South African residents are subject to exchange controls with the effect that they may, inter alia, not freely transfer South African assets offshore. Exchange control rules are not embodied in a single body of law or statute and it is therefore often difficult for a person to understand why they should be subject thereto.
Judge Moseneke provides a concise summary into the history of South African exchange controls in SARB and Another v Shuttleworth  ZACC 17, which may shed some light on the rationale for the existence of such rules. The following are relevant events which shaped the exchange control rules and the mode of implementation to date:
- During the Great Depression, South African authorities were fearful of diminished direct investment and capital flight and accordingly sought to put measures in place to prevent the total economic collapse of the country. Accordingly, in 1933 Parliament passed the Currency and Exchanges Act. Section 9(1) of such Act empowered the President to make regulations on any matter affecting or related to currency, banking or exchanges.
- The Sharpeville shootings of 1960 brought an increased threat of economic recession and related capital flight from South Africa. Accordingly, on the basis of section 9(1) of the Currency and Exchanges Act, the President introduced the Exchange Control Regulations on 1 December 1961 (“the Regulations”).
- The core provision of Regulations is regulation 10(1)(c) which provides that no person shall, except with permission granted by Treasury (i.e. the Minister of Finance) or by an authorised dealer (subject to any conditions which they may impose), enter into any transaction where any capital or right to capital is directly or indirectly exported from SA.
- Following the 1994 democratic elections, a process of relaxation of exchange controls commenced. The Minister annually announced the conditions imposed relating to the export of capital. These announcements were reduced to public circulars.
- The Minister has delegated to the Governor of the South African Reserve Bank (“SARB”) and the Head of the Financial Surveillance Department (“FSD”) of the SARB and their officials, the powers, duties and functions assigned to and imposed on Treasury under the Regulations.
- The Minister also appointed certain banks to act as Authorised Dealers in foreign exchange. They are not agents of the FSD, but act on behalf of their customers.
- As authorised on the basis of the above, The FSD issues exchange control rules in accordance with its exchange control policies. These rules are contained in publications issued by the FSD – most relevantly Currency and Exchanges Guidelines (which are expressly stated to have no legislative force) and Exchange Control Circulars (which are issued to authorised dealers and related persons setting out inter alia the conditions, permissions and limits applicable to foreign exchange transactions).
Accordingly, although exchange control rules may appear to be arbitrary in the absence of a single body of law or statute providing definitive rules in this regard, understanding the potential impact of the exchange control rules is vital to any cross-border transaction. Penalties in respect of non-compliance can be severe – in extreme cases up to 100% of the value of any unauthorised offshore asset.