Deadline for trustees to submit Beneficial Ownership information to the Master - 3 October 2024

Deadline for trustees to submit Beneficial Ownership information to the Master

While attending an inter-regional peer exchange on Beneficial Ownership Transparency and the Role of Trusts, organised by Open Ownership (OO), the United Nations Office on Drugs and Crime (UNODC), the Stolen Asset Recovery Initiative (StAR), hosted by the Namibian Ministry of Justice, it became clear that many countries are scrambling to improve their transparency measures for trusts. The Financial Action Task Force (FATF) sets international standards through its Regulations, specifically Regulation 25 for trusts. It became apparent at these sessions that there is a lack of understanding and uniformity in treating trusts in different jurisdictions. Everybody knows how we, as South Africans, struggled with the concept of a ‘beneficial owner’ in relation to a trust. It was recognised that there is a lack of maturity in beneficial ownership transparency reforms for trusts compared to legal entities such as companies. Many countries do not even have a register of trusts like the Masters’ Offices have in South Africa. In Southern Africa, South Africa and Namibia are leading with implementing beneficial ownership disclosure. Kenya in East Africa recently started regulating trusts and collecting beneficial ownership information. Although the 2018 Anti-Money Laundering (AML) Directive of the European Union required central registers of beneficial ownership for trusts, it recently adopted new AML legislation, including measures for disclosure of and access to beneficial ownership measures for trusts. Therefore, they are receiving increased focus worldwide due to trusts’ flexible and relatively misunderstood nature.

Back in South Africa, we are rushing against the clock to be removed from the greylist in early 2025. Many have felt the impact of our greylisting, including those trying to access international markets and funding resulting from increased scrutiny. Social and economic challenges are being experienced, which may hinder development and job creation. Remaining on the greylist may affect our reputation as a global financial and business centre. It is therefore in the country’s interest that we be removed from the greylist as soon as possible.

The Department of Justice and Constitutional Development issued a Media Statement on 17 September 2024 “Trustees not complying with the provisions of the amended Trust Property Control Act to face harsher punishment”. As a member of the FATF, South Africa must align its regulatory framework with international standards in anti-money laundering and combating financing of terrorism. The Trust Property Control Act was amended effective 1 April 2023 to address the shortcomings in beneficial ownership transparency in South Africa’s regulatory framework as guided by the FATF. In terms of the amendment, a trustee commits an offence if they fail to keep a record of their interactions with ‘accountable institutions’. They have to disclose to an ‘accountable institution’ that they act in their capacity as a trustee and not in their personal capacity, and they have to record the details of the ‘accountable institutions’ they deal with in an ‘accountable institution’ register. Although many believe that the list of ‘accountable institutions’ listed in a schedule to the Financial Intelligence Centre Act only includes a small list of banks and other similar institutions like in the old days, this list has been expanded to such an extent that trustees have to ask every third party they deal with whether they are an accountable institution. Trustees must also keep an up-to-date record of the beneficial ownership information and lodge a register of the beneficial ownership information with the Master.

The media statement notes that trustees have a low level of compliance with these provisions and that it will significantly impact South Africa’s likelihood of exiting the greylist by the January 2025 deadline. Currently, only about 66 000 trustees of inter vivos trusts have submitted their beneficial ownership registers – a compliance rate of about 10%. This rate is, however, skewed, as the Master does not keep track of the deregistered trusts. A number of registered trust are actually ‘dormant’/ never activated – those trusts do not pose a risk for money laundering and trustees are urged to immediately physically deregister these trusts with the Master. This percentage excludes testamentary trusts’s compliance. In a drive to improve the chance to exit the greylist in early 2025, the media statement set a deadline for filing the beneficial ownership registers with the Master by 15 November 2024. Few trustees and trust practitioners are aware of this deadline. The media statement reminds trustees that the law is already in operation and remains applicable with non-compliance penalties since 1 April 2023. A trustee who is convicted of any of the offences referred to above will be liable to a fine of up to R10 million or imprisonment for a period of up to five years or to both fine and imprisonment.

The media statement reminded trustees who do not comply with the new measures mentioned above will face harsher punishment if found guilty in a court of law. On 23 July 2024, the FIC also issued a media release. It stated that they are aware of DNFBPs who keep ignoring the FIC’s directives, which will assist in getting South Africa off the greylist. These institutions now face targeted inspections or targeted sanctions for their non-compliance. Administrative sanctions may be imposed on these businesses. The FIC has already issued fines to nine accountable institutions between R 20 000 and R 7.7 million.

The Master plans to launch a multi-pronged media campaign to urge trustees to comply voluntarily, as it is in all South Africans’ interests to cooperate in an attempt to be removed from the greylist. Trustees should not assume that their service providers will ensure they remain compliant. Trustees remain ultimately responsible for compliance and may face sanctions for non-compliance. Layperson trustees should seek the help of professional service providers who specialise in trust services to assist them with these onerous requirements.