Companies should begin to prepare for the heightened disclosure requirements relating to beneficial ownership that will come into effect on 1 April.
The General Laws (Anti-Money Laundering and Combating Terrorism Financing) Amendment Act, which was signed into law on 29 December 2022, has introduced several changes to the beneficial ownership framework. The changes include harmonising the concept of a beneficial owner across the Financial Intelligence Centre Act, the Companies Act, and the Trust Property Control Act.
The Companies Act now defines a beneficial owner as an individual who, directly or indirectly, ultimately “owns” or exercises “effective control” of a company.
Law firm Cliffe Dekker Hofmeyr (CDH) said a significant aspect of the definition of beneficial ownership is that it contemplates a person’s ability to exercise control, including a chain of ownership or control, of a juristic person other than the holding company of that company. The beneficial owner of a company is therefore the natural person who ultimately owns or who can ultimately exercise effective control over a company.
For example, in a company structure where Company A is a wholly owned subsidiary of Company B, which is, in turn, wholly owned by Mr T Ender Preneur (a natural person), Mr T Ender Preneur would, for the purposes of the Companies Act, be the beneficial owner of Company A.
The facts will not always be so simple and ascertaining the beneficial owner (if any) will be more nuanced in the context of, for instance, family or business trust structures (where the provisions of the trust deed would have to be considered), and scenarios of de facto control in less-than-majoritarian shareholding structures, CDH said.
Beneficial ownership register
The Companies and Intellectual Property Commission (CIPC), which administers about 2.1 million active entities, is planning to establish a beneficial ownership register, based on the amendments to the Companies Act.
Companies, other than “regulated” companies or companies controlled by a “regulated” company (a “regulated” company includes a company whose shares are listed on a stock exchange), will have to record, in their securities registers, information about the natural persons who are the beneficial owners of the company.
As part of the process of filing its annual return with the CIPC, a company will have to file a copy of its securities register reflecting this beneficial ownership information.
On 16 March, the CIPC invited comments on the draft regulations to the Companies Act relating to the establishment of a beneficial ownership register.
It said the aims of establishing the register are:
- To have a repository of natural persons who own or exercise control over legal entities;
- To assist law enforcement with relevant information when it comes to their investigations of who the ultimate owners of an entity are; and
- To mitigate the risks identified in the national risk assessment where legal persons were identified as vehicles prone to abuse for money laundering and terror financing activities.
Safeguarding the financial system
The lack of adequate, accurate and up-to-date beneficial ownership information facilitates money laundering and terrorist financing by allowing criminals to hide their true identities, the true purpose of an account or property held by a corporate vehicle and/or the source or use of funds or property associated with a corporate vehicle, the director of the Financial Intelligence Centre (FIC), Advocate Xolisile Khanyile, said this month.
Understanding the legal and beneficial ownership of corporate vehicles can play an integral part in aiding law enforcement authorities and the FIC, by identifying natural persons who may be involved in criminal activity at arm’s length using vehicles such as companies and trusts, or who may have relevant information to further an investigation. Enhancing the transparency of these corporate vehicles makes them less attractive for criminals, Khanyile said.
“Access by authorised recipients to beneficial ownership information would significantly aid efforts to protect and safeguard the financial system from illicit use. It would impede illicit actors’ ability to use legal entities to conceal proceeds from criminal acts that undermine national security and foreign policy interests, such as corruption, human smuggling, drug and arms trafficking, and terrorist financing.”
The General Laws Amendment Act has brought South Africa’s legal framework in line with the Financial Action Task Force’s standards on the disclosure of beneficial ownership information, she said.
The FATF’s most recent mutual evaluation report concluded that the lack of timeous access to accurate and adequate beneficial ownership information by law enforcement and other authorised recipients was a significant gap in the country’s anti-money laundering and counter-terrorist-financing regime.
