Significant developments in reporting beneficial ownership
03 Jul 2023
In recent months South Africa has witnessed significant legal advancements concerning beneficial ownership, prompted by the global money laundering and terrorist financing watchdog, the Financial Action Task Force (“FATF”). These developments come in the wake of South Africa’s greylisting and subsequent efforts to improve its anti-money laundering (“AML”) and counter-terrorism financing (“CTF”) measures. Key stakeholders involved in this process include the South African Reserve Bank (“SARB”) and the National Treasury, who are working collaboratively to enhance oversight of AML and CTF risks in the financial sector.
Among the eight areas of strategic deficiencies identified by the FATF, one crucial aspect requires South Africa to ensure that competent authorities have timely access to accurate and up-to-date information on beneficial ownership of legal entities and arrangements. Additionally, there is a need to impose sanctions for any breaches or violations of beneficial ownership obligations by legal entities.
Consequently, on 31 March 2023, a new reporting obligation for Trustees was officially gazetted, amending the Trust Property Control Act of 1988 (“TPCA”). This amendment imposes the responsibility on Trustees to maintain and update comprehensive records of the beneficial ownership of trusts. Starting from 1 April 2023, Trustees are obliged to lodge these records and ensure their accuracy. The details must be recorded with The Master of the High Court, placing the burden of responsibility on Trustees to provide comprehensive data regarding beneficial ownership.
These reporting obligations apply to all Trustees, regardless of the nature or value of the trust, encompassing family trusts, business trusts, and public benefit organisation trusts. The term “beneficial ownership” refers to the founders, trustees, named beneficiaries, and any individuals who exercise effective control over a trust. It is important to note that a beneficial owner is always a natural person. In cases where a legal entity fulfills the role of a beneficial owner, the natural person(s) who ultimately benefit(s) from that legal entity must be recorded as the beneficial owner(s) of the trust.
Failure to comply with these requirements may result in penalties for Trustees, which can include fines of up to R10 million and/or imprisonment for up to five years. Furthermore, the Master of the High Court or the Financial Intelligence Centre may impose additional sanctions.
In a separate development, on 1 March 2023, the Companies and Intellectual Property Commission (CIPC) announced its plans to establish and implement a Beneficial Ownership (BO) register. This register will be released once the Regulations receive approval, following the enactment of the General Laws Amendment Act, 2022, signed into law by the President of the Republic of South Africa on 29 December 2022.
A beneficial owner is defined as a natural person holding a 5% or greater interest in a legal entity or a person exercising effective control over an entity. In the context of a company’s securities, beneficial interest refers to the entitlement or right derived from ownership, agreement, relationship, or other means.
To support the collection of beneficial ownership information, the Companies Act 71 of 2008 as amended, will require amendment.
- What are Ultimate Beneficial Owners (UBOs) and why do they matter?
- Publication of draft Companies Act Regulations to enable beneficial ownership of shares to be determined
- Beneficial Ownership regulations are strengthened to address FATF’s grey listing
- The corporate veil explained