Although many are of the view that South Africa introduced more stringent measures for trusts and companies in the past year, out of free will, the opposite is true.
Worldwide, countries started implementing Beneficial Ownership Transparency (Bot) measures. According to a World Bank study, 70% of a selection of large corruption cases involved complex ownership structures designed to conceal the identity of individuals, of which 15% involved trusts. Internationally, it was found that trusts’ beneficial owners are often more challenging to identify compared to companies.
International bodies have, therefore, developed guiding principles for the Bot of trusts. The relevant ones for South Africa are the FATF (Financial Action Task Force) Recommendations (South Africa is a member of the FATF), and the Organisation for Economic Co-operation and Development’s (OECD) Common Reporting Standard (CRS) (South Africa is a signatory to the CRS), and the G20 High-Level Principles (South Africa is committed to the G20 High-Level Principles).
The reforms in South Africa (following international reforms) are here to stay. Even though it is perceived that the government might be slow to enforce legislation, especially legislation it is to implement itself, such as the Protection of Personal Information Act (Popia), it is not really the case. Even though Popia was signed into law in 2013, with many of its key provisions effective from only July 2020, and after companies were given an additional 12 months to ensure that their data processing operations aligned with Popia, it has effectively been in place since July 2021.
In July 2023, after it had been in operation for two years, the Information Regulator issued its first fine (R5 million) to the Department of Justice and Constitutional Development for failure to comply with Popia after it openly disregarded an order to renew licences for antivirus software (this is apparently been taken on review by the department).
Even though the Information Regulator has received more than 500 notifications of data violations to date, with little evidence of action, the Information Regulator indicated that more fines were to come. What is different with the greylisting measures is that an external body (the FATF) (not the government itself) will review South Africa’s compliance with the newly introduced greylisting measures, and the timeframe for the effective implementation by government is short – South Africa undertook that it would make sufficient progress in two years (from February 2023 when the country was greylisted) for it to be removed from the greylist by the FATF.
Even though one of the government’s eight strategic actions it undertook to resolve by January 2025 was to “ensure the effective implementation of targeted financial sanctions“, no evidence exists of any actions taken by it. Basically, the country has only 2024 left to prove itself.
A quick recap of what happened in 2023
The government promulgated onerous amendments to the Trust Property Control Act (TPCA) on December 22, 2022 (which were gazetted on December 29, 2022), issued regulations for its implementation on March 31, 2023, effective from April 1, 2023, and made available a temporary capability to upload “Beneficial Ownership” information onto the Master’s portal. The government managed to replace the temporary beneficial ownership register developed on a Google Docs platform with a permanent Beneficial Ownership register in October 2023.
Then, the Department of Justice and Constitutional Development issued a media statement on May 4, 2023 reminding (informing) the public that the new measures had come into effect from April 1, 2023 with the heading “Increased measures for Trusts to combat money-laundering and terrorism financing crimes”.
The Chief Master also issued Directive 8 of 2023, effective October 16, 2023, titled “Beneficial Ownership Register”, which reminds trustees that the requirements apply to all trusts, “irrelevant of when and for what purpose it has been registered”. No extension is provided to submit beneficial ownership information to the Master and it stresses that “all South Africans are required to provide records and reports on all information about beneficial owners as from 1 April 2023”.
The minister of finance, Enoch Godongwana, delivered his Medium-Term Budget Policy Statement (MTBPS) on November 1, 2023. He stressed that “there is also a significant amount of work that must still be done” to prove to the FATF that enough is being done to remove South Africa from the greylist.
The South African Revenue Service also jumped on the bandwagon with trusts. Sars provided guidance on August 31, 2023, when it issued a communication titled “Clarification of certain matters pertaining to the completion of the trust income tax return (ITR12t)“. Sars confirmed that its aim was to record all beneficial owners of registered trusts to comply with the FATF requirements.
Earlier this month, Justice and Correctional Services Minister Ronald Lamola, approved a welcome rescue plan for the Master’s Office, which has been plagued with backlogs and inefficient processes across the country. The rescue plan attempts to address various shortfalls in the Master’s administration of deceased estates, the setting up and liquidating of trusts, and managing the Guardian’s Fund.
What is included in the plan is the aim to address backlogs, improve digitisation (interesting the choice of words as digitisation only focuses on converting and recording data, while digitalisation is about developing processes and changing workflows to improve manual systems), increase capacity, ensure standardisation and transparency, and stop corruption in offices across the country.
What is to come in 2024?
Even though many people believe that the government will not enforce the new measures, the media statement issued by the department on May 4, 2023, reminded us that South Africa is obliged, as a member of the FATF, to ensure that its regulatory environment is geared towards international standards in anti-money laundering and combating the financing of terrorism. Non-compliance will have potentially severe consequences.
The minister reminded us in his MTBPS that the government expects to address all the deficiencies identified by the FATF by early 2025. With only one year left, it can only be deduced that the coming year will see the government “pulling out all the stops” to prove to the FATF that it has done enough for us to be removed from the greylist.
Some of the relevant areas the FATF requires South Africa to address include its focus on improving risk-based supervision of designated non-financial businesses and professions such as lawyers, notaries, other independent legal professionals and accountants, and trust and company service providers, ensuring that competent authorities have timely access to accurate and up-to-date beneficial ownership information on legal persons and arrangements, applying sanctions for breaches of violations by legal persons to beneficial ownership obligations, and demonstrating that all anti-money laundering and counter-terrorism finance supervisors apply proportionate and effective sanctions for non-compliance.
The warning for the issuing of fines (maximum of R10 million, imprisonment for up to five years, or both) was pretty clear. Beneficial ownership information is but one of the three new legal requirements of trustees attracting the aforementioned penalties for non-compliance.
The other two requirements require trustees to keep a real-time record of their interactions with “accountable institutions”. Trustees are warned about the implications of non-compliance during 2024. Trust service providers, including accountants, should educate and guide their trustee clients, who are often laypersons.
* Phia van der Spuy is a chartered accountant with a Master’s degree in tax and a registered fiduciary practitioner of South Africa, a chartered tax adviser, a trust and estate practitioner and the founder of Trusteeze, a digital trust solution.