Billionaire entrepreneur Mark Shuttleworth‘s bid to have South Africa’s exchange control system declared unconstitutional could have a devastating effect on the country, the SA Reserve Bank (SARB) said on Tuesday.
Jeremy Gauntlett SC, for the SARB, argued that the order sought by Shuttleworth in the High Court in Pretoria was “the most radical court order imaginable”.
“He quite deliberately decided to attack the heart of the scheme and seeks to bring down the pillars of the temple,” said Gauntlett.
“If the applicant succeeds in striking down Section Nine of the Currency Act and declaring all orders and rules unconstitutional, there would be no inhibition on removing capital from this country at all.
“Section Nine is the heart of the exchange control system and he wants to knock [it] down.”
Gauntlett said Shuttleworth claimed it was in the interest of all South Africans to destroy the entirety of the exchange control system in the country.
“He couldn’t get his money out of the country. Now he wants to pull the whole system down. Why should this financial refugee, living on the Isle of Man, speak on behalf of the entirety of South African society?”
Apart from his constitutional challenge to the exchange control system, Shuttleworth wants the court to set aside the levy of more than R250 million he had to pay to get some of his assets out of the country in 2009, and to order the SARB to return the money.
He further seeks an order declaring that the SARB’s so-called “closed door policy” of insisting that members of the public communicate with it through the intermediation of authorised banks is unconstitutional and invalid.
Shuttleworth has blamed the existing system of exchange control in South Africa for “forcing” him to emigrate in 2001.
He had assets worth over R4.27 billion in South Africa when he emigrated, but he transferred the assets out of the country in 2008 and 2009, each time subject to the payment of a 10 percent “exit charge”.
The government abandoned the levy a year after Shuttleworth moved the remainder of his assets out of the country.
Gauntlett argued that Shuttleworth’s application on the levy should be dismissed because he had attacked the wrong decision-maker, as the SARB was only carrying out a decision announced by the finance minister during a speech in Parliament in 2003.
He said the minister’s decision was authorised by statute, and the primary reason for the levy was to dissuade capital flight out of the country and not to raise revenue.
He said the context was that foreign exchange reserves were vulnerable, and that few countries were able to look at a flight of capital comfortably. If a crisis developed overnight there would be the need for swift action.
“There are sophisticated economic forces at work, and there’s a need for fast action for the purpose of protecting the currency. There’s nothing wrong with such a legislative scheme.”
If you have to engage the public before you make a regulation, all regulations in the country could be struck, Gauntlett said.
“When you control foreign exchange, you cannot conceivably say: ‘Let’s put up a billboard somewhere and consult the public.’ You cannot do things that day because people will take their money and go.”
He said these were the realities of how legislatures worked.
“This argument is nonsense on stilts. It was decided it [the 10 percent exit levy] was no longer needed, but that may change,” Gauntlett said.
Judge Francis Legodi reserved judgment.