Rewind & Fast For­ward

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Finweek English Edition - - NEWS - Garth The­unis­sen gartht@fin­week.co.za

The at­tempt by bil­lion­aire soft­ware de­vel­oper Mark Shut­tle­worth to de­clare a levy he was forced to pay on the trans­fer of as­sets out of South Africa more than three years ago as un­con­sti­tu­tional will be closely watched by lo­cal busi­nesses as the out­come of the case could have far-reach­ing im­pli­ca­tions for the leg­is­la­tion that gov­erns ex­change con­trols.

Shut­tle­worth, who now lives on the Isle of Man, was forced to pay R250m when he trans­ferred part of his es­ti­mated R4.27bn for­tune out of SA in 2009 on the grounds that for­eign ex­change con­trols made it im­pos­si­ble for him to con­tinue his en­tre­pre­neur­ial ac­tiv­i­ties from his home­land. In broad brush­strokes, Shut­tle­worth is ar­gu­ing that the levy was a tax based on a de­ci­sion by the Fi­nance Min­is­ter, which vi­o­lates the con­sti­tu­tional man­date that laws aimed at rais­ing rev­enue must be pro­mul­gated by an a c t of pa r l i a ment. Fur t her more, Shut­tle­worth ar­gues that the Re­serve Bank’s habit of ap­ply­ing ex­change con­trols through an in­ter­me­di­ary agent (i.e. com­mer­cial banks) is not pro­ce­du­rally fair and thereby vi­o­lates the rights of in­di­vid­u­als. More im­por­tantly, Shut­tle­worth is ar­gu­ing t hat sec­tion 9 of t he Cur­rency and Ex­changes Act is un­con­sti­tu­tional as it al­lows the pres­i­dent to ret­ro­spec­tively de­clare cer­tain ac­tiv­i­ties crim­i­nal and grants the State pow­ers to im­ple­ment ex­change con­trols that by­pass par­lia­ment.

“On the point of the con­sti­tu­tion­al­ity of sec­tion 9 be­ing the pro­vi­sion em­pow­er­ing the ex­change con­trol reg­u­la­tions it is per- haps un­likely that the court will strike it down in its en­tirety,” says Ben­jamin Cronin, an as­so­ciate at Web­ber Wentzel in Jo­han­nes­burg. “It would seem un­likely that this suit will re­sult in the col­lapse the ex­change con­trol regime, but it is pos­si­ble that it might suc­ceed in get­ting the Govern­ment to i ntro­duce new leg­is­la­tion around ex­change con­trols that is per­haps more trans­par­ent and more in line with mod­ern con­sti­tu­tional as well as ad­min­is­tra­tive rights go­ing for­wards.”

Cronin ex­plains that cer­tain pow­ers be­stowed by the Cur­rency and Ex­changes Act, which dates back to 1933, could well be de­clared un­con­sti­tu­tional. The chief ex­am­ples he cites are the power the Act be­stows upon the pres­i­dent to ret­ro­spec­tively crim­i­nalise par­tic­u­lar con­duct as well as the pur­ported power to su­per­sede acts of par­lia­ment by means of the reg­u­la­tions.

“The ex­change con­trol regime will con­tinue to be fer­tile ter­rain for suits of this na­ture while the rel­e­vant reg­u­la­tions con­tinue to rely on an out­dated, pre-con­sti­tu­tional piece of leg­is­la­tion such as the Cur­rency and Ex­change Act,” says Cronin.

In this mat­ter, Cronin says the par­tic­u­lar facts in ques­tion mean that less ob­vi­ous ele­ments of the em­pow­er­ing pro­vi­sion are un­der the spot­light. What is be­ing con­sid­ered in par­tic­u­lar is whether the Act cre­ates im­per­mis­si­bly broad and un­fet­tered dis­cre­tion to the pres­i­dent when is­su­ing the ex­change con­trol reg­u­la­tions. It also raises ques­tions about whether the im­po­si­tion of the 10% levy at the time, per a cir­cu­lar is­sued un­der the aus­pices of the ex­change con­trol reg­u­la­tions, con­sti­tuted an il­licit cir­cum­ven­tion of the due process of pass­ing a tax­ing Act through Par­lia­ment. Prop­erly un­der­stood, Cronin ex­plains, the 10% levy should be seen as part of the his­tor­i­cal process of re­lax­ing ex­change con­trols, which have al­ways be­gun with the base as­sump­tion of an “ab­so­lute pro­hi­bi­tion” on the ex­port of cap­i­tal un­less per­mis­sion is granted by the Re­serve Bank. So in many ways Shut­tle­worth was a ben­e­fi­ciary of an in­creas­ingly re­laxed ex­change con­trol regime.

As it stands SA cit­i­zens are al­lowed to move R5m in cap­i­tal off­shore each year (a R1m ex­pen­di­ture al­lowance and R4m for in­vest­ment pur­poses). Any amounts above that level re­quire ex­press per­mis­sion from the Re­serve Bank.

Of course, Govern­ment is un­likely to go down with­out a fight. Jeremy Gauntlett SC, ar­gu­ing for the SARB, has al­ready la­belled Shut­tle­worth an “eco­nomic refugee” who is tr ying to “bring down the tem­ple” of ex­change con­trols sim­ply be­cause he was un­able to get all of his money out of the coun­try.

“This might i nvolve R250m f or Mr Shut­tle­worth but it prob­a­bly in­volves bil­lions for Govern­ment that would need to be paid back should the court find in his favour,” says Cronin. “This makes this case all the more im­por­tant to the Govern­ment.”

Mark Shut­tle­worth

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