Deadline 01 October 2023
The Financial Action Task Force (herein “FATF“) is the global policy-developing body for anti-money laundering (AML); counter financing of terrorism (CFT); and counter financing of proliferation. In 2021, the FATF concluded that South Africa “has a solid legal framework for combating money laundering and terrorist financing, but significant shortcomings remain”. One of those significant shortcomings was and still is, the abuse of impervious corporate structures, aiding operations involving money laundering, corruption, and tax evasion. The FATF highlighted the fact that South Africa’s AML/CFT legislative system must improve the “availability of beneficial ownership information”.
In response to the FATF’s findings, the South African Government enacted the General Laws (Anti-Money Laundering and Combating Terrorism Financing) Amendment Act 22 of 2022 (herein the “GLAA“). The purpose of the GLAA, among others, was to:
- amend the Trust Property Control Act, 1988 (herein the “TPCA“) to insert definitions of “accountable institution” and “beneficial owner”; and obligating the Master to maintain a register with information relating to “beneficial ownership” of trusts; and
- to amend the Companies Act, 2008 (herein the “Companies Act“) to insert definitions of “affected company” and “beneficial owner”; and obligating the Companies and Intellectual Property Commission (CIPC) to keep accurate and updated information pertaining to the “beneficial ownership” of a company; and obligating a company to keep a record of the natural person(s) ultimately owning or controlling the company.
Beneficial ownership in terms of the TPCA:
A “beneficial owner” in relation to a trust, will include:
- a natural person, ultimately owning the trust property (directly or indirectly); and / or
- a natural person, exercising effective control of the administration of the trust; and / or
- the founder(s) of the trust; and / or
- a trustee of the trust; and / or
- a named beneficiary of the trust.
In arrangements where the beneficial owner of the trust is a juristic person, the natural person(s) ultimately benefiting and / or controlling (directly or indirectly) such a juristic person, will have to be named and recorded.
However, each arrangement and structure are to be considered in light of their individual circumstances. As an example, if a trust operated as a broad-based employee incentive scheme, the beneficiaries are not individually named and would not necessarily have a vested right to the assets of the trust. It is our submission that, based on the aforementioned example, an employee beneficiary will not fall within the ambit of the definition of a ‘beneficial owner’.
Accordingly, trustees are now obliged to establish and maintain a detailed information register of the beneficial owners of the trust. Annually, trustees will be obliged to submit and electronically upload the information onto the ‘Beneficial Owners Registry’, operated by the Master of the High Court. Should trustees fail or neglect to comply with the requirements, it will constitute an offence, and it may result in a penalty fine of up to R10 million and/or five years’ imprisonment for trustees.
Beneficial Ownership in terms of the Companies Act:
A “beneficial owner” in relation to a company is defined as “an individual who, directly or indirectly, ultimately owns that company or exercises effective control of that company”. Excluding ‘regulated’ companies (or companies controlled by a ‘regulated’ company), for example, a company with its securities listed on the JSE, all companies will be required to indicate who the beneficial owner(s) are (i.e. the natural person who “owns” or effectively “controls” the company).
It would appear as though the legislator attempted to qualify the words “owns” and “control” (although not specifically defined), by stating same may include the holding of a beneficial interest; the right to vote or to control the voting; the right to appoint and / or remove directors; or the ability to exercise control through a chain of ownership. Companies may elect to follow the narrow interpretation of the word “control”, whereas the wording in the Companies Act, referencing “control”, appears to be wider than the grace of the heavens.
Although the actual ‘greylisting’ of South Africa by the FATF may, on its own, seem slightly inconvenient, the accompanying factors, such a low growth forecasts, the Eskom crisis, and continued corruption in state organs, make for the perfect storm. The additional legislative changes, although theoretically addressing the “significant shortcoming” in South Africa’s AML/CFT legislative system, will be too much, too little, and too late, without proper governmental supervision and enforcement.
That being said, companies have until the 01st of October 2023 to submit their information regarding “beneficial owners” to CIPC.