With SA still reeling from the “farmgate” scandal that threatens to upend President Cyril Ramaphosa’s bid for a second term as ANC (and SA) president, making sense of the foreign exchange regulations he potentially transgressed has been no easy task.
Like the president himself, major law firms have gone to ground and declined to comment, while the Reserve Bank has tried to deflect media scrutiny by citing Regulation 6 of the Exchange Control Regulations, which states that residents of SA who have become “entitled to sell or to procure the sale of any foreign currency” have 30 days to sell it to an authorised dealer (that is, a bank).
However, the full extent of SA’s foreign exchange regime is rather more complex in practice. To make sense of the issue, Business Day sat down with Emile Myburgh, a Johannesburg-based attorney with a background in corporate law who is also a foreign legal consultant of the Law Society of Brazil.
Q: Is it legal to have foreign currency in your possession in SA as a private citizen?
A: It is illegal for any South African to have foreign currency in their possession, unless there is a good reason for it, for more than 30 days. Other than that, there is simply no legally sound explanation for having foreign exchange in your possession — whether it be $100 or $40m — beyond that 30-day period. If you return from an overseas trip, or receive a forex payment into your account, by law you have 30 days to sell it to an authorised forex dealer. But having said that, the legislation is somewhat antiquated and doesn’t foresee all the situations a person might find themselves in. For example, I once returned from a trip to Brazil and when I tried to sell the Brazilian real I had on me to the bank they refused to take it, saying they don’t deal in that currency.
Given all the Fica (Financial Intelligence Centre Act) requirements, there just doesn’t seem to be any reason to have foreign cash in your possession. The more likely, and perfectly legitimate scenario, would be for it to be held in a CFC (customer foreign currency) account with a local bank or perhaps offshore on the Isle of Man.
Q: Is it legal to accept foreign currency in cash as payment for the provision of goods and services in SA?
A: Generally speaking, the answer is no. In certain instances, businesses in the tourism sector can accept foreign currency as payment — a good example would be a hotel — but they need to get permission from the Reserve Bank to do so. They also have to agree in writing that they will hand over any currency they have received to an authorised dealer the next business day. Without that permission, it is illegal to accept foreign currency as payment in SA.
Q: What about foreigners visiting the country? Can they offer to pay for goods or services in foreign currency if that’s all they have on them at the time?
A: No, they typically have to exchange it to local currency first. If one takes the example of selling large game or other animals to a foreign buyer who is offering to pay in dollars, the correct approach would be to agree on a rand price and then ask that foreign national to deposit the money into your bank account. They would then have to visit a local bank with your banking details and exchange their money into rands, after which it could be deposited into your bank account.
Q: You’ve mentioned that SA’s foreign exchange regulation is somewhat antiquated. Do you think this case might prompt a rethink of the country’s foreign exchange controls for private citizens?
A: No, I don’t think so. Despite some significant relaxations in recent years, SA’s foreign exchange controls are so ingrained into the culture of the Reserve Bank that I don’t foresee them considering any large-scale reforms, especially in the present environment, and certainly not abolishing exchange controls. The irony, though, is that the current exchange controls are merely a symptom of the lack of faith that local government authorities have in the value of the rand. By having the foreign exchange controls in the first place, they are essentially admitting that without those controls in place, the people of SA would prefer to sell their rands and instead hold dollars, for which there is no basis in fact.
Q: What is the penalty for contravening SA’s foreign exchange regulations, specifically in the situation where you are found to be in the possession of large amounts of foreign currency?
A: The regulation dealing with penalties for contraventions of exchange controls is the longest of all the exchange control regulations, and the powers given to the Treasury to enforce these are wide. The penalty is a fine of the larger of R250,000 or the value of the foreign currency involved, or five years’ imprisonment, or both the fine and the imprisonment. In practice, the fine is most likely to be imposed. The Treasury may even block bank accounts containing money that they believe has been illegally transferred to that account, and confiscate property or goods purchased with such money.
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