The latest developments in respect of the new Anti-money Laundering Legislation
In this article, we provide an important update to trustees and company directors on the latest developments in respect of the newly introduced beneficial ownership reporting for trusts and companies as introduced by the General Laws (Anti-Money Laundering and Combating Terrorism Financing) Amendment Act 22 of 2022 ("Amendment Act") which came into full effect on 1 April 2023 and affects all trusts and companies in South Africa.
On 24 February 2023, South Africa was officially grey listed by the International Financial Action Task Force ("FATF") thereby declaring South Africa to be a high-risk territory when it comes to international dealings and investments. Following a FATF report already issued in 2021 assessing South Africa for falling short of international standards for financial controls, the Amendment Act, which is an unfortunate case of too little too late, was passed by the Presidency late in December 2022 to try and remedy the shortcomings.
South Africa now finds itself in the position of having to claw its way out of the grey listing hole by demonstrating that it has managed to implement controls to curb money laundering, terrorist financing, corruption and other related crimes. South Africa should also show evidence of fines and convictions to convince the international community that South Africa is no longer the high-risk territory that the FATF has pronounced it to be. A tall order indeed and one that will undoubtedly see a substantial amount of political support for enforcement agencies to take a hard stance on compliance as South Africa grapples with the additional economic impact of the grey listing on an already strained economy.
But are trustees and company directors awake to the reality of what the Amendment Act requires of them? In our view, there is a concerning degree of ignorance or indifference towards the repercussions of the Amendment Act as well as the precarious position this could leave trustees and directors in should they fail to prepare and be ready to comply.
We have also noticed a rather disconcerting view from some professional firms that the Amendment Act is no different to FICA and that as long as you have an identity document and proof of residence, your reporting obligations are sorted! Unfortunately, this is far from the reality of what the Amendment Act requires and the detail of what needs to be reported with respect to the beneficial ownership of your trust or company.
For trust beneficial ownership reporting, the Master of the High Court, as required by the new regulations to the Trust Property Control Act 57 of 1988, has created an online portal where trustees or their mandated representatives would need to submit (and keep up to date) the beneficial ownership information of the trust. This will include information on the founder, every trustee as well and beneficiaries, and where there are juristic entities anywhere involved, as well as the beneficial ownership of the entire ownership chain right down to the ultimate warm bodies that own and control these entities (the ultimate beneficial owners). In addition, trustees must keep a record of all the Accountable Institutions that they engage with. Failure to comply may result in substantial fines and even jail time for trustees.
On the company side, the new regulations to the Companies Act 71 of 2008 (the "Companies Act") also provide for a comprehensive approach to defining the beneficial interest in and the beneficial ownership of a company, with companies, through a mandated representative being required to submit (and keep up to date) this information to the Companies and Intellectual Property Commission ("CIPC"). The beneficial ownership reporting is intended to run along the same timeframes as the annual return submission by companies, although the beneficial ownership reporting is a separate process. The CIPC has created a new area on its online portal specifically for beneficial ownership reporting, and here the entire ownership structure must be unpacked. Currently, a failure amounts to a breach of the Companies Act as well as potential deregistration, although the CIPC is lobbying aggressively for also criminalising non-compliance with the beneficial ownership reporting duty by companies.
And, with the eye of the Financial Intelligence Centre now also moving towards Accountable Institutions to be their foot soldiers in the enforcement of the new transparency and reporting requirements, clients will soon be pounding their chests in frustration when Accountable Institutions start asking for their beneficial ownership registers as submitted to the Master or CIPC and they do not have these at the ready.
