You only need to watch a movie or series about drug trafficking, terrorism or even cyber hackers to associate criminal activities with the use of ‘shelf’ companies, ‘offshore’ companies or some or other form of corporate entity through which clever criminals’ squirrel away their ill-gotten gains out of sight and touch from authorities. But is this all just cliched stereotyping of the poor corporate entity form or are companies really being used and abused by criminals. 

If one considers the new General Laws (Anti-Money Laundering and Combatting of Terrorism Financing) Amendment Act 22 of 2022 (“Amendment Act”) signed into law late in December 2022 and the measures aimed at South African companies, it can safely be deduced that our government definitely believes the company to be a vehicle abused for illicit criminal operations and transactions. 

The Amendment Act promulgated hot on the heels of a recent negative report by the Financial Action Task Force (“FATF”) on the state of financial controls in South Africa, highlighted greater transparency in the ownership and control of companies as a vital measure to avoiding the company from being used to hide and obscure illegal funds and assets. In line with international standards, South Africa has moved fast to pass the Amendment Act in the hopes also of avoiding being grey listed as a high risk country to do business with - economic suicide for any developing economy. 

How exactly is a company used for money laundering and what will the Amendment Act do to stop this?

Money laundering can be defined as the process of ‘cleaning’ ‘dirty’ money by making funds illegally obtained appear legal and so hiding the true origin or source of the funds. Companies have long been utilised by individuals to launder money, with a company or companies inserted in the transaction chain to launder money through for example fabricating invoices for company goods/services and then paying those invoices with dirty money, or by simply transferring the dirty money to a company to purchase legitimate assets in the company. The greater the chain of entities involved in these transactions and transferring of funds, the more difficult it becomes to trace the true origin of the money (the initial illegal activity generating the funds) and also who the owner and controller of that money is. Needless to say, the sophistication of what occurs in reality far exceeds these basic examples and demand increasingly sophisticated measures by enforcement agencies to identify and stop such laundering. 

To counter the use of companies in money laundering and promote more transparent dealings and business confidence when engaging with companies, the Amendment Act amends key sections of the Companies Act 71 of 2008 (“Companies Act”). Most notable among the amendments are:

• New definitions for an “affected company” and “beneficial owner”.
• The introduction of mechanisms by which the South African Companies and Intellectual Property Commission (“CIPC”) can keep and update accurate beneficial ownership information.
• The inclusion of specific referencing to money laundering, terrorist financing and proliferation financing activities.

What these new measures in essence aim to achieve is that all companies (other than “Affected companies”), will have to keep a record of natural persons who own and/or have some form of control over the company and must ensure to file this information with the CIPC within prescribed timelines. 

Affected companies in turn, are required to establish and maintain a register of disclosures made in terms of section 7 of the Companies Act as well as beneficial interest holders, while all companies must file records of beneficial ownership with the CIPC.

The newly introduced “beneficial owner” definition is complex and will require an informed approach to be drawn up correctly and submitted to the CIPC. This also involves an additional administrative burden on companies to maintain and keep up to date the companies’ securities register, which must now accompany the companies’ annual returns. 

With this information at their disposal, authorities such as the Financial Intelligence Centre, law enforcement agencies and undoubtedly SARS, hope to more clearly see through complex corporate structures and identify the source, flow and control of illegal proceeds. 

Company directors, shareholders and officers should take note of these changes to ensure that they are compliant and prepared to correctly maintain and submit this information to the CIPC. If you are unsure of how to address these new requirements or correctly record your beneficial ownership structure, feel free to contact any of our commercial or fiduciary advisors to discuss how we can assist you comply with these new requirements.

And be sure to keep an eye out for our follow up articles in which we explore in more detail the other areas affected by the Amendment Act as well as our online webinars coming soon on these new anti-money laundering amendments.


RELATED ARTICLES:
Introduction: New anti-money laundering amendment legislation to affect companies and trusts
Trustees beware! You can now be fined and jailed!
Alert: South Africa’s grey listing means extensive new compliance requirements!
Companies take note of new beneficial ownership reporting requirements
New disclosure requirements for companies. Comply or risk being deregistered!


Disclaimer: This article is the personal opinion/view of the author(s) and is not necessarily that of the firm. The content is provided for information only and should not be seen as an exact or complete exposition of the law. Accordingly, no reliance should be placed on the content for any reason whatsoever and no action should be taken on the basis thereof unless its application and accuracy has been confirmed by a legal advisor. The firm and author(s) cannot be held liable for any prejudice or damage resulting from action taken on the basis of this content without further written confirmation by the author(s).