My question is: Even accepting that National Treasury feels that exchange controls can’t be abolished, why does no one in the National Treasury or the South African Reserve Bank (Sarb) seem interested in meaningful administrative reform and cutting red tape while we wait for our reserves to increase?
You would probably think from the representations made by the exchange control authorities to the High Court, the Supreme Court of Appeal and the Constitutional Court over the last two years that very high-powered complex financial issues are at stake – as well as the country’s economic viability as a whole. It has been argued up to Constitutional Court level that the National Treasury and the Sarb absolutely must have this kind of power and that is reasonable to have this even in a constitutional democracy such as ours.
You’d be forgiven for thinking that the senior management of the Financial Surveillance Department and the National Treasury are spending most of their time and effort formulating macro policies and considered procedures (taking economic realities into account), auditing the balance of payments reporting data and performing inspections of the authorised dealer’s Treasury/dealing rooms.
So what exactly is being done? I’ve just prepared an exchange control letter for the Sarb and had it submitted to it via the client’s authorised dealer bank. The client is living in Denmark and wants to avail of his R1 million annual discretionary allowance – the allowance which the Sarb promised the industry with much fanfare last year would be hugely reduced in complexity of conditions.
All of us living in South Africa (as option 1) can use the R1 million annual allowance for any purpose. If more cash is required then option 2 is to use the R10 million foreign investment allowance. The Sarb doesn’t care what you do with those funds, nor where they come from – only the South African Revenue Service (Sars) does.
In that context, it’s just ludicrous that South Africans living abroad can’t avail of the R1 million allowance without specific Sarb approval but they can apply to Sars for tax clearance to use the R10 million. By the way, the rules make it possible for me to send R1 million to another South African individual temporarily resident abroad but that person can’t send themselves their own money. Go figure.
Be that as it may and allowing for this nonsensical approach, that individual living in Denmark exports wine from South Africa to a wine business he has set up there but his income is not enough to cover all of his expenes this year. He would therefore like to send a few hundred thousand rands offshore without the aggravation of having to apply for a Sars clearance.
Now remember, for a great many years, South African individuals have needed absolutely no Sarb approval to set up businesses overseas. Only South African corporates need approval and that is often from an authorised dealer.
So this is how the Sarb treats a highly-qualified South African who is directly increasing our exports and holding the South African wine industry’s name high in a tough EU country to do business in – but just needs to transfer a little cash from SA.
Even the authorised dealer staff I’m dealing with said it is a shocking reply. But of course, if you stick your neck out as a banker and dare to challenge the Sarb, then the whole bank gets threatened with the big stick. For this reason and the fact that they are one of the better banks to deal with, I will not mention the bank. In any event, senior staff at other banks have also expressed dismay on certain recent Sarb replies to other applications on different topics.
So the poor man in Denmark has now not only had his request turned down, but a South African family trust which is not trying to do any international transaction is now being scrutinised – by the organ of state responsible for policing our currency reserves and nothing else. Go figure (again).
(Psst, Sarb: It is actually fully legal – and no exchange control approval is needed – for a South African trust to make a loan or a distribution to a South African resident and pay funds to his South African bank account. That individual can then also freely transfer such funds offshore within the ambit of his R1 million allowance and/or R10 million foreign investment allowance – ie. without your specific approval in terms of your own directives).
And the Sarb wonders why people resent exchange controls so much. It’s only partly because they are there – it’s mostly about the aggravation caused by a ‘We’re in charge so don’t challenge us’ attitude in a system with no ombud, little accountability, no public participation and very little recourse outside of the courts. The latter option requires very deep pockets as recent events have shown that the Sarb will not shy away from outright defence of this questionable approach, no matter what the cost. In other words, a playing field about as level as Sani Pass.
Is this why it is so important for National Treasury and the Sarb to have absolute power in the form of the exchange control regulations?
The Sarb’s official standpoint per Section D of the Exchange Control Manual on its website is: The Financial Surveillance Department has some discretion. It is, however, not exercised arbitrarily but is based upon a set of norms, which will be explained in this Manual, and is subject to the policy guidelines laid down by the Minister of Finance.
I’m sorry, Sarb, but your decision above seems both arbitrary and unreasonable. We don’t understand the norms or your ‘explanation’ and in the context of your policy of increased limits, we cannot understand why issues such as this are being micro-managed to the extent that downstream local transactions need to be explained and scrutinised, all in the name of exchange control.
Why, on the one hand, do you not have the slightest interest in where a South African resident living in South Africa gets their R1 million (or R10 million) nor what they do with those funds offshore, but now want so much detail on the local activities of a local trust simply because a beneficiary is living abroad? In the words of many of your replies (to more meaningful and complex applications): “Please clarify”.
Michael Heath owns exchange control advisory service XConsult.