Trustees, trust administrators, and accountants brace yourselves - 7 June 2023

After the 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, 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”. Although many believe that this is a government initiative, the media statement reminded all South Africans that South Africa is obliged, as a member of the Financial Action Task Force (FATF), to ensure that its regulatory environment is geared towards international standards in anti-money laundering and combating the financing of terrorism. The media statement reminds the public that a trustee convicted of any offence as a result of not acting in terms of the amended laws referred to below will 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. Before introducing these amendments, the TPCA had no prescribed penalties for non-compliance. At the same time, amendments to the Financial Intelligence Centre Act (the FIC Act) were promulgated, which impact all trust service providers providing these services as a “business”, whether you are an independent trustee, trust administrator, or accountant. Non-compliance with this Act can lead to hefty penalties, including a financial penalty of up to R 10 million for a natural person or up to R 50 million for a legal person, or imprisonment for a period not exceeding 15 years or a fine not exceeding R 100 million for more serious offences.

Don’t allow your ‘so-called’ adviser to deregister the trust

Everybody is “up in arms” about the new anti-money laundering and combatting of terrorist financing measures introduced which affect trusts. It is interesting to watch how many ‘so-called’ advisers see an opportunity to ‘make a quick buck’ by advising their clients to undo their trust structures, or out of complete ignorance themselves. The accounting and fiduciary industry has a responsibility to give (or obtain) the best advice for their clients and not, in a knee-jerk reaction to the new measures, blindly deregister trusts. Although, in some instances, estate planners were ill-advised to register trusts in the ‘old days’, trusts were generally registered as part of estate plans. It takes a lot of effort to properly structure a trust and to effectively move assets into a trust as part of an estate plan. It will certainly trigger a number of costs and taxes (let alone the undoing of an estate plan) to give ill-considered advice. Estate planners should not lose sight of the purpose for which a trust was set up. The benefit of having a trust as part of your estate plan will in most instances outweigh the extra layer of compliance costs as a result of the new measures. The following may serve as reminders of the reasons why estate planners may have been advised to register a trust. Do not undo your estate plan if it still makes sense to have a trust, but physically deregister the trust if it never served a purpose, as all trusts, whether dormant or not, fall under the same onerous measures, for which trustees may be fined and/or imprisoned.

Trustees are now required to capture “beneficial owner” details on the Master’s portal

The following were gazetted on Friday, 31 March 2023, 1 day before its effective date, leaving trustees and trust service providers with inadequate time to comply (and exposed to fines of up to R 10 million or 5 years imprisonment, or both):

1. The amended Regulations stipulating what is required from trustees in terms of the amended Trust Property Control Act, including which information is required to be kept up-to-date in relation to “accountable institutions” trustees deal with as well as “beneficial owners” (founders, trustees, and beneficiaries named in the trust deed) of trusts.
2. The effective date of the remaining new provisions in the Trust Property Control Act, which did not have an effective date, yet, was provided in terms of the Commencing of Certain Provisions of the General Laws (Anti-money Laundering and Combating Terrorism Financing) Amendment Act, 2022.

As the penalty clause in the new Section 19(2) of the Trust Property Control Act was also made effective as discussed above, trustees are now seriously exposed to the penalties alerted to above. All trustees (not just the independent trustee) and trust service providers should work closely together to meet these onerous obligations of trustees. Our Trusteeze digital system can populate the initial Excel spreadsheet submission and will alert the trust administrator of any changes made to the data, to allow them to submit an updated register to the Master, on an ongoing basis. Hopefully, the Master will improve their systems so Trusteeze can assist its clients to digitally submit all the required information in bulk rather than to do it manually per trust as currently required on their interim portal.

Fines given to trustees and trust service providers, an April fools’ joke? Act today 31 March 2023!

Even though measures were introduced by the government (silently on 22 December 2022) to strengthen South Africa’s anti-money laundering and terror financing legislation in an attempt to remain off the Financial Action Task Force (FATF) Greylist, after South Africa’s performed weakly on the measurement of the effectiveness of the implementation of the FATF recommendations (South Africa failed in all 11 effectiveness measures), few trustees and even trust service providers are aware how it directly impacts them and what is expected of them. Part of the remedial efforts included amending five laws key to the effectiveness of South Africa’s anti-money laundering /combatting of terrorist financing measures, the Financial Intelligence Centre Act, namely the Non-profit Organisations Act, the Trust Property Control Act, the Companies Act, and the Financial Sector Regulations Act. Of those, amendments to the Trust Property Control Act and the Financial Intelligence Centre Act are most relevant for trustees and trust service providers. Overnight, the landscape of trusts has changed, which added extra layers of compliance as well as exposure to risk, as non-compliance may lead to a fine not exceeding R 10 million or imprisonment not exceeding 5 years or both. Most of the amendments have an effective date of 1 April 2023; well for trustees as the Masters of the High Court are clearly not ready to receive and maintain digital registers as required of them. This imposes a higher risk for trustees (any one of them) and trust service providers, as authorities may have to knock on their doors to verify their compliance. Traditionally, huge reliance was placed by family trustees on the independent trustee (and even the trust service provider) in meeting trustee obligations. The amendments apply equally to all trustees and each and every trustee has to cooperate to remain compliant. Although the regulations determining what information is to be kept are not yet Gazetted, trustees are advised to work on the draft regulations issued on 13 January 2023.