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‘Exchange controls fight capital flight’

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mark shuttleworth

Independent Newspapers

File photo: Billionaire IT entrepreneur Mark Shuttleworth

Pretoria - An exchange control system has to be in place to regulate the capital outflow from the country and to enable emergency action to be taken in the event of an economic crisis.

This was the argument advanced on Tuesday in the Pretoria High Court by the Reserve Bank in countering the application by billionaire IT entrepreneur, Mark Shuttleworth, who has taken the government to court over its exchange control regulations.

Shuttleworth left South Africa in 2001. He has settled in the Isle of Man. At the time his assets - worth about R4.2 billion - were frozen. He managed to transfer R1.5bn in March 2008, subject to a 10 percent exit levy.

In 2009, he decided to transfer the remainder of his assets - about R2.7bn in 2009 - but was required to pay a further 10 percent exit fee on this, amounting to about R270m.

Through his bank, Shuttleworth paid this amount, but under protest. He is now claiming the last 10 percent (R270m) back from the Reserve Bank, arguing that this levy was unconstitutional and the decision to impose it unlawful.

His counsel, Gilbert Marcus SC, this week told Judge Francis Legodi that the entire exchange control system in the country was unconstitutional.

The levy - charged from 2003 up to 2010 - was based on a 2003 circular following a Budget speech given in Parliament by the then-finance minister, who said there was a need for an exit fee for amounts of more than R750 000 leaving the country.

Marcus argued that a circular could not be construed as legislation. He also attacked the Reserve Bank’s “closed door policy” of insisting that the public communicate with it through a bank.

The 10 percent levy, the court was told, was stipulated in the circular, which was not accessible to the public, which was therefore not aware of it.

But Jeremy Gauntlett SC, acting for the Reserve Bank, said the exit charge was necessary to dissuade those who “might think, on a whim or in a panic”, to move capital out of the country.

“The purpose is to dissuade capital flight,” Gauntlett told the court.

He added that the world had changed and people no longer moved cash in their boots, they did so through the internet.

If there was a crisis, there should be mechanisms in place to prevent a massive outflow of cash. “If there is a massive capital flight, people will suffer.”

Gauntlett told the court that there was nothing preventing people from taking cash out of the country, but this was subject to permission and certain terms and conditions.

He argued that although the 10 percent exit fee had lapsed in 2010, it could be reinstated at any time when the government deemed it necessary to prevent a massive outflow of capital.

“There was a decision that the 10 percent was no longer needed, but this can change. We need foreign exchange control to be in place,” said Gauntlett.

The Reserve Bank had been bound to impose the 10 percent levy as it was then the policy.

The bank had only implemented the policy of the finance minister. It had no discretion to do otherwise.

Pretoria News


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