The drivers behind the decision of the Financial Action Task Force’s (FATF) to grey listing South Africa has driven South Africa to consider both its policies and legislation, writes Ryan Levy, international business consultant at Overseas Trust and Pension.
Much of these changes seek to improve the country’s ability to combat money laundering and terrorist financing and align regulations and legislation with international standards.
One of the resulting and substantial changes was the amendment to The Trust Property Control Act 1988 because of the introduction of the General Laws (Anti money-Laundering and Combating Terrorism Financing) Amendment Act 2022.
The purpose of these amendments is to promote more transparency with regards to trustees reporting of beneficial ownership as well as precise details that need to be shown when dealing with Accountable Institutions who provide functions of the trustees or when dealing with transactions relating to trust property.
The Amendment Act had an impact on the following pieces of legislation:
- Non-Profit Organizations Act 1997
- Financial Intelligence Centre Act 2001
- Companies Act 2008
- Financial Sector Regulation Act 2017
- Trust Property Control Act 1988
For this article, the focus will be on the amendments made to the Trust Property Control Act 1988.
The FATF’s report, that led to the grey listing of South Africa, identified the need to improve the country’s frameworks and implementation of such frameworks to better combat terrorist financing and money laundering.
Put differently, they felt South Africa had vulnerability in its systems that was and could be exploited. As such on the 31 of March under Notice No. R 3240, the minister of Justice and Correctional Services made regulations that were published in the Government Gazette No 48351 as a package of measures to start to address these deficiencies.
Trusts were identified as an important target with several amendments to the laws pertaining to trusts. The important takeaways for advisers can be summarised as below.
The Amendments to the Trust Property Control Act were:
- Obligation to Establish and Maintain Beneficial Ownership Registers;
- Obligation to lodge beneficial ownership registers with the Master of the High Court;
- Obligation to give access to beneficial ownership information to law enforcement agencies; and
- Obligation to make certain disclosures to accountable institutions and to record details of accountable institutions.
If we look at this in a bit more detail the act has essentially broaden the definition and defined accountable institutions and beneficial owners. Beneficial owners have been specifically defined beyond the scope of what we are accustomed to in South African common law and has a much further reach.
The act now defines certain requirements that trustees need to adhere to that would have otherwise only been contained in the trust instrument as well as criteria whereby the Master of the High Court will deem a person disqualified to being appointed or continuing capacity as a Trustee. Similar corresponding changes were made to the Companies Act 2008 whereby a director will be disqualified as a result of e.g., insolvency, misconduct, fraud, perjury just to mention a few.
The two big changes are the extent to which trustees need to report and maintain records of Beneficial owners (and their far-reaching extent) as well as the specifics around the details to be reported to Accountable Institutions and the importance of trustees reporting their capacity when dealing with trust property.
These institutions must distinguish between acting in their personal capacity and that of a trustee. It is somewhat baffling that this is even a point that needs to be stressed but it does perhaps show how far the country is behind that of other territories where such practices are the norm.
Arguably, the most intriguing aspect of the legislative changes was the scope of “who is a beneficial owner,” and in relation to a trust, and is summarised as:
- Any natural person who both directly and indirectly owns the trust property;
- A natural person who is established in the trust instrument/deed, that has effective control over the administration of the trust;
- Each founder of the trust;
- Each trustee of the trust;
- Each beneficiary that has been named in the trust instrument/deed;
- As a warning to the above, if the above is a legal person, a partnership or a natural person acting on behalf of the partnership or another trust then the natural person who ultimately owns or exercises control over that legal person, partnership, or trust.
The act has also stipulated penalties for noncompliance with regards to these regulations and reporting’s whereby natural persons can face a hefty fine for not meeting their obligations as trustee and be liable to a fine not exceeding R10m (£420,000, $514,000, €493,000) imprisonment of up to five years, or both.
To close off on the affects that these changes will have and whom it will affect, it is of my own view that trusts that are managed by corporates will be able to meet these new obligations due to their systems, expertise and knowledge they have internally to ensure they remain in good standing. However, South Africans that are party to trusts ought to expect an increase in fees because of this new compliance.
The main concern must sit with the amount of family trusts that have family members who have been appointed as Trustees and may not have the capacity, knowledge, or time to be able to meet these obligations. Such parties should obtain advice to establish the way forward and worryingly is that the ‘man in the street’ who is a trustee seem oblivious of these wide-reaching changes, obligations and ramifications of these changes which can extend to imprisonment.
Its seems that these changes will help South Africa address the concerns of FATF, but it is changing the face of the trust industry and will increase costs and make the administration of family run trusts far more onerous and even discourage the use of such trusts and the legislation places them out of the reach of the average person due to the additional administration and personal lability.
This article was written for International Adviser by Ryan Levy, international business consultant at Overseas Trust and Pension.
