SA’s most famous billionaire has portrayed the current exit levy system as arbitrary and basically authoritarian
South Africa’s most famous billionaire expat, Mark Shuttleworth, claims that his court case against the SA Reserve Bank, the minister of finance and the president will have little or no negative effect on South Africa – and that he won’t keep a cent of the R250 million he is suing the government for.
The case to claim back the 10% exit levy he paid when moving the last of his R4 billion fortune out of the country in 2009 is actually another of his philanthropic endeavours, the emigrant entrepreneur claims.
Instead of challenging the one specific regulation on “exit levies” that cost him millions, and which isn’t even in effect any more, Shuttleworth is challenging the entire exchange control system (see sidebar).
In his arguments, the system is portrayed as arbitrary and basically authoritarian.
According to his written arguments, it “interferes with every member of the public’s ability to deal with his or her property as he or she chooses and to engage in free trade”.
The central bank accuses Shuttleworth of a “comprehensive misunderstanding of the nature of the regulatory framework”.
The central bank has no discretion in applying the controls set by the finance minister and in effect there is no “administrative decision” to be challenged. “That is fatal to most of the applicant’s submissions.”
The central bank has also been scathing about Shuttleworth’s attempts to present his case as a campaign to defend the public interest.
Its advocate, Gilbert Marcus, this week accused Shuttleworth of being an “economic refugee” with no right to speak on behalf of South Africans
In the actual written arguments, the central bank says Shuttleworth “does not meet the requirements to bring an application in the public interest”.
“There is nothing vulnerable about the class of applicant which might challenge any of the regulations . . . Those persons ordinarily affected by exchange control regulations tend to have the means to assert their rights . . .”
The campaigning aspect of the case is heavily attacked as a collection of “hypothetical and abstract arguments” about potential constitutional right infringements where no one has actually been affected.
In this regard, the central bank says: “Constitutional challenges must be determined in the real world. The applicant seeks to strike down regulations that never impacted upon him and in which he has no interest.”
Outside of his formal court papers, Shuttleworth has denied that he wants his R250 million back.
Instead, he issued a statement saying he will give “any proceeds from the case” to a fund for “future constitutional defence actions . . . to support cases where government actions appear to step outside their constitutional mandate”.
Shuttleworth further disowns any selfish motive, saying: “While current regulations do not impact on Mark, as an emigrant, the case seeks to establish the same rights for those who cannot, or won’t, emigrate.
“The goal of this application to the court is to establish the rights of South African entrepreneurs not to have to emigrate in order to work on
a global basis.”
The central bank claims that if Shuttleworth won, it would cost the state R2.9 billion in refunded levies. More importantly, it would “have grave consequences” for the ability of the central bank and minister of finance to “protect the financial stability of the country”.
Shuttleworth and the central bank both say that the exchange controls are a legacy of apartheid and, in its arguments, the latter says that they are being phased out in a slow way in order for “South Africa to integrate into the global economy”.
The central bank also admits that the exchange controls do not work like most laws and administrative functions.
Levies are not taxes and the orders by the finance minister that underpin the system are not laws – otherwise, they could be challenged with relative ease.
It calls them a “unique area of financial governance”.
In order to work, the controls need to be able to be changed quickly and easily, without going to Parliament, the central bank argues in its papers.
Its advocate added in court this week that actually signalling new controls and inviting public participation would completely defeat the purpose.
“You cannot conceivably say: ‘Let’s put up a billboard somewhere and consult the public.’ You cannot because people will take their money and go,” he said.
The system is part of the reason South Africa weathered the financial crisis of 2008 relatively well, according to the central bank.
“The democratic government inherited exchange controls from the previous regime.
“The question faced by the government was what to do about it. For sound reasons of macroeconomic policy, it was considered disastrous to abolish it overnight.
“Although the conditions are present at the moment for the relaxation of exchange controls, there is always the prospect that some form of economic crisis will require exchange controls to be tightened,” says the central bank.
If Shuttleworth succeeds in striking down the system, the central bank has asked that the order be suspended for three years so government can establish a new exchange control regime.
What are exchange controls?
The system is created by the Currency and Exchanges Act.
In terms of the act, regulations of which were published in 1961 and have since been constantly updated.
Regulation 10 bans all transactions that lead to capital being exported from South Africa.
This blanket ban is then subject to a multitude of “permissions” from the minister of finance that allow capital to leave the country.
The other relevant regulation is number 22, which appoints banks as “authorised dealers” who act on behalf of people seeking exemptions and permissions.
The crux of the Shuttleworth case is that the rules about what amount of money can move out of the country, under which circumstances, are then set by the minister of finance in an allegedly opaque, arbitrary and entirely unaccountable way.
The exit levies that cost Shuttleworth millions were in place between 2003 and 2010, and applied to all funds more than R750 000 moved out of the country by emigrants.
Shuttleworth argues that regulations have been used for things never envisaged by the original act, like imposing UN sanctions, enforcing gambling
laws, facilitating reportage to the International Monetary Fund and promoting investments into African countries.
His arguments list a number of strange and arbitrary exchange control rules and exceptions to make the point that the whole system is arbitrary.
Among these are exemptions for Bar Mitzvahs, missionaries and the Church of Scientology.
In his written arguments in court, Shuttleworth lashes out at his former bank Standard Bank and the use of banks to administer the exchange controls in general.
The bank, his lawyers claim, disregarded his attempts to dispute the levy and went as far as to replace his actual application to the Reserve Bank in 2009 with a generic one – leaving out his arguments that the levy is “illegal”.
“Without reference to Mr Shuttleworth and without his authority, Standard Bank ignored his instruction,” reads his written arguments.
Shuttleworth then made Standard Bank “correct their error”, send his original letter, and ask the Reserve Bank to reconsider the levy.
In the meantime, he authorised Standard Bank to pay the R250 million levy “under protest”.
Later on, Standard Bank “reluctantly complied”.
The bank allegedly then sent Shuttleworth’s letter refusing to pay the 10% levy, but it was still “framed in terms which appear to have been calculated to make clear that they did not associate themselves with Mr Shuttleworth’s application and complaint about the 10% fee”.
By the end of 2009, the Reserve Bank has formally refused to reconsider Shuttleworth’s levy and by May 2010, he started the case that was heard this week.
Shuttleworth says that the banks “are required to place the interests of the exchange control department of the Reserve Bank above all other interests” in order to become authorised dealers in foreign exchange transactions.
This creates a “direct and intractable conflict of interests between the member of the public on whose behalf the bank is allegedly acting . . . on one hand, and the Reserve Bank itself on the other”.
The Reserve Bank has defended the authorisation of banks to deal with exchange transactions as the only really practical solution due to sheer volume of exchange transactions – 10 million per year.
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