In 2021, the Financial Action Task Force (FATF) published its Mutual Evaluation Report on South Africa, summarizing the effectiveness of South Africa’s anti-money laundering and counter-terrorism financing measures. The main shortcomings related to the difficulties in obtaining accurate, updated, and adequate beneficial ownership information about companies and trusts for effective investigation of money laundering and terrorism financing. Hence, South Africa was recommended to improve its mechanisms for ensuring the availability to competent authorities of accurate and verified beneficial ownership information.
In response to the findings released in the report, the General Laws (Anti-Money Laundering and Combating Terrorism Financing) Amendment Act 22 of 2022 was signed into law in December 2022, placing new obligations on Companies and other entities to register prescribed information regarding beneficial ownership. The Act amended the Companies Act 71 of 2008, the Trust Property Control Act 57 of 1988, and the Financial Sector Regulation Act 9 of 2017.
With reference to the Trust Property Control Act (TPCA), the South African government introduced a new section (s.11A) providing for new obligations for trustees to disclose information on the beneficial ownership of trusts.
With effect from 1st April 2023, the aim of the new rules is to increase transparency regarding the ownership of trust assets. Hence trustees must identify the beneficial owners of trusts, keeping a record of the prescribed information. Additionally, trustees must lodge a register of the prescribed information with the Master of the High Court’s online portal and ensure that the disclosed information are kept up-to-date.
The definition of beneficial owners under the new law is broad and pertains to the settlors, trustees, beneficiaries, and any individuals who exercise effective control over the administration of the trust.
The disclosed information must be detailed and include full name, date of birth, nationality, an official identity document number or passport number, citizenships, residential address, address for notices, other means of contact, tax identification number (if applicable), class or category of beneficial ownership, the date on which the person became a beneficial owner, and the date on which the person ceased to be a beneficial owner.
Access to the disclosed information is restricted to listed government bodies, including the National Prosecuting Authority, the South African Revenue Service (SARS), and the Financial Intelligence Centre.
Trustees who fail to comply with these obligations could be liable for a penalty of up to R10 million (around USD 500’000) and/or five years’ imprisonment. Additional sanctions may be applied by the Master of the High Court or the Financial Intelligence Centre.
The system will be further expanded since SARS has implemented its own new reporting requirements, effective from September 2023. According to them, trustees of resident trusts will become “third-party data providers” to SARS and will be required to submit an IT3(t) form, disclosing the trustees and beneficiaries of their resident trusts, any amount vested in a beneficiary including income (net of expenditure), capital gains and capital amounts distributed, and the details of all financial flows.
The submission of the IT3(t) form, will be due on the 30th of September of each year in which the trusts’ tax year ends and must be completed before the annual Trust Income Tax Return is submitted.
Some uncertainty remains regarding whether SARS would expect a discretionary beneficiary who has never received any distributions to be declared as a beneficiary.
Moreover, the General Laws Amendment Act No. 22 of 2022 amended sections 50 and 56 of the Companies Act 2008, placing new obligations on companies to register prescribed information regarding beneficial ownership. Specifically, amendments to the Companies Act provided for a wide-ranging mechanism through which the Companies and Intellectual Property Commission (CIPC) can keep accurate and updated BO information. The amended Act requires companies that are ‘not affected’ companies to record and update information pertaining to BO in its securities register, and ‘affected companies’ to record and update prescribed information with CIPC.
The failure to register this prescribed information will amount to non-compliance with the Companies Act, which could result in a court-ordered administrative fine.