before the liquidation of the companies ensued the Bank, acting in terms of regulation 22A and/or regulation 22C, issued “blocking orders” in respect of the monies concerned. In terms of these orders the bank accounts concerned were blocked on the reasonable suspicion that the companies had, in contravention of the exchange control regulations, exported large sums of money without the permission of the exchange control authorities, and made advance payments for imported goods without submitting proof of importation to the authorised dealer concerned. 

The effect of the orders made in terms of regulation 22A and/or regulation 22C was that “no person may withdraw or cause the withdrawal of funds together with the interest thereon and/or accrual thereto in accounts held at the banks”.  The SCA held that the subsequent issuing of the forfeiture orders in terms of regulation 22B, which occurred after the liquidation of the companies, was not affected by the liquidation and that the monies that were declared forfeited to the state thus do not fall within the insolvent estates of the companies, as argued on behalf of the liquidators. For these reasons, the appeal against the finding of the court was upheld by the SCA, with costs.

The judgment of the SCA in the Maddocks case discussed above confirms that: 

• The exchange control regulations are alive and well in SA.

• Rumours that the exchange control regime may be abolished have not yet materialised.

• The rather harsh provisions of the regulations are indeed being used and implemented (another example of this is the orders made by the Western Cape High Court on application of the Reserve Bank in the high-profile case pertaining to the affairs of Markus Johannes Jooste and others). 

• That the exchange control regulations are being regarded by our courts as valid and enforceable. 

In view of the above SA resident individuals and entities would be well advised to take professional advice from someone well versed in exchange control matters before engaging in cross-border transactions. 

• Griessel is banking & finance director at Werksmans Attorneys.