Transparency and Beneficial Ownership – Legal Entities and Legal Arrangements

Filing of Beneficial Ownership information is required by the General Laws (Anti-Money Laundering and Combating Terrorism Financing) Amendment Act 22 of 2022. The Act amended the Companies Act and gave the Commission (CIPC) a mandate to request companies to file and update Beneficial Ownership information. The Minister of Trade, Industry and Competition together with the Companies and Intellectual Property Commission (CIPC) have published Companies Amendment Regulations under Government Notice 48648 on the 24th of May 2023.

These amendments include the definition of a beneficial owner which is an individual who ultimately owns or controls a company, either directly or indirectly. This can involve owning shares, controlling voting rights, appointing or removing board members, or exercising control over a holding company. Additionally, a beneficial owner may control other connected entities or persons, or materially influence the company’s management through other means.

The Financial Action Task Force (FATF) is a global organisation that takes the lead in combating money laundering, financing terrorism, and proliferation financing. It conducts research on money laundering and terrorism funding, encourages the adoption of international standards to mitigate risks, and evaluates countries’ efforts to ensure effective action against these illicit activities.

Sources and relevant legislation

G-20 Anti-Corruption Working Group Guide
SARS.GOV.ZA
CIPC.CO.ZA
FATF-GAFI.ORG

Financial Intelligence Centre (FIC) Act
General Laws (Anti-Money Laundering and Combating Terrorism Financing) Amendment Act
Companies Act
Taxation Laws Amendment Act
Income Tax Act
Capital Gains Tax
Dividends Tax
Securities Transfer Tax Act
CRS Regulations under the Tax Administration Act
Government Gazette 48648 on the 24th of May 2023 (Companies Amendment Regulations)

As can be seen above, beneficial ownership is directly related to taxation therefore the reason for this article.

Filing requirements for beneficial ownership register

Companies are advised to file their Beneficial Ownership information to the CIPC by 1 October 2023.

The following documents are required documents when filing your Register of Beneficial Owners:

Ordinary Resolution – Lodgement of Beneficial Ownership
Register of Beneficial Ownership
Register of Share Member Accounts
Certified ID’s

Failure to comply with the provisions relating to the beneficial ownership register requirements is an offense in terms of the Companies Act. A compliance notice may be issued in cases of non-compliance and an administrative penalty may be imposed.

The beneficial ownership in respect of legal persons is defined as follows:

‘beneficial ownership’, in respect of a company, means an individual who, directly or indirectly, ultimately owns that company or exercises effective control of that company, including through:

(a) the holding of beneficial interests in the securities of that company;
(b) the exercise of, or control of the exercise of the voting rights associated with securities of that company;
(c) the exercise of, or control of the exercise of the right to appoint or remove members of the board of directors of that company;
(d) 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;
(e) the ability to exercise control, including through a chain of ownership or control, of –
(i) a juristic person other than a holding company of that company;
(ii) a body of persons corporate or unincorporate;
(iii) a person acting on behalf of a partnership;
(iv) a person acting in pursuance of the provisions of a trust agreement; or
(f) the ability to otherwise materially influence the management of that company.

A threshold of 5% of ownership and/or control will be applicable for all entities required to file Beneficial Ownership Information.

Corporate vehicles such as companies, trusts, foundations, partnerships, and other types of legal persons and arrangements—conduct a wide variety of commercial and entrepreneurial activities. However, despite the essential and legitimate role that corporate vehicles play in the global economy, under certain conditions, they have been misused for illicit purposes, including money laundering (ML), bribery and corruption, insider dealings, tax fraud, terrorist financing (TF), and other illegal activities. This is because, for criminals trying to circumvent anti-money laundering (AML) and counter-terrorist financing (CFT) measures, corporate vehicles are an attractive way to disguise and convert the proceeds of crime before introducing them into the financial system.

The misuse of corporate vehicles could be significantly reduced if information regarding both the legal owner and the beneficial owner, the source of the corporate vehicle’s assets, and its activities were readily available to the authorities. Legal and beneficial ownership information can assist law enforcement and other competent authorities by identifying those natural persons who may be responsible for the underlying activity of concern, or who may have relevant information to further an investigation. This allows the authorities to “follow the money” in financial investigations involving suspect accounts/assets held by corporate vehicles. In particular, beneficial ownership information can also help locate a given person’s assets within a jurisdiction. However, countries face significant challenges when implementing measures to ensure the timely availability of accurate beneficial owner information. This is particularly challenging when it involves legal persons and legal arrangements spread across multiple jurisdictions.

The Financial Action Task Force (FATF) has established standards on transparency, so as to deter and prevent the misuse of corporate vehicles. The FATF Recommendations require countries to ensure that adequate, accurate, and timely information on the beneficial ownership of corporate vehicles is available and can be accessed by the competent authorities in a timely fashion. To the extent that such information is made available, it may help financial institutions (FIs) and designated non-financial businesses and professions (DNFBPs) to implement the customer due diligence (CDD) requirements on corporate vehicles including identify the beneficial owner, identify and manage ML/TF risks, and implement AML/CFT controls based on those risks (including suspicious activity reporting and sanctions requirements).

Transitional Arrangements with regard to the filing of Beneficial Ownership of existing companies.

Entities incorporated on and after the 24th of May 2023 will be required to file the records of their beneficial owner within 10 days after such incorporation. Entities incorporated before the 24th of May 2023 will have to file their Securities Register or Beneficial Interest Register (whichever is applicable to the entity in line with whether it’s an Affected or Not an Affected entity) as part of its Annual Returns filing process from 24 May 2023 which is the date of publication of the final Amended Companies Regulations.

All beneficial ownership information must be collated in a register that provides indexed access to all relevant entries for any one person. In addition, the information must be treated as confidential and adequate precautions must be made against theft, loss, damage, destruction, and falsification.

This register must then be kept up to date, with changes updated with CIPC as soon as practical, but no later than 10 business days after notification.

This register must be lodged with CIPC through an online process detailed in a 16-page Guide, along with a list of supporting documents that must be uploaded. An updated register must also be submitted with the Annual Returns each year.

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