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South African High Court holds that Cryptocurrencies are not currencies envisaged under Exchange Control Regulations under the Currency and Exchange Act.
<p><strong>Case Background </strong><br/><br/>Leo Cash and Carry (Pty) Ltd (LCC), entered into a commercial credit relationship with Standard Bank in late 2019 resulting into bank granting LCC an overdraft facility of R40 million. The facility was secured, in part, by a pledge over a R15 million Money Market Call Account held by the Bank. <br/><br/>Later on following investigations into LCC's activities, use of cryptocurrencies and transfer of cryptocurrencies to offshore accounts, the South African Reserve Bank instructed the freezing of LCC's accounts. Standard Bank challenged this action. <br/><strong><br/>Courts Finding and Reasoning</strong><br/><br/>The Court while interpreting the provisions of the Exchange Control Regulations found that cryptocurrencies are neither legal tender nor “capital” as defined in the current regulatory framework. The Court rejected SARB’s submission that the existing definitions could be extended to cover digital assets by implication. Instead, the Court held that such a substantial shift in regulatory scope requires express legislative action, not judicial interpretation.</p><p>Further, the Court distinguished between “money” and intangible digital tokens stored in decentralized systems. Noting that cryptocurrencies are recorded on distributed blockchain ledgers and are not governed by any central authority, the Court found their treatment under the 1961 regulations to be incompatible with the regulatory purpose of exchange control.<br/><br/><strong>Key Takeaways</strong><br/><br/>While navigating questions around cryptocurrencies, courts of law take a conservative approach depending on the jurisdictional legal framework. It is important that Legislatures enact new laws or amend the existing laws to accommodate what has been defined as a disruptive currency framework. <br/><br/>For any inquiries regarding the status of the regulatory landscape of cryptocurrecies in Uganda, do not hesitate to reach out. <br/><br/><a class="tc-blue" href="https://twocents.space/insights/tag/cryptocurrencies">#cryptocurrencies</a> <a class="tc-blue" href="https://twocents.space/insights/tag/regulation">#regulation</a> <a class="tc-blue" href="https://twocents.space/insights/tag/cryptoadoption">#cryptoadoption</a></p>
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