Is a once-off Beneficial Ownership Register sufficient? 9 November 2023

After government promulgated onerous amendments to the Trust Property Control Act (TPCA) on 22 December 2022 (which were gazetted on 29 December 2022) and issued Regulations for its implementation on 31 March 2023, effective from 1 April 2023, trustees (often laypersons) are scrambling to comply with these new requirements. Well, that is true for those trustees who are aware of these new requirements. Those who are still not aware, and those who still believe government will (similar with the introduction of other new legislation) not enforce the new legislation, may be disillusioned soon, as they may be liable to a fine of up to R 10 million, or imprisonment for up to five years, or to both such fine and imprisonment. This hysteria caused several service providers to offer the ‘solution’ to have a once-off beneficial ownership register prepared for trustees, to ‘make a quick buck’. This is a huge disfavour they can do their clients, as the TPCA is clear – “a trustee must… ensure that the prescribed information… is kept up to date”. This hardly implies that a once-off exercise will ‘tick the box’. The requirement is a real-time one, expecting trustees to submit updated information to the Master of the High Court as and when it changes. To make things worse, trustees are legally obliged to keep much more information than what is reported on the beneficial ownership register that gets submitted to the Master in terms of the Regulations. So, these once-off beneficial ownership registers create a false sense of security and will expose trustees to the risk of attack, and expose the so-called professionals to reputational risk, as their clients would blame them for the fines due to non-compliance. In addition, 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”, a Financial Intelligence Centre (FIC) flavour requirement. Few so-called professionals offer this service, leaving trustees exposed. It appears that all trustees have to play a much more active role to ensure they do not get themselves into trouble.

Recent reminders by government

After the Regulations for the implementation of the changes to the TPCA were published on 31 March 2023, expecting compliance the very next day, Saturday, 1 April 2023, April Fools’ Day, the Department of Justice and Constitutional Development issued a media statement on 4 May 2023 reminding (informing) the public that these new measures have come into effect from 1 April 2023 with the heading “Increased measures for Trusts to combat money-laundering and terrorism financing crimes”.

The Chief Master issued Directive 8 of 2023, effective 16 October 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”. The real-time requirement for the submission (unlike with companies) is also enforced as it states that in the event of any change to the submitted information, a brand new, complete register needs to be submitted. 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 1 November 2023. He stressed that “there is also a significant amount of work that must still be done” to prove to the Financial Action Task Force (FATF) that enough is being done to remove South Africa from the greylist.

As many tax practitioners are struggling with the new, involved trust tax return, the South African Revenue Service (SARS) provided guidance on 31 August 2023, when they issued a communication titled “Clarification of certain matters pertaining to the completion of the trust income tax return (ITR12t)“. SARS confirmed that its aim is to record all beneficial owners of registered trusts to comply with the FATF requirements. Therefore, even though the Income Tax Act was not amended as part of the General Laws (Anti-Money Laundering and Combating Terrorism Financing) Amendment Act 22 of 2022 in December 2022, which amended five pieces of legislation, including the TPCA, dealing with the FATF measures, they also jumped on the bandwagon to collect (similar, but also different) information on beneficial ownership. Even though this may seem like a duplication of effort of government, as a single repository of information could have sufficed, trustees have to meet this obligation too. Trustees should be aware that SARS has been given access to the Master’s records, so they need to make sure that they consistently report the correct information to the different bodies – note the reconciliation required between the Master’s real-time information and the tax year-end (February each year) information to be provided to SARS.

What is actually required – what does ‘tick the box”?

Trustees are to keep a record of all the prescribed information in terms of the TPCA, the Regulations, and the SARS’s requirements. Firstly, trustees are to keep a multitude of information on beneficial owners, compared to an extract thereof that is to be reported on a real-time basis to the Master. Secondly, trustees have to meet two additional requirements that attract penalties for non-compliance, being the recording of their interactions with “accountable institutions”. A real-time “accountable institution” register should be maintained by the board of trustees and the trustees should inform the “accountable institution” concerned that they are acting in their capacities as trustees. Therefore, paperwork and systems to track that are imperative.

Will government ever enforce the new measures?

Even though many people believe that government will not enforce the new measures (similar to other pieces of legislation historically implemented), the media statement issued on 4 May 2023 reminded South Africans 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 – it will be evaluated again by the FATF (with potentially severe consequences for the country for non-compliance). It is not a domestic concern only, which may drift similarly to other pieces of legislation introduced. Tight deadlines exist. The Minister reminded us in his MTBPS that government expects to address all the deficiencies identified by the FATF by early 2025. With one of two years already passed, it can only be deduced that the coming year will see government ‘pulling out all the stops’ to prove to the FATF that they have done enough for us to be removed from the greylist.

Some of the relevant areas the FATF requires South Africa to still 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 effective, proportionate, and effective sanctions for non-compliance. So clearly a strong “FIC” flavour. It is therefore important for trustees to meet all requirements (not just a once-off beneficial ownership register) on a real-time basis, and not as a once-off exercise. All trustees should strive to have transparency of their compliance and have access to a central repository of information.