Beneficial Ownership

Date: 27 March 2024

Author: Coenraad de Beer

What is Beneficial Ownership? Without going into too much legal jargon, on 24 February 2023, the Financial Action Task Force (FATF), a global money laundering and terrorist financing watchdog, decided South Africa fell short of certain international standards for combating money laundering and other serious financial crimes, and placed us on their greylist. In response to this, the South African Government developed a plan of action to mitigate the risks of being greylisted, while working towards the eventual goal of being taken off this greylist. Part of this plan is the development of a Beneficial Ownership Register.

CIPC (for Companies and Closed Corporations) and the Master of The High Court (for Trusts) each developed their own platform through which you can submit the Beneficial Ownership Information. According to CIPC's Beneficial Ownership Guide, the purpose of the Beneficial Ownership (BO) register is as follows:

"The aim of establishing the BO register is to have a repository/register of natural persons who own or exercise control over legal entities; to assist law enforcement with relevant information when it comes to their investigations of who the ultimate owners of an entity are; and to mitigate the risks identified in the national risk assessment where legal persons were identified as vehicles prone to abuse for money laundering and terror financing activities."

In short the government wants to know who the ultimate owners of your business are. For owner managed businesses it is basically the directors listed on the CoR 14.3 and the members on the CK2. For most Trusts, this will simply be the trustees and beneficiaries (and we can get really technical about this, because neither the Trustees nor the Beneficiaries 'own' the Trust, but this is a topic for a whole separate discussion). So in effect we are merely telling CIPC that the directors/members and the shareholders are the same people. These are the simple examples, not all companies are owner managed, therefore some companies have complex ownership structures and due to the fact that share registers are not officially maintained by CIPC and Trusts, it is sometimes hard for government and law enforcement to determine who the ultimate owners of the companies are, therefore the need for a Beneficial Ownership Register. (Believe me using the words 'share register', 'owner' and 'Trust' in the same sentence, hurts my brain, because these concepts are so far apart it is not even funny, nevertheless the legislation is also applicable to Trusts and we will have to accept that).

The General Laws (Anti-Money Laundering and Combating Terrorism Financing) Amendment Act 22 of 2022 was enacted on 31 December 2022 which amended several pieces of legislation including:

•        Companies Act, No. 71 of 2008: Section 33 of the Companies Act was amended making it mandatory for all companies (whether affected or not) to submit Beneficial Ownership information. Several 'deadlines' were published by CIPC for the submission of the Beneficial Ownership information, but they eventually decided to make it part of the Annual Return submission process. So this will be something all companies have to do on an annual basis.

•       Trust Property Control Act 57 of 1988: Section 11A was added placing an obligation on trustees to submit Beneficial Ownership information to the Master. Since Trusts do not have to submit Annual Returns like companies, it is unclear whether this will become an annual process. However, the beneficial ownership register will have to be updated, should the particulars of the beneficial owners change.

It is important to note that the Beneficial Ownership Register is a repository of natural persons, who exercise control over legal entities. This submission is NOT about who the directors, members, trustees or beneficiaries are, but who the ultimate owners of the entity are. As already stated, the directors, members, trustees and beneficiaries are in many instances also the owners, but it is impossible for government to make this assumption without a register that states this as a fact.

The need for a Beneficial Ownership Register does bare the question, should CIPC and the Master not update their systems to incorporate this information when a company or a trust is registered, instead of creating a separate database that's duplicating a lot of information that is already on record? Of course not all ownership structures are simple and indicating who the ultimate owners are, might require something like an organisational chart, but then again, make that part of the registration process.

We can only hope to see this register being merged with the current database of companies and trusts, removing the need to submit the same information on an annual basis. It will make so much more sense if it only becomes mandatory to submit Beneficial Ownership Information, as and when the ownership or ownership structure of an entity changes.

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