SA Reserve Bank says ‘financial refugee’ Shuttleworth could ruin the economy

The bid by internet billionaire Mark Shuttleworth to reclaim some R250-million (US$24.5-million) from the South African Reserve Bank and have its system of exchange controls declared unconstitutional could ruin the country’s economy.

At least, that’s the message the central bank has put forward in response to the Canonical CEO and Ubuntu founder’s actions. The bank’s legal representative Jeremy Gauntlett told the South African Press Agency (SAPA) that the order sought by Shuttleworth is “the most radical court order imaginable”.

Were the order to go through, it would see the bank’s so-called “closed-door policy” of insisting that the public communicate with it through the intermediation of authorised banks declared unconstitutional and invalid.

The entrepreneur, who holds dual British and South African citizenship, also blames the system of controls for forcing him to emigrate to the UK in 2001, claiming that it made it impossible for him to conduct his entrepreneurial and philanthropic ventures.

At the time of his emigration, Shuttleworth had R4.27-billion in South Africa, but transferred the assets out of the country in 2008 and 2009, paying a 10% levy each time. Shuttleworth’s wealth is now split between the UK mainland and tax haven The Isle of Man.

The Reserve Bank however thinks that if Shuttleworth’s application is successful, it could be incredibly dangerous for the country’s economy.

“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.”

In fact, Gauntlett went so far as to call Shuttleworth a “financial refugee” and appeared to suggest that he had no place commenting on South Africa’s monetary exchange system.

“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?”

Gauntlett added that Shuttleworth’s attempt to get the R250-million back from the Reserve Bank should be dismissed because he was attacking the wrong decision maker. The bank, he said, was only acting on a decision announced by the finance minister during a speech in Parliament in 2003.

The primary reason for that decision, he said, was to stop the flight of money out of the country in an emergency and not to punish business people trying to make money. It meant, he added, that South Africa could deal with a crisis more comfortably than countries with looser exchange controls.

“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,” he said.

Gauntlett also rubbished Shuttleworth’s assertion that the regulation was unconstitutional because the public was not consulted.

“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 way 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% exit levy] was no longer needed, but that may change,” Gauntlett said.

While Gauntlett is vociferous in his attack on Shuttleworth, he doesn’t really seem to have taken it on in constitutional terms. The fact that he even spoke about a Shuttleworth win being a disaster for the economy suggests that the internet billionaire’s argument may actually have some constitutional merit.

The move to label Shuttleworth an “economic refugee” also seems a little odd. Yes, he did move a large portion of his wealth out of the country and emigrate to the UK and other entrepreneurs have managed to maintain bases in the country while doing extensive international business. Shuttleworth has however retained South African citizenship and therefore has the same rights in terms of South African legislation as anyone who lives in the country. If his argument truly has no constitutional merit then surely any court would side with the Reserve Bank?

It’s also worth bearing in mind that Shuttleworth’s money is still used to invest in South African startups. His charitable foundation meanwhile provides funding and fellowships to social innovators.

Image: paixetprosperite (via Flickr).