Billionaire entrepreneur Mark Shuttleworth’s bid to have South Africa’s entire exchange control system declared unconstitutional has failed. The high court in Pretoria on Thursday dismissed Shuttleworth’s application to strike down the whole of section 9 of the Currency and Exchange Act and all of the Exchange Control Regulations as unconstitutional.
Judge Francis Legodi dismissed Shuttleworth’s application to set aside the imposition of a R250m levy he had to pay to get some of his assets out of the country in 2009 and for the Reserve Bank to return his money.
The court also dismissed his application to declare invalid the Reserve Bank’s policy of not dealing directly with members of the public but insisting that they should communicate through bank dealers.
The judge however granted an order declaring section 9(3) of the Currency and Exchanges Act as well as certain portions of the exchange control regulations unconstitutional. Section 9(3) gives the president not only the power to amend or suspend any part of the Currency and Exchanges Act, but also the power to amend or suspend any other act of parliament.
Judge Legodi said this was an extraordinary wide power and effectively vested in the president the power to amend or suspend any act of parliament irrespective of whether that other piece of legislation dealt with currency, banking or exchange.
“This provision has the potential to unravel the healing wounds of the past when laws were changed at the stroke of a pen by one individual. This can never again happen in a constitutional and democratic South Africa. Clearly no president in the living supreme law of the land [the constitution] can ever wish to act as it is envisaged in section 9(3). This does not even need a programme of liberalisation of the system of exchange controls as envisaged by the minister of finance,” he said.
Shuttleworth, who now lives on the Isle of Man, has blamed the existing system of exchange control in South Africa for “forcing” him to emigrate from South Africa in 2001.
He had assets worth over R4,2bn in South Africa when he emigrated, but transferred the assets out of the country in 2008 and 2009, each time subject to the payment of a 10% “exit charge”.
Government abandoned the levy a year after Shuttleworth moved the remainder of his assets out of the country.
Judge Legodi ruled that Shuttleworth had not proved that his constitutional right to lawful, reasonable and procedurally fair administrative action had been infringed or that the Reserve Bank’s so-called “closed-door policy” was unfair.
He said the object of the 10% “exit charge” was to limit the adverse consequences of the outflow of funds on the external balance of payments necessary to maintain South Africa’s macroeconomic health and to promote financial growth and stability. “The idea of such discouragement cannot be said to be bad and an unconstitutional policy. Imagine what will happen to this country if the wealthiest men and women … were allowed to take their wealth out of the country with impunity every time when the country is in economic grief or when there is a change of government or leaders in the government. It could have a devastating effect on the country as a whole.”
He ruled that the decision to charge the levy had been made by the minister of finance and that the Reserve Bank had no discretion to exempt anyone from it.
Shuttleworth had chosen not to attack the minister’s decision, and the court could therefore not make a final determination on the issue, he added.
Judge Legodi dismissed Shuttleworth’s contention that the exchange control process was unconstitutional because it lacked fixed guidelines, saying the system required a flexible, speedy and expert approach to ensure that proper financial governance prevailed.
He ruled that certain portions of the exchange control regulations were unconstitutional, including the blanket prohibition on any transactions involving foreign currency, gold or other assets readily convertible into foreign currency, because it prohibited the right to free trade.
Regulation 3(1) C, which prohibits paying a person residing outside the republic — making most modern-day Internet transactions illegal — was also struck down, as was the section forcing one to disclose the nature of the goods one wished to purchase when one obtained permission.
The court gave government 12 months to amend certain sections of the regulations. — Sapa
