The recent amendments to section 55 of the companies act, 2008 have introduced a comprehensive definition of a "beneficial owner," encompassing ownership, control, and material influence over a company. In this article, we explore the potential impact of the new definition on promoting transparency and combating financial crimes, such as money laundering and terrorist financing in the corporate world. With all these changes, it begs the question, are the latest changes a genuine attempt to increase transparency and accountability?
The Financial Action Task Force ("FATF") recently amended Recommendation 24 to explicitly require a multi-pronged approach for the collection of beneficial ownership information. In particular, the FATF provides that countries should require companies to obtain and hold this information and that a public authority should be required to hold such information in the form of a registry or similar mechanism.
To address the above recommendation for beneficial ownership information, the General Laws (Anti-Money Laundering and Combating Terrorism Financing) Amendment Act, 2022 (the "Act") was signed into law by the president on 29 December 2022. The Act introduces a concept of "beneficial ownership" into the Trust Property Control Act, 1988 and the Companies Act, 2008 and amends the definition of "beneficial owner" in the Financial Intelligence Centre Act, 2001.
Amendments to the Companies Act provide a mechanism for the Companies and Intellectual Property Commission ("CIPC") to keep accurate and updated beneficial ownership information and place obligations on companies to establish and maintain beneficial ownership/beneficial interest records.
On 1 April 2023, the Companies Act was amended. Section 5 added a definition for "Beneficial Owner". The definition explains that a beneficial owner, in relation to a company, refers to an individual who directly or indirectly owns the company or has effective control over it. This control can be achieved through various means, such as holding beneficial interests in the securities of the company, exercising voting rights associated with the securities, appointing or removing members of the board of directors, holding beneficial interests in the securities or having the ability to control a holding company, a juristic person, a body of persons corporate or unincorporate, or acting on behalf of a partnership or trust agreement, or materially influencing the company's management.
The use of the word "or" above suggests that if any of the six grounds set out in the definition of "beneficial owner" are met, the natural person in question would constitute a beneficial owner.
According to the amended section of the Companies Act, all companies, whether they are affected or not will now be required to file an annual tax return with the CIPC. With regards to companies that are not affected, the return must include a copy of the company's securities register, and must contain information on all beneficial owners of the company. For affected companies, the return must include a copy of the company's securities register and the disclosure of beneficial interest.
In terms of the newly amended section, companies that are not affected are required to keep a securities register with prescribed information on natural persons who are the beneficial owners of the company, and must update this information within a prescribed period after any changes in beneficial ownership. These companies must also ensure they keep a record with the CIPC with all the information on the beneficial owners and must in addition ensure it is updated should there be any changes.
In addition, in terms of the amendment, an affected company must establish and maintain a register of the persons who hold beneficial interests equal to or of more than 5% of the total number of securities of that class issued by the company, together with the extent of those beneficial interests. In terms of the amended section, an affected company must also ensure that this register is updated within the prescribed period after the company has received a notice contemplated in section 122(1).
Section 60 under the amended section 122(1) provides that a person must give an affected company (as opposed to just a regulated company) notice if the person has acquired or disposed of a beneficial interest in securities of the affected company amounting to a whole multiple of 5% of the issued securities of that class. An affected company that has received such notice must file a record of that notice with the CIPC under the new section 122(3A).
The development of a beneficial ownership register by the CIPC is aimed at addressing FATF's Recommendation 24, which requires South Africa to ensure that authorities have access to beneficial ownership information on legal persons and to impose sanctions for breaches or violation of beneficial ownership obligations, and was one of the FATF's Recommendations where South Africa was found to be only partially compliant.
While CIPC will continue to collaborate with key stakeholders on the advancement of the register, the rollout of the register commenced on 1 April 2023, when the amendments in terms of the Act came into effect.
The aim of the CIPC's register is to:
- have a register of natural persons who own or exercise control over legal entities;
- assist law enforcement with information on natural persons that may be required when it comes to their investigations of who the ultimate owner(s) of the entity is; and
- mitigate the risks identified in the national risk assessment where legal persons were identified as vehicles prone to abuse for money laundering and terrorist financing activities.
Along with the launch of the CIPC's register, the CIPC also published the user-guidelines to guide filers on the steps of filing beneficial ownership details via the online automated process of filing.
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