With the new General Laws (Anti-money Laundering and Combatting of Terrorism Financing) Amendment Act 22 of 2022 (“Amendment Act”) having come into operation on 1 April 2023, a new definition of ‘beneficial ownership’ has been formally introduced in a number of key laws affecting all trusts and companies. In this article we delve a bit deeper into this new concept.

The Amendment Act is aimed at combatting money laundering and terrorism financing. It targets companies and trusts which are seen by the international community as vehicles regularly used to facilitate such criminal activities. The Amendment Act, aligned with the recommendations of the Financial Action Task Force (FATF), aims to create greater transparency in the ownership and control of such entities and has introduced the concept of ‘beneficial ownership’ as a means to do this, adding additional disclosure and reporting therewith. 

Amendments to the Trust Property Control Act 57 of 1988 (“Trust Act”), the primary statute governing trusts in South Africa, are set out in sections 1 through 8 of the Amendment Act, with section 1 introducing the definition of ‘beneficial owner’ with accompanying reporting and disclosure requirements set forth in sections 6 and 7. The new definition of ‘beneficial owner’ in the Trust Act is defined broadly and includes any of the following:
      

• The natural person(s) who directly or indirectly ultimately own the trust property.
• The natural person(s) who exercises effective control over the administration of the trust arrangements that are established pursuant to a trust instrument.
• The founder of the trust and all natural persons ultimately behind the founder, if same is a legal person, partnership, or trust.
• Each trustee of the trust, and all natural persons ultimately behind the trustee(s), if same is a legal person, partnership, or trust.
• Each beneficiary of the trust, and all natural persons ultimately behind the beneficiary, if same is a legal person, partnership, or trust.

Essentially, the ultimate ‘warm’ bodies that control the trust and stand to benefit from its assets and income will be considered to be the beneficial owners. Furthermore, as regards the beneficial owners of the trust, trustees are now required to i) establish and record the beneficial ownership, ii) keep record of the prescribed information relating to the beneficial owners of the trust, iii) keep the same up to date, and iv) lodge with the relevant Master’s Office all of the prescribed information relating to the beneficial owners. The Master must also keep a register containing the prescribed information about the beneficial ownership of trusts, which register will undoubtedly be used by enforcement agencies as data used to track and identify illicit use of trusts by criminals.

The amendments to the Companies Act are set out in sections 55 through 60 of the Amendment Act and in similar fashion to the trust amendments, places heavy emphasis on ‘beneficial ownership’ in companies and the responsibility to maintain beneficial ownership records and report thereon to the South African Companies and Intellectual Property Commission (“CIPC”) who is also obligated to keep accurate beneficial ownership information, again, undoubtedly for use by enforcement agencies. 

The new definition of ‘beneficial owner’ as contained in section 55 of the Amendment Act, mirrors the approach of the Trust Act definition, albeit appropriate for companies. In terms hereof, the beneficial owner of a company includes, in relation to an individual who, directly or indirectly, ultimately owns that company or exercises effective control of that company, including through – 

• the holding of beneficial interests in the securities of that company;
• the exercise of, or control of the exercise of the voting rights associated with securities of that company;
• the exercise of, or control of the exercise of the right to appoint or remove members of the board of directors of that company;
• the holding of beneficial interests in the securities, or the ability to exercise control, including through a chain of ownership or control, of a holding company of that company;
• the ability to exercise control, including through a chain of ownership or control, of -
• a juristic person other than a holding company of that company;
• a body of persons corporate or unincorporate;
• a person acting on behalf of a partnership;
• a person acting in pursuance of the provisions of a trust agreement;
• the ability to otherwise materially influence the management of that company.

Section 56 of the Amendment Act amends section 33 of the Companies Act to enable the CIPC to keep accurate and updated beneficial ownership information. These changes require that a company provide the CIPC (when it files its annual return) with a copy of the company’s securities register as required in terms of section 50 of the Companies Act and a copy of the register of the disclosure of beneficial interest as required in terms of section 56(7)(aA) of the Companies Act. 

With these new company measures, 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.

Those who do not comply, in the case of trusts, expose themselves to fines up to R10 million and possible imprisonment of up to 5 years or both. Additionally, in the case of companies, should they fail to correctly disclose the prescribed information with its annual returns to the CIPC, the company risks possible business restrictions with a company’s business status being amended by the CIPC from ‘in business’ to ‘deregistration process’ and of course being non-compliant with the Companies Act, all of which may cause serious damage to a company’s reputation, brand and ability to do business.

The newly introduced ‘beneficial owner’ definition is not a straightforward affair as is to be expected for it to be effective in the fight against wily criminals well-versed in the art of obscuring the true nature of things. Preparing and submitting the correct information to either the Masters Office for trusts or CIPC for companies, will demand an informed and careful approach from trustees and companies. With the Amendment Act being effective from 1 April 2023, trustees and company officers should not delay in getting ready for these new reporting duties. 

Should you need help with understanding the requirements or managing your reporting obligations, feel free to make contact with our Trust Office team providing dedicated support to client trusts and companies in respect of these new reporting obligations. Visit our AML webpage for more information.

Also 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 on these new anti-money laundering amendments.


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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).