The Fiduciary Institute of Southern Africa (FISA) has welcomed the guidance published by the Financial Intelligence Centre (FIC), but it says grey areas remain in respect of the compliance obligations of persons whose activities meet the definition of a trust and company service provider (TCSP).
Read: FIC issues guidance for trust and company service providers
The FIC has published Public Compliance Communication 6A to take into consideration the amended definition of Item 2 of Schedule 1 to the Financial Intelligence Centre Act.
PCC 6A clarifies that employees of corporate entities that set up trust arrangements and administer trusts do not have to register as accountable institutions. It makes sense that only the corporate entity, and not all its employees, must register as an accountable institution, said the chief executive of FISA, Louis van Vuren (pictured).
Van Vuren said, however, there were aspects of the application of the TCSP definition that remained unclear.
One of these was paragraph (c): “A person who carries on the business of creating a trust arrangement for a client.” He said it may not always be clear when the line is crossed to “carries on the business of creating a trust arrangement for a client”.
To illustrate his point, Van Vuren outlined the following scenario: Person A is a financial planner who occasionally receives requests from clients, after having done estate planning for them, to assist with amending an existing trust deed or drafting a new trust deed to give effect to recommendations made by Person A to the client. This because Person A has experience and expertise in this area due to previous service at a corporate trust services provider.
Person A drafts the deed and takes it through several iterations until the client is happy. Person A delivers a final version of the deed to the client but does not arrange for the signing of the deed by the parties involved, or for lodging the deed with the Master of the High Court.
Person A does this for three clients in year 1, none in year 2, for one client in year 3, and for 2 clients in year 4. The drafting of trust deeds is therefore incidental to Person A’s business as a financial planner.
Has Person A crossed the line and therefore register as an accountable institution under Item 2?
Van Vuren said paragraph (d) also presented a potential grey area. Based on a strict interpretation of this paragraph, it appears that asset management businesses such as Ninety One, Allan Gray, and Coronation, as well as all banks and insurers must also register separately as TCSPs.
This is because they are persons “who carries on the business of preparing for or carrying out transactions (including as a trustee) related to the investment, safe keeping, control or administering of trust property” (emphasis added).
He said it was unclear why this is considered necessary, bearing in mind that these institutions are already accountable institutions with extensive systems to screen clients.
Van Vuren welcomed the clarification in PCC 6A that paragraphs (c) and (d) of Item 2 do not apply to testamentary trusts, court order trusts, trusts for the benefit of persons under curatorship, and pension funds.
Trusts set up under court order to receive the proceeds of Road Accident Fund or medical negligence claims are clearly very low risk vehicles when it comes to money laundering or terrorism financing, as are testamentary trusts. It was therefore, “beyond understanding” why these trusts are not also exempt from the provisions in the recent amendments to the Trust Property Control Act and the regulations promulgated as a result, he said.
In South African law, a trust does not have legal personality. It is, in the words of the Supreme Court of Appeal in the seminal judgment in Land and Agricultural Development Bank of SA v Parker and Others, an estate, an accumulation of assets and liabilities, Van Vuren said.
Despite this, paragraph 5.3 of PCC 6A states: “Criminals see companies – often trusts and similar legal arrangements – as potentially useful vehicles to achieve this outcome.” He said this statement seems to indicate a misunderstanding of the legal nature of trusts in South African law.
Van Vuren said FISA was on record as criticising the thoughtless taking over of concepts such as “beneficial ownership” from Anglo-American (common law) legal systems and introducing them into South African trust law with its civil law heritage in which it is impossible for anyone other than a beneficiary with vested rights to have any “beneficial” interest in the trust property. This confusion is exacerbated by the contents of paragraph 5 of the document.
