The Exchange Control Act 1947 created the statutory regime for the administration of exchange control which remained in place for some thirty-two years,1 until the system was suspended by the Conservative Government in 1979 and, ultimately, repealed in its entirety.2 As matters stand at present, it would now be virtually impossible for the United Kingdom to reintroduce general and wide-ranging measures of this kind; the United Kingdom cannot now introduce restrictions on the free movement of capital or payments, for this would be inconsistent with its treaty obligations as a member of the European Union.3
Although the present chapter will focus primarily on the provisions of the 1947 Act, it should not be thought that exchange control was an innovation at that point. On the contrary, this country had sought to legislate against the export of gold and silver for a number of centuries—the development of exchange control can be traced back to the beginning of the thirteenth century, and a detailed scheme was put in place in 1576. The whole matter was again addressed in two later Acts.4 This legislation remained in force until the end of the Bank Restriction Period when Parliament repealed5 the long list of statutes prohibiting the export of precious metals and, after more than 500 years, finally established complete freedom of trade. During the First World War, there was no specific prohibition of the export of gold (nor any exchange control in general) but such exports were in fact prevented through purely administrative measures. After that war, the prohibition against the export of gold was placed on a statutory footing,6 until complete freedom of trade was restored in 1925 and remained intact until the outbreak of the Second World War. At that point, exchange control was reintroduced through the Defence (Finance) Regulations 1939.7 Subsequently, however, exchange control in this country rested principally upon the Exchange Control Act 1947 and upon numerous statutory instruments and Notices to Banks.8 The remainder of this chapter will thus consider the 1947 Act, although some of the cases to which reference will be made have been decided on the basis of the corresponding provisions contained in earlier regulations.
The Exchange Control Act 1947 adopted a ‘streamlined’ pattern; it took very broad powers for the prohibition and control of monetary and financial transactions. The ambit of the legislation was then made workable by statutory instruments and Notices to Banks, which permitted numerous transactions which would otherwise have fallen within the scope of the broad prohibitions in the Act itself.
The 1947 Act consists of six Parts, namely: I gold and foreign currency; II payments; III securities; IV import and export; V miscellaneous; and VI supplemental provisions. There are also six Schedules to the Act. Many provisions of the Act are not concerned with money in the narrow sense of the term, but with monetary resources. Thus, Part III relates exclusively to securities, their issue, transfer, and deposit, while section 30 deals with the restrictions which could be imposed upon foreign companies by reason of the fact that their controllers were resident in the United Kingdom.
Most of the provisions of the Act are prohibitive; these prohibitions are not absolute, but are relative in the sense that they cease to apply if the consent of the Treasury had been given.9 Consents could be given specially, in response to a specific application by the party concerned, or generally, that is to say, authorizing any transaction which satisfied the criteria set out in the permission concerned. Any such permission could be granted unconditionally or subject to conditions; but (except in certain cases specifically provided by the Act) permissions could not have retrospective effect, or ‘validate’ transactions which had previously been effected in contravention of the Act.10
The contractual consequences of a contravention of the 1947 Act are considered later.11 So far as criminal liability is concerned, an offence was committed by ‘any person in or resident in the United Kingdom’ who contravened the prohibitions contained in the 1947 Act, and by ‘any such person who conspires or attempts or aids, abets, counsels or procures any other person’ to contravene those prohibitions.12 Ignorance of the 1947 Act or its legal effect would plainly have afforded no defence in criminal proceedings.13 Given that the 1947 Act was designed to protect the (then precarious) position of the national currency, the courts had to work on the assumption that rigorous enforcement was appropriate.14 Nevertheless, whilst regulating the ability to make payments to or for the benefit of non-residents, the 1947 Act was not intended to provide a moratorium for debtors.15
It is necessary to emphasize one of the key structural features of the 1947 Act, namely that a sharp distinction was drawn between authorized dealers and other persons. Authorized dealers were banks named as such by the Treasury, and they were entitled to buy and sell and to borrow and lend gold and foreign currency, and to retain specified currency.16 As a result, British banks could deal in gold and foreign currencies—both with other British banks and with foreign institutions—without any requirement for Treasury permission. The City of London was thus able to develop its role as an international financial centre, notwithstanding the existence of a rigid (domestic) system of exchange control which applied in other contexts.