Master’s call to action to have South Africa removed from greylist - 30 October 2024

Master’s call to action to have South Africa removed from greylist

When South Africa was greylisted by the Financial Action Task Force (FATF) in February 2023, many people believed that its damaging effect was already anticipated and largely priced in by the financial markets at that time and, therefore, did not present a significant further risk to the stability of the South African economy. From this statement, it is clear that the greylisting did, in fact, negatively affect the South African economy; the markets have just reacted earlier in anticipation of our greylisting. The consensus, however, is that should we not be removed from the greylist by early 2025, it will weigh heavily on our long-term economic prospects. It is, therefore, in all South Africans’ interests that South Africa be removed from the greylist as soon as possible.

Government has committed to resolving the eight strategic actions by January 2025 as motivation to be removed from the greylist. One of the actions was to ensure that competent authorities have timely access to accurate and up-to-date Beneficial Owner (BO) information on legal persons and arrangements and to apply sanctions for breaches of violation by legal persons to BO obligations. The Financial Action Task Force (FATF) Plenary on 25 October 2024 announced nine upgrades for South Africa from its 22-item Action Plan, including eight to “largely addressed” and one to “partly addressed”. South Africa is now deemed to largely or fully address 16 of the 22 action items in its Action Plan, leaving the country with six outstanding action items to be addressed for the last scheduled reporting cycle, concluding in February 2025. South Africa must address all six outstanding action items by February 2025. South Africa has one reporting cycle to address the remaining six action items. One of the action items relates to timely access to beneficial ownership information concerning companies and trusts. The interdepartmental committee also noted that the action item related to beneficial ownership registries is out of date as it was due in September 2024, as the coverage for both companies and trusts was assessed to be too low by the FATF Africa Joint Group in September 2024. It is, therefore, incumbent upon all companies and trusts to ensure they have registered accurate beneficial ownership information with the CIPC and Masters Office, respectively, in accordance with their legal obligations. National Treasury called upon all companies and professional trustee service providers to ensure registration by companies and trusts they engage (or involved) with before 30 November 2024, to significantly increase the coverage in beneficial ownership registries.

During the past eighteen months that the requirement exists for trustees to submit beneficial ownership registers to the Master, registers for only about 80,000 trusts have been submitted. Although the Master does not have an exact count of registered inter vivos trusts, they estimated the total number of trusts by adding the number of trusts registered at the 16 Master Offices. Each Master Office allocates a trust number (IT number) to each inter vivos trust and starts with trust number 1 each year. The estimated number of inter vivos trusts registered with the Master Offices is 620,000 inter vivos trusts. Given this number, our compliance rate is around 13%. However, this number includes those trusts that were deregistered with the Master. The Master did not record trusts that were deregistered by the trustees but would only acknowledge the deregistrations in writing and place them in the Master’s paper files of the trusts, which trusts would remain in the same filing order as the existing trusts. Therefore, an adjustment should be made to exclude these deregistered trusts to calculate the actual compliance rate, as they do not hold any Anti-Money Laundering/Countering The Financing Of Terrorism (AML/CFT) risks. Another factor may skew the compliance rate. Trustees are not obligated to deregister a trust if it remains inactive, which results in many trustees ‘abandoning’ trusts. These trusts are often referred to as ‘dormant’ trusts. Clearly, they also do not hold any AML/CFT risk and should be excluded from calculating the compliance rate to demonstrate actual risk. Many trustees are unaware that even though they may regard trusts as ‘dormant’, they are not excluded from the requirement to submit BO registers, and they are not exempt from submitting tax returns. Such trustees, therefore, remain exposed to a fine and/or imprisonment for non-compliance.

Getting a more accurate count of the total number of active trusts in South Africa that are open to money laundering and terrorist financing could easily be achieved through the following interventions:

• The Master cooperates with professional bodies and trust service providers to identify those trusts that were deregistered with the Master over the years, which are included in the 620,000 calculated number of trusts registered with the Master over the years. The Master has created a dedicated email, TerminatedTrust@justice.gov.za, on which a declaration can be made to the Master of those trusts that were deregistered in the past. When considering the 157,151 trusts that were terminated as taxpayers with the South African Revenue Service (SARS), it may be a good indication of how many of the 620,000 trusts were historically deregistered with the Master.
• The Master now allows a fast-track method to deregister trusts that were never activated; the so-called ‘dormant’ trusts. The Master created a dedicated email, DormantTrust@justice.gov.za, for trustees and trust service providers to provide information and documentation to deregister trusts. This is a positive initiative that may assist trustees who are struggling to have trusts deregistered with the Master. There is a drive to deregister such trusts, given the potential fines and/or imprisonment upon conviction of an offence in terms of the amended trust legislation and SARS’s drive to get all trusts registered and compliant. Trustees often ignore the fact that each trust must register as a taxpayer with SARS. With SARS’s focus on trusts, they plan to introduce penalties for late/non-submission of trust tax returns from April 2025. Therefore, it will be in the interests of trustees to deregister those trusts with the Master as soon as possible.

The Department of Justice and Constitutional Development issued a Media Statement on 17 September 2024 titled “Trustees not complying with the provisions of the amended Trust Property Control Act to face harsher punishment”. 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.

As a country, we are running out of time to meet our January 2025 compliance deadline. Therefore, the government is considering all kinds of interventions to improve the trust compliance rate before this date. The Master conducted a webinar “Unlocking Transparency: Paving the way for trust and accountability with our Trust Beneficial Ownership Register” on 29 October 2024 to discuss challenges and solutions. The recording will be made available on YouTube.

As responsible citizens, all trustees should participate in the drive to identify deregistered and dormant trusts as explained above and submit beneficial ownership registers to the Master through their online portal at https://icmsweb.justice.gov.za. A general dedicated beneficial owner assistance email will also be accessible from the Master’s Portal if trustees and trust service providers get stuck.

Trustees should seek professional advice and assistance to meet the new legislation requirements, as they remain exposed to fines and/or imprisonment. These requirements are here to stay. The FATF has already indicated that it will increase the frequency of reviews. South Africa should, therefore, remain focused on mitigating and responding to financial crimes such as money laundering and corruption.