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WILSON J:
1 The central question in this case is whether cryptocurrency (in this instance
Bitcoin) constitutes either “money” or “capital” for the purposes of section 10
(1) (c) of the Exchange Control Regulations, 1961. I conclude that it is both.
This conclusion arises not only from the plaintext meaning of the Regulations
themselves. It is reinforced by any reasonable purposive interpretation of
those Regulations. The purpose of the Regulations is three-fold . It is, firstly,
“to prevent loss of foreign-currency resources through the transfer abroad of
financial capital assets held in South Africa”; secondly “to ensure effective
control of the movement of financial and real assets into and out of South
Africa”; and thirdly, “to avoid interference with the efficient operations of the
commercial, industrial and financial system of the country” (South African
Reserve Bank v Leathern NO 2021 (5) SA 543 (SCA), paragraph 36). On any
sensible construction of the facts, cryptocurrency is a “financial capital asset”
in the sense conveyed here, the unregulated export of which would frustrate
each of these purposes. Submissions to the contrary tend to rely on
cryptocurrency’s unregulated, intangible, and technological features. They
entail a degree of magical thinking which misconstrues the nature of money,
underplays the destructive effects of unregulated capital flows, and ignores
the fundamental purpose of the Exchange Control Regulations.
The applicants and their use of cryptocurrency
2 The first and second applicants both possess accounts on the Luno platform.
Luno is a well-known cryptocurrency trading website. It was accepted before
me that the second applicant, Ms. Dangaiso, does not trade in cryptocurrency.
3
Her involvement in this case arises solely from the fact that the first applicant,
Mr. Mangundhla, used her account to circumvent the limit that would ordinarily
apply to the trades he could carry out using his account alone. Mr. Mangundhla
traded in cryptocurrency quite lawfully for an extended period between April
2015 and December 2017. However, from January 2018, Mr. Mangundhla’s
behaviour on the accounts changed. Between January 2018 and March 2020,
Mr. Mangundhla used the accounts to funnel just under 1680 bitcoin
purchased in South Africa, worth just under R182 million, to bitcoin wallets that
were only accessible through cryptocurrency exchanges registered outside
South Africa.
3 The first respondent, the Reserve Bank, takes the view that this conduct
amounted to the exportation of the Bitcoin and their rand value, contrary to
section 10 (1) (c) of the Regulations. Exercising his delegated powers under
Regulation 22B of the Regulations, the third respondent, the Deputy Governor,
declared forfeit to the state just under R6 million in Bitcoin assets and money
standing to the applicants’ credit in their respective Standard Bank accounts
and Luno cryptocurrency trading accounts. The basis of the forfeiture order
was that this money and cryptocurrency was either the proceeds of Mr.
Mangundhla’s contravention of the Regulations, or was itself in the process of
being unlawfully exported.
4 The forfeiture order also relied upon the propositions that the transactions
amounted to the removal of “securities or foreign currency” from South Africa
without the Treasury’s permission, contrary to Regulation 3 (1) (a), and that
the transactions resulted in a “payment to, or in favour of, or on behalf of, a
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person resident outside” South Africa without the Treasury’s permission,
contrary to Regulation 3 (1) (c). The evaluation of these propositions would
require me to consider whether cryptocurrency amounts to a “security” or a
“foreign currency” or to decide whether crediting a cryptocurrency wallet in an
exchange hosted outside South Africa amounted to a “payment” to the holder
of the wallet.
5 Whatever the proper construction to be placed on the transactions, there was
no dispute before me either that the transactions actually took place or that
Mr. Mangundhla was behind them, albeit acting in concert with other
individuals, who caused him to facilitate the transactions, or co-operated in
carrying them out. The parties also agree that Mr Mangundhla did not have
the Treasury’s permission to perform these transactions, which he would need
if they amounted to the export of capital from South Africa. The main dispute
in this case is about whether Mr. Mangundhla needed the Treasury’s
permission to perform the transactions.
The review
6 The answer to that question depends on whether the Regulations can be read
to apply to cryptocurrency transactions at all. The applicants seek to review
and set aside the forfeiture orders, principally on the basis that the Regulations
have no such application. The applicants’ case is fourfold. First, they say that
cryptocurrency is neither capital, nor currency, nor a security under the
Regulations, and that its transfer to a wallet registered on a foreign
cryptocurrency exchange is not a “payment” to the holder of the wallet .
Accordingly, there was no basis on which a forfeiture order could be made ,
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because the Regulations do not apply to cryptocurrency. Second, they say
that, even if cryptocurrency can appropriately be considered “capital”, there is
no evidence that the currency was “exported” in the sense required by section
10 (1) (c) of the Regulation s. Third, they say that even if the relevant
transactions did result in exportation of cryptocurrency in a manner contrary
to the Regulations, the investigation that drew that conclusion was
procedurally unfair, and the outcome of the investigation ought to be set aside
on that ground alone. Fourth, and if all else fails, the applicants say that
cryptocurrency is neither “money” nor “goods” for the purposes of sections
22A and 22B of the Regulations. Accordingly, the applicants say, the Bitcoin
balances in their Luno accounts are not subject to forfeiture.
7 The Exchange Control Regulations were issued under the Currency and
Exchanges Act 9 of 1933. Section 9 (2) (d) (i) of the Act sets out the grounds
on which a forfeiture order may be reviewed. They are either “that the person
who made [the forfeiture order] did not act in accordance with the relevant
provisions of the regulation” or “that such person did not have reasonable
grounds to make such decision or to take such action” or “that such grounds
for the making of such decision or the taking of such action no longer exist”.
8 The mainstay of applicants’ case is that the forfeiture orders were not issued
“in accordance with the relevant provisions of the regulation” authorising them.
That case boils down to the argument that the Regulations do not apply to
cryptocurrency, which is neither “money”, nor “capital” nor a “security” for the
purposes of the Regulations. Nor does its transfer to cryptocurrency wallets
hosted on foreign exchanges result in a “payment” to the holder of the wallet
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or the “export” of “capital”. If the applicants are right in asserting that the
Regulations do not apply, then the forfeiture orders must certainly be set
aside.
Do the Exchange Control Regulations apply to cryptocurrency?
9 The Reserve Bank’s principal argument is that the transactions were carried
out in contravention of Regulation 10 (1) (c). That argument raises the
question of whether cryptocurrency is “capital” under the Regulations, and the
question of whether its transfer to cryptocurrency wallets on exchanges
registered outside South Africa amounts to its “export”. Counsel agreed that,
if I concluded that cryptocurrency is “capital” that was “exported” for the
purposes of section 10 (1) (c), I need not consider the meaning of Regulations
3 (1) (a) or (c). Given that I consider that the Bitcoin transactions at issue in
this case did count as capital exports in breach of Regulation 10 (1) (c), in
what follows, I express no view on whether the transactions also breached
Regulations 3 (1) (a) or (c).
Cryptocurrency is “capital” under Regulation 10 (1) (c)
10 Regulation 10 (1) (c) provides that “[n]o person shall, except with permission
granted by the Treasury and in accordance with such conditions as the
Treasury may impose enter into any transaction whereby capital or any right
to capital is directly or indirectly exported from the Republic”. The applicants
admit the transactions and the absence of the Treasury’s permission for them.
At issue is whether those transactions amounted to the “export” of “capital”.
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11 The construction to be given to the word “capital” involves an act of statutory
interpretation. The effect of the Regulation must be determined by a
consideration of the ordinary grammatical meaning of its text, the context in
which the text appears and the purpose of the Regulation read in light of the
overall purpose of the legislation in which it appears (Road Traffic
Management Corporation v Waymark Infotech (Pty) Ltd 2019 (5) SA 29 (CC),
paragraph 29). The “inevitable point of departure is the language of the
provision itself read in context and having regard to the purpose of the
provision” (Natal Joint Municipal Pension Fund v Endumeni Municipality 2012
(4) SA 593 (SCA), paragraph 18).
12 I turn, then, to the ordinary meaning of the word “capital”. Capital is, at its
broadest, an asset produced to bear value or which is used to produce other
assets of value. It seems clear, though, that Regulation 10 (1) (c) was not
intended to apply to literally every capital asset so defined. In Oilwell (Pty) Ltd
v Protec International Ltd 2011 (4) SA 394 (SCA) (“Oilwell ”) at paragraphs 9
to 11, the Supreme Court of Appeal found that the Regulations deploy the
word “capital” in its financial sense. Immovable property or other tangible
goods, while capable of being capital assets that generate value, are not
“capital” for the purposes of the Regulations. Neither, the court found, was a
trademark (although the Regulations were later amended to define intellectual
property rights as “capital”). Capital under the Regulations is instead a
financial asset of some sort. It seems clear from Oilwell that capital is to be
closely identified with “cash for investment” or “money that can be used to
produce further wealth” (Oilwell, paragraph 9).
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13 I do not think, however, that Oilwell can be read as authority for treating
“capital” as a synonymous with “money” or “cash” in the sense of fiat currency
– the kind of money issued by a central bank, the value of which depends
essentially upon the state’s promise to pay the bearer of a banknote the
amount specified on the note, and on its capacity to guarantee the value of
bank deposits made in the fiat currency. If that were so, there would be no
difference between the terms “capital” and “currency”, both of which are
deployed in the Regulations to mean different things. Instead, it seems to me
that “capital” means any financial asset that is capable of holding value or
being used as a medium of exchange. It obviously includes all fiat currency,
but would also include any negotiable instrument, or, indeed, any other
document or token that bears a fixed or ascertainable exchange value. In light
of the post-Oilwell amendment to the Regulations to include intellectual
property rights, the meaning of the “capital” may well reach further than that,
since the amendment obviously developed the meaning of the term after it
was considered in Oilwell. However, I need not go that far. It seems to me that
even if capital is given the relatively narrow definition of any financial asset
that is capable of holding value or being used as a medium of exchange,
cryptocurrency is certainly capital.
14 Ms. Eksteen submitted that the unique intangible and technological features
of Bitcoin place it beyond any sensible definition of “capital”. But I think that
was unrealistic. Bitcoin is a virtual currency. It relies for its value on the
blockchain, which is a finite ledger of all the Bitcoin transactions which have
ever taken place. As Bitcoin is used and exchanged, the blockchain grows,
because more transactions have to be recorded. The ledger requires complex
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cryptographic technology to maintain its accuracy, and the trust of the people
who use it. That, in turn, requires vast quantities of computing power.
Individual users sometimes lend their computer processing power to perform
the complex cryptographic functions necessary to add securely and accurately
to the blockchain. When they do so, they are paid in Bitcoin, and given a
cryptographic key which enables them to alter the record of a credit in their
favour on the blockchain. That ledger credit, the Bitcoin, can be ceded or sold
to others, who then acquire their own unique cryptographic key to a portion of
the blockchain which records a credit in their favour (and a corresponding
debit against the person from whom they acquired the Bitcoin).
15 And so the system goes on. The computing power needed to add to the
blockchain, together with the fact that there is, according to the complex
mathematics which underpin the blockchain, a finite number of Bitcoin that
can ever be produced, keeps the currency scarce enough to hold value. But
the “mining” of Bitcoin (essentially the lending of the computing power
necessary to perform the complex calculations necessary to update the
blockchain) ensures that the supply of Bitcoin will continue to increase at a
predictable rate until the mathematically set limit is reached. This has the nett
effect of expanding the number of people incentivised to use Bitcoin as a store
of value and a medium of exchange. In other words, it expands the scope of
the market in which Bitcoin can be transacted.
16 In these circumstances, it seems to me that Bitcoin is plainly capital in the
sense that it is a financial asset that is capable of holding value and being
used as a medium of exchange. Bitcoin can be exchanged for fiat currency. It
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is, in other words, possible to buy Bitcoin using South African rand, to hold it
in the expectation that its rand price will increase, and then sell the Bitcoin on
at a profit. In some places, Bitcoin is also accepted by merchants as a form of
currency.
17 What the Reserve Bank says happened in this case is that Mr. Mangundhla
used his and Ms. Dangaiso’s Luno accounts to purchase Bitcoin on behalf of,
and using South African rand provided by, third parties . He then credited the
Bitcoin so purchased to wallets held on cryptocurrency exchanges registered
outside South Africa. In this way, the ordinary rules applicable to the export of
capital were avoided, because the Bitcoin transferred to the foreign
cryptocurrency exchanges could only be kept in a cryptocurrency account
outside South Africa. The nett effect was that the rand value of the Bitcoin
transferred to the foreign exchanges (around R182 million) left the country. It
was, the Reserve Bank says, exported.
18 If that is correct, then the regulation of Bitcoin as capital is essential to maintain
the effectiveness of the capital controls embodied in the Currency and
Exchanges Act, and in the Exchange Control Regulations. Were it otherwise,
those controls would be virtually worthless, as anyone of any means who
wished to take their money abroad could do so without Treasury oversight,
simply by converting it into cryptocurrency and transferring it to a foreign
cryptocurrency exchange. This would be completely at odds with the
underlying purposes of the exchange control regime: to regulate, and, where
necessary to curb, the outflow of capital ( South African Reserve Bank v
Shuttleworth 2015 (5) SA 146 (CC), paragraph 53).
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19 Accordingly, text, context and purpose all point in the same direction: Bitcoin
is “capital” for the purposes of Regulation 10 (1) (c). Strictly speaking, I need
not decide whether all cryptocurrency is subject to Regulation 10 (1) (c).
However, to the extent that any cryptocurrency is a financial asset capable of
holding value or being used as a medium of exchange, it seems to me that it
must also be “capital” under section 10 (1) (c).
20 Ms. Eksteen advanced two further arguments to the contrary. The first entailed
reliance on various reports and issue papers published by entities controlled
by or closely associated with the Reserve Bank. These documents tended to
treat cryptocurrency as a phenomenon which might not be adequately
regulated by the Exchange Control Regulations as they currently stand. I was
urged to interpret section 10 (1) (c) in light of them, and in light of the fact that
cryptocurrency could not have been in the contemplation of the drafters of the
Act and the Regulations at the time they were promulgated in 1933 and 1961.
21 However, I do not think either of these propositions affects a straightforward
purposive interpretation of the relevant provisions. In the first place, what one
or other consultant thinks the regulatory framework covers when they write a
report for the government, a parastatal or a think-tank makes very little
difference to the interpretive exercise. This material might not always be
entirely irrelevant, but its impact must be marginal at best. Moreover, although
a legislator or drafter in the early 1930s and early 1960s may not have
foreseen the possibility of cryptocurrency, they certainly knew all about the
nature of financial assets, negotiable instruments, and fiat currency. The Act
was drafted during the Great Depression, which was brought on in part by a
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collapse of confidence in the financial markets. Its drafters would have been
keenly aware of just how fungible financial assets can be. If, as I have found,
Bitcoin is a kind of financial asset, it would not have been difficult for a
reasonably well-informed legislator in the early 1930s to understand its
essentials.
22 Secondly, I was referred to this court’s decision in Standard Bank of South
Africa v South African Reserve Bank 2025 (5) SA 289 (GP) (“Standard Bank”),
in which my bother Motha J found that cryptocurrency is neither “money” nor
“capital” for the purposes of the exchange control regime. Ms. Eksteen
submitted that I should not depart from that decision unless I conclude that it
is clearly wrong.
23 I respectfully so conclude. The bite of Standard Bank appears at paragraphs
64 and 65, in which Motha J holds that cryptocurrency is not “considered legal
tender in many countries”; is “nothing more than codes on a digital ledger”;
that it “exist[s] anywhere and everywhere and [has] a global nature”; and that
a restrictive interpretation of the Regulations is to be preferred because of the
punitive nature of the Reserve Bank’s powers to order forfeiture.
24 It seems to me, however, that the point in issue has less to do with the inherent
nature of cryptocurrency than with the purposes to which it can be put. To the
extent that cryptocurrency is a financial asset that holds value and is used as
a medium of exchange through which capital can be taken from within South
Africa and placed beyond its borders, it does not matter that it may not be legal
tender (in other words fiat currency), or that it exists as an entry on a digital
ledger. Motha J’s emphasis on the intangible and technological characteristics
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of cryptocurrency overlooks the real world consequences of its use. 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.
And while I agree with Motha J that punitive statutes should generally be
interpreted restrictively, the overriding function of a court in construing a
statute is to give it the appropriate meaning in light of the words it uses, the
context in which they appear and the purpose for which the legislation is
enacted. An excessively punitive meaning might implicate a statute’s
constitutional validity. However, where the only reasonable interpretation of a
statute is that it intends to attach harsh consequences to defined conduct, the
statute must, absent a challenge to its validity, be applied as it is found.
The capital was exported
25 I think it follows from the undisputed facts that the capital at issue in this case
was “exported” within the meaning of Regulation 10 (1) (c). Export takes place
when the thing exported leaves the country. The mere fact that the Bitcoin was
credited to cryptocurrency wallets on foreign exchanges is enough to conclude
that capital was exported. Ms. Eksteen argued that export could not have
taken place unless the holders of those wallets could be identified as resident
in a foreign jurisdiction or it could be established that the Bitcoin was converted
to foreign currency in a foreign jurisdiction. I do not agree. Plainly, once the
Bitcoin was placed beyond the Reserve Bank’s jurisdiction, it was exported.
26 Ms. Eksteen also emphasised the fact that the relevant Bitcoin wallets could
be accessed from anywhere in the world, including from within South Africa.
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But that does not matter either. The starting point is location of the account,
not the location of the account holder. A person who goes to an ATM in
Johannesburg and draws cash from a bank account held in the United
Kingdom clearly imports the money they draw. Conversely, a person who
draws money from a South African bank account at an ATM in London clearly
exports the money from South Africa.
27 It follows both that the Exchange Control Regulations apply to the transactions
at issue in this case, and that the Regulations were breached when the
transactions took place. When the Reserve Bank ordered forfeiture, it was
acting in accordance with the applicable Regulations.
Procedural Fairness
28 I turn now to the applicants’ complaint under PAJA. The complaint is hard to
pin down. There is reference in the papers to the forfeiture orders constituting
a “material error of law” under PAJA, but that seems to be no more than a
regurgitation of the argument that the forfeiture orders were not made in
accordance with the Regulations, because the Regulations do not apply to
cryptocurrency.
29 Rather, the applicants’ true complaint under PAJA appears to be that the
applicants were given so little time to respond to the outcome of the Reserve
Bank’s investigation that the forfeiture orders made on the strength of it were
vitiated by procedural unfairness.
30 I find that claim impossible to credit. In the first place, the applicants became
aware of the Reserve Bank’s investigation, at the latest, on 19 July 2019. They
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were interviewed as part of the investigation on 13 January 2022 in Mr.
Mangundhla’s case, and on 15 March 2022 in Ms. Dangaiso’s case. The
outcome of the investigation was made known to the applicants on 30 May
2022, and the forfeiture orders were made on 4 July 2022 (against Mr.
Mangundhla) and on 7 July 2022 (against Ms. Dangasio). The applicants’
papers do not explain why the three years they had to engage with the
investigation and the 5 weeks they had to be heard in relation to the Reserve
Bank’s intention to issue the forfeiture orders was insufficient to make
whatever representations they wished.
31 Moreover, neither of the applicants disputes the contents of the Reserve
Bank’s investigation report. Nor do they dispute any of the material facts
alleged in the Reserve Bank’s answering affidavit. As Ms. Eksteen confirmed
in argument, this case raises purely legal issues about whether the
Regulations apply to the relevant Bitcoin transactions – not whether the
conduct alleged by the Reserve Bank actually took place. In those
circumstances, it is hard to appreciate why the apparently ample opportunity
to engage with the investigation or the report was insufficient. Their factual
conclusions have never been placed in issue.
32 Accordingly, I reject the PAJA complaint.
Forfeiture
33 Finally, it was argued that, even if the forfeiture orders were good against the
money held in the applicants’ bank accounts, they could not lawfully apply to
the Bitcoin in the applicants’ respective Luno wallets. The argument was that
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the Regulations only authorise the forfeiture of “goods” or “money”. Bitcoin,
Ms. Eksteen submitted, is neither.
34 The force of this contention depends in large part in my accepting that Bitcoin
is something other than I have found it to be. “Money” under the Regulations
is defined to include “any bill of exchange or other negotiable instrument”. The
qualities I have attributed to Bitcoin are plainly sufficient to bring it within the
definition of a “negotiable instrument” in that it is no more than a right to be
credited a specified sum of Bitcoin, which is itself exchangeable for fiat
currency and other things of value. But even if I am wrong, Bitcoin’s general
characteristics bring it well within any sensible conception of money. It can be
converted into fiat currency. It can also be used directly to purchase goods
and services from merchants who accept it. It is both a medium of exchange
and a store of value. In my view, Bitcoin is clearly money. The Bitcoin was
correctly subject to forfeiture.
Order
35 It follows that the review application must fail. I have some hesitation in
endorsing the forfeiture order made against the money in Ms. Dangaiso’s bank
account. I am left to wonder whether, given Ms. Dangaiso’s apparently limited
involvement in Mr. Mangundhla’s activities, an order for forfeiture against her
might be disproportionate. No such case was made out, however. In the
absence of such a case I am required to accept that the money in Ms.
Dangaiso’s account was linked to the illegal transactions closely enough to
justify a forfeiture order.