- The High Court found that Bitcoin qualifies as both money and capital under South Africa's exchange control regulations.
- Square Mangundhla and Fungai Dangaiso failed in their bid to overturn forfeiture orders linked to cryptocurrency transactions worth about R182 million.
- The court ruled that transferring Bitcoin to foreign cryptocurrency exchanges amounted to exporting capital from South Africa without Treasury approval.
The High Court in Johannesburg has ruled that Bitcoin is both money and capital under South Africa's exchange control laws, dismissing a challenge to forfeiture orders linked to cryptocurrency transactions worth about R182 million.
The judgment arose from an application brought by Square Mangundhla and Fungai Dangaiso, who sought to overturn forfeiture orders issued by the South African Reserve Bank after investigators found that large quantities of Bitcoin had been transferred from South Africa to cryptocurrency exchanges registered abroad without Treasury approval.
Judge SDJ Wilson dismissed the application and upheld the forfeiture orders, finding that the cryptocurrency transactions breached South Africa's exchange control regulations and that the Bitcoin involved was lawfully subject to forfeiture. The ruling also departs from an earlier High Court judgment that found cryptocurrency was neither money nor capital for exchange control purposes.
How the transactions unfolded
Mangundhla and Dangaiso both held accounts on the Luno cryptocurrency trading platform. Dangaiso's role in the matter was limited. The court heard that she did not actively trade in cryptocurrency and became involved because Mangundhla used her account in addition to his own.
Mangundhla traded lawfully in cryptocurrency between 2015 and 2017. However, the position changed between January 2018 and March 2020 when he used the accounts to transfer almost 1 680 Bitcoin, valued at just under R182 million, to cryptocurrency wallets that could only be accessed through exchanges registered outside South Africa.
The Reserve Bank concluded that these transactions amounted to the export of capital from South Africa without the permission required under the Exchange Control Regulations. Acting under delegated powers, the Deputy Governor ordered the forfeiture of nearly R6 million held in Bitcoin assets and funds standing to the applicants' credit in their bank and cryptocurrency accounts.
Mangundhla and Dangaiso challenged those decisions. They argued that cryptocurrency falls outside the exchange control framework because Bitcoin is neither money, capital, nor a security under the regulations. They also argued that transferring Bitcoin to wallets hosted on foreign exchanges did not amount to exporting capital from South Africa.
Court finds Bitcoin is capital
Judge Wilson rejected those arguments and found that Bitcoin falls within the meaning of capital under the regulations.
The court examined how Bitcoin functions in practice and found that it can hold value, be bought and sold for profit, and serve as a medium of exchange. For those reasons, the judge concluded that it is a financial asset and therefore capital for exchange control purposes.
Judge Wilson said, "Bitcoin is plainly capital in the sense that it is a financial asset that is capable of holding value and being used as a medium of exchange."
The judge also rejected arguments that Bitcoin's technological and intangible nature placed it beyond the reach of legislation drafted long before cryptocurrency existed.
According to the judgment, "To the extent that cryptocurrency is a financial asset that holds value and is used as a medium of exchange through which capital can be taken from within South Africa and placed beyond its borders, it does not matter that it may not be legal tender."
In reaching that conclusion, Judge Wilson departed from a previous High Court judgment which held that cryptocurrency was neither money nor capital under the exchange control regime.
The judge said he respectfully considered that earlier decision to be wrong because it focused too heavily on the technical nature of cryptocurrency rather than the economic role it plays in the real world.
Bitcoin was exported from South Africa
The court also found that the Bitcoin had been exported from South Africa. Mangundhla argued that the cryptocurrency had not been exported because the wallets could be accessed from anywhere in the world and because there was no proof that the wallet holders were located in foreign countries.
Judge Wilson rejected those arguments. The court found that once the Bitcoin was transferred to wallets on foreign exchanges, it moved beyond the jurisdiction of South African authorities and was effectively exported.
Judge Wilson said, "Plainly, once the Bitcoin was placed beyond the Reserve Bank's jurisdiction, it was exported."
The judgment accepted the Reserve Bank's concern that excluding cryptocurrency from exchange controls would create a straightforward way for people to move wealth abroad without oversight simply by converting money into digital assets and transferring them to foreign exchanges.
Fairness challenge fails
Mangundhla and Dangaiso also argued that the forfeiture process was procedurally unfair. The court found that they had known about the Reserve Bank investigation since at least 2019, had participated in interviews during the investigation and had several weeks to make representations before the forfeiture orders were issued in 2022.
Judge Wilson noted that neither applicant disputed the factual findings of the investigation. Instead, the case centred on whether the regulations applied to cryptocurrency transactions. The judge concluded, "Accordingly, I reject the PAJA complaint."
Court says Bitcoin can be forfeited
As a final argument, the applicants contended that Bitcoin itself could not be forfeited because it was neither money nor goods under the regulations.
The court rejected that submission, with Judge Wilson finding that Bitcoin can be exchanged for traditional currency, used to buy goods and services and functions as both a store of value and a medium of exchange. The judge said, "In my view, Bitcoin is clearly money."
Having rejected all of the applicants' arguments, the court dismissed the review application and ordered them to pay the costs of the proceedings, including the costs of two counsel.
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