South African Reserve Bank vs. Leathern NO and Others - (20 Jul 2021)

If the Reserve Bank is satisfied that contraventions occurred, it may ultimately declare the attached funds forfeit to the State

Banking

In present matter, on 15 June 2017 the Appellant, the South African Reserve Bank (the Reserve Bank) issued a blocking order against two bank accounts of Mr. Ahmed Dawood Bhorat, trading as R & R Traders and Brokers (R and R Traders) held with the fourth Respondent, Grobank Limited (formerly the Bank of Athens). The accounts were blocked on suspicion that, Mr. Bhorat had used them in contravention of certain provisions of the Exchange Control Regulations (the regulations); promulgated in terms of Section 9 of the Currency and Exchanges Act, 1933. The high Court lifted the blocking order and ordered Grobank Limited, to pay over the funds to the trustees of the insolvent estate.

In terms of the Regulations, where a designated functionary of the Reserve Bank, on reasonable grounds, suspects a person to be involved in the contravention of any provisions of the regulations, the functionary is empowered, under the provisions of Regulations 22A and/or 22C, to issue a blocking order in respect of a banking account suspected of being used for illegal purposes. The effect of the order is to prohibit any person from withdrawing, or causing to be withdrawn any money standing to the credit of the bank account in question. If the Reserve Bank is satisfied that contraventions indeed occurred, it may ultimately declare the attached funds forfeit to the State.

On the Reserve Bank’s investigations, Mr. Bhorat was identified as part of a group of persons and entities designated as ‘forex transferring entities’, who were suspected of having used their bank accounts as conduits for illicit transfer of money to various foreign beneficiaries, in China and Hong Kong. As a result, the accounts were blocked.

The high Court was not entitled to set aside the blocking order, as the provisions of Regulation 22D, read with those of Section 9(2)(d)(i)(bb) of the Act, were not satisfied, as the trustees could not gainsay the Reserve Bank’s reasonable suspicion that the accounts were used for the contravention of the regulations.

Where an account held in the name of a person is subject to a blocking order, for the duration of the Reserve Bank’s investigations or the allowed 36-month period, it cannot be determined whether the funds vest in the trustees of the insolvent estate. This can only be finally determined, if a forfeiture order is sought. As such, a blocking order functions to temporarily delay a determination whether the funds in a blocked account vest in the trustees. In the interim, the trustees were not entitled to demand that the funds be paid out to them for distribution. The order of High Court is set aside.

Tags : PROVISIONS CONTRAVENTION BLOCKING ORDER