The Fiduciary Institute of Southern Africa (Fisa) has made an urgent submission to Parliament on the proposed amendments to the Trust Property Control Act contained in the General Laws (Anti-Money Laundering and Combating Terrorism Financing) Amendment Bill.
Fisa’s chief executive, Louis van Vuren, said the inclusion of trustees in the definition of “beneficial owner” of a trust was in conflict with the role of a trustee as envisaged by the existing definition of a “trust” in the Trust Property Control Act. The bill does not propose to amend the definition of a “trust”. A trustee, in South African law, does not hold trust property for his or her own benefit but for the benefit of another person. Therefore, a trustee can never be the “beneficial owner” of the trust property.
“We have no problem with the apparent aim of increased oversight over trust assets under certain conditions, but it would appear that the drafters of the bill have simply lifted the term from foreign legislation without regard for the existing trust law in South Africa,” Van Vuren said.
“The definition has ambiguities and is phrased in such a way as to create confusion and potentially make criminals out of those simply fulfilling their fiduciary duty.”
The proposed changes may open the door for premature vesting of certain rights of trust beneficiaries, will encroach on the discretion afforded to trustees, and severely limit the existing rights of trustees and the founder of a trust, he said.
Fisa’s submission pointed out that trusts do not have legal personality in South African law, whereas some of the proposed amendments seem to work from the assumption that they do.
He said Fisa was disappointed that it was not consulted about the amendments, because the organisation has discussed the matter with the Financial Intelligence Centre (FIC) over several years.
Alternative proposals
Fisa does not deny that trusts are sometimes abused, and this may include money laundering and the financing of terrorism, Van Vuren said.
However, there was another way of achieving the desired oversight without jeopardising the legal position and fiduciary duty of trustees. This could be done by amending the Trust Property Control Act to:
- Exclude a trustee from the definition of “beneficial ownership”, because a trustee is not a beneficial owner of a trust; and
- Place on trustees reasonable duties of oversight over the individuals involved in the trust, perhaps by amplifying the definition of “trustee” and placing those duties on trustees.
FIC’s preliminary response
On Friday, Pieter Smit, the FIC’s executive manager: legal and policy, told the National Assembly’s Standing Committee on Finance that National Treasury and the FIC will ascertain whether the terms in the amendment bill can be adjusted to take account of the realities of South African trust law.
The FIC realised that it faced “a conundrum” in trying to make the concept of beneficial ownership fit into this country’s trust law.
He said it recognised that a trust itself is not something that is susceptible to being owned in the same way that a company can be owned.
The intention of the proposed definition was not to imply any additional entitlements or ownership, but to find a term that could be linked to the transparency requirements of the Financial Action Task Force’s standards, Smit said.
