Beneficial Ownership and Corporate Transparency: Impact on South African Companies

In February 2023, South Africa was greylisted by global financial crime watchdog the Financial Action Task Force (“FATF”) for not fully complying with international standards around the prevention of money laundering, terrorist financing and proliferation financing. This decision was taken despite the remedial action already taken by South Africa in response to the FATF’s mutual evaluation report published in October 2021 (“the Mutual Evaluation Report”).

Some of the key actions co-ordinated since 2021 include:

Passing several pieces of legislation aimed at improving the country’s financial crime laws, including the General Laws (Anti-Money Laundering and Counter Terrorist Financing) Amendment Act no.22 of 2022 (“GLAA”).
Expanding the mandate of the Financial Intelligence Centre Act no.38 of 2001 (“FICA”) to include more effective monitoring and detection capabilities.
Establishing the Fusion Centre, which brings together bodies like the National Prosecuting Authority, the Special Investigation Unit, the South African Revenue Service, the Hawks, Crime Intelligence, the State Security Agency and the Financial Intelligence Centre.
Capacitating agencies that are critical in the fight against crime, including those that fight financial crimes.

This article focuses on the GLAA and how the amendments promulgated therein are intended to address the deficiencies in South Africa’s anti-money laundering and combating terrorism financing measures as identified in the Mutual Evaluation Report.

The table below sets out the five different Acts amended, or to be amended, by the GLAA and the high-level effect thereof. The dates of commencement for the majority of the amendments set out in the GLAA were on 31 December 2022 or on 1 April 2023, as outlined in Proclamation Notice 109 of 2022 published on 31 December 2022 (Gazette No 47805).

ACT

PURPOSE

EFFECT

Companies Act no.71 of 2008 (“the Companies Act”)

Require companies to keep records of natural persons who own or control a company and provide accurate and updated beneficial ownership information.

Provides a mandate to the Companies and Intellectual Property Commission (“CIPC”) to collect beneficial ownership information.

FICA

Improve the provisions that require financial and other institutions to perform due diligence in respect of their customers.

Ensures that these institutions have more reliable information about their customers and are in a better position to manage money laundering and terrorist financing risks in their businesses, which addresses another key finding of the mutual evaluation.

Financial Sector Regulation Act no. 9 of 2017 (“FSRA”)

Provide a definition of ‘‘beneficial owner’’ and empower standards and regulator’s directives to be made in relation to beneficial owners.

Improve the ability of financial sector regulators to apply fit and properness scrutiny to the beneficial owners of licensed financial institutions.

Non-profit Organisations Act no.71 of 1997 (“NPO Act”)

Establish a regulatory framework to protect non-profit organisations which transfer funds overseas from possible exploitation by facilitators and financiers of terrorist organisations.

Ensures that non-profit organisations that transfer funds overseas abide by standards of good governance and financial management and are supervised according to the requirements of the NPO Act.

Trust Property Control Act no.57 of 1988 (“TPC Act”)

Lay the basis for South Africa to develop a comprehensive mechanism to bring transparency to the beneficial ownership of corporate vehicles such as trusts and companies.

Strengthening the ability of investigators and other authorities to pierce the corporate veil and determine who the natural persons that deal with financial and other institutions at arm’s length through trusts and companies are. These measures will boost the ability of the authorities to fight against crime and corruption perpetrated by criminal syndicates.

The amendments above will lay the basis for South Africa to develop a comprehensive mechanism to bring transparency to the beneficial ownership of corporate vehicles, such as trusts and companies.

So, what is beneficial ownership and how will this impact companies from a governance perspective? A beneficial owner is defined as any natural person who holds 5% or more interest in a legal entity; or a person who exercises effective control of such an entity. Greater transparency around beneficial ownership is a crucial component in the fight against financial crime.

To this end, and in line with the amendments to the Companies Act, in March 2023 the CIPC announced its intention to establish and implement a beneficial ownership information collection and storage regime as soon as regulations in this regard are promulgated.

While the regulations to give effect to the provisions of the GLAA are yet to be promulgated, as the regulatory landscape continues to evolve, it is essential to have expert guidance to help navigate these changes and ensure compliance. Acorim’s governance team is here to provide you with the support and expertise you need.