In 2021, the Financial Action Task Force ("FATF") released its Mutual Evaluation Report of South Africa, which contained an assessment of South Africa's effectiveness in combating money laundering and terrorism financing. The report highlighted specific areas where South Africa needed improvement, notably in providing accurate and current information about beneficial owners of legal entities. It also stressed the importance of imposing sanctions for non-compliance with beneficial ownership obligations.
In response to this, the General Laws (Anti-Money Laundering and Combating Terrorism Financing) Amendment Act, 2022 ("GLAA") was enacted. The GLAA amends the Trust Property Control Act, 1998 ("TPCA") and introduced a new reporting obligation for trustees. With effect from 1 April 2023, trustees are obliged to lodge and keep up-to-date records of the beneficial ownership of the trusts of which they are trustees. This amendment to the TPCA requires trustees to record with The Master of the High Court comprehensive data regarding beneficial ownership of trusts.
Understanding Beneficial Ownership
To fully comprehend the concept of beneficial ownership as introduced by the GLAA, it is crucial to understand what is meant by the term "beneficial owner". In the context of a trust, section 1 of the TCPA defines a beneficial owner to be a natural person who:
- Has direct or indirect ownership of trust property;
- Exercises effective control over the administration of trust arrangements;
- Is a founder or trustee of a trust; or
- Is a named beneficiary in a trust deed.
In terms of the new section 11A of the TPCA, trustees are required to:
- Establish and document the beneficial ownership of a trust;
- Keep a record of the prescribed information contained in regulation 3C related to the beneficial owners of a trust; and
- Maintain an up-to-date register of such information on the electronic register established by the Master's Office.
The purpose of this requirement is to bring transparency to the ownership of trust assets before assets and income vest in beneficiaries.
The regulations to the TCPA (in particular Notice No. R. 3240) ("Regulations") also came into effect on 1 April 2023, and set out the information that trustees must record for each beneficial owner of a trust. In terms of Regulation 3C, trustees must record for each beneficial owner the following:
- The full name,
- The date of birth,
- Official ID/passport number,
- Residential address,
- Contact information,
- Address for services of notices,
- Other means of contact,
- Tax number (if applicable),
- Class or category of beneficial ownership,
- The date when the person became a beneficial owner, and
- The date when the person ceased to be a beneficial owner (if applicable). If the beneficial owner is a minor, the legal guardian's information must also be provided.
Regulation 3C(3) prescribes that trustees must also keep a certified or verified copy of each beneficial owner's official ID/passport. The Master of the High Court will maintain the beneficial ownership register, which is not available to the public, but can be accessed by specified regulatory authorities such as the South African Revenue Services, the Financial Intelligence Centre, and the National Prosecuting Authority.
Furthermore, under section 11(1)(e) of the TPCA, trustees must also record the details of "accountable institutions" they use as agents to perform any of the trustee's functions relating to trust property and from which the trustee obtains any services. "Accountable institutions" are defined as persons or organisations that carry out business listed in Schedule 1 to the Financial Intelligence Centre Act, 2001, as amended.
These beneficial ownership disclosure obligations rest on the shoulders of all trustees, no matter the nature of the trust concerned or the value of the trust's assets, including:
- Family and family business trusts;
- Commercial and business trusts; and
- Public Benefit Organisations trusts
Penalties for Non-Compliance
Trustees are advised that failure to adhere to the above obligations may lead to a penalty of R10 million (ten million) or a maximum of five years imprisonment (or both).
The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.