The Financial Intelligence Centre Act and trust service providers - 11 April 2023

Trustees and trust service providers have recently been exposed to numerous new far-reaching measures in an attempt by the government to demonstrate its effectiveness in managing money laundering and terrorist financing in South Africa (initially to avoid greylisting by the Financial Action Task Force (FATF). As an example, the General Laws (Anti-Money Laundering and Combatting Terrorism Financing) Amendment Act 22 of 2022 was promulgated on 29 December 2022, amending the Financial Intelligence Centre Act, the Non-profit Organisations Act, the Trust Property Control Act, the Companies Act, and the Financial Sector Regulations Act. Although a lot of focus is currently placed on trustees’ obligations to maintain and report “beneficial owners” information to the Master of the High Court, equally onerous new obligations are placed on trust service providers in terms of the Financial Intelligence Centre Act, which was also amended on 29 December 2022.

Financial Intelligence Centre Act 38 of 2001, as amended

This Act was introduced to fight financial crime, such as money laundering, tax evasion, and terrorist financing activities, and came into effect on the 1st of July 2003. In 2017 the Financial Intelligence Centre Amendment Act introduced a legal definition of “beneficial owner” as “in respect of a legal person, means a natural person who, independently or together with another person, directly or indirectly (a) owns the legal person; or (b) exercises effective control of the legal person”. It defined a “legal person” as “any person, other than a natural person, that establishes a business relationship or enters into a single transaction, with an accountable institution, and includes a person incorporated as a company, close corporation, foreign company or any other form of corporate arrangement or association, but excludes a trust”. It further defined a “trust” as “a trust defined in section 1 of the Trust Property Control Act, 1988 (Act No. 57 of 1988), other than a trust established by virtue of a testamentary disposition, by virtue of a court order, in respect of persons under curatorship, or by the trustees of a retirement fund in respect of benefits payable to the beneficiaries of that retirement fund, and includes a similar arrangement established outside the Republic”.

If a trustee entered into a single transaction or established a “business relationship” with an “accountable institution”, it must, in accordance with its Risk Management and Compliance Programme, establish and verify the identity of the client or its representative. If a business relationship is established, the “accountable institution” must, also in accordance with its Risk Management and Compliance Programme, establish the identifying name and number of the trust, establish the address of the Master of the High Court where the trust is registered, and establish the identity of the founder; each trustee and each natural person who purports to be authorised to enter into a single transaction or establish a business enter into enters into a relationship with the “accountable institution” on behalf of the trust; each beneficiary referred to by name in the trust deed or other founding instrument in terms of which the trust is created and if beneficiaries are not referred to by name in the trust deed or other founding instrument in terms of which the trust is created, the particulars of how the beneficiaries of the trust are determined. The “accountable institution” is required to take reasonable steps to verify these particulars and identities of such natural persons, so that the “accountable institution” is satisfied that it knows the identities of the natural persons concerned. It seems as if these measures only contemplated natural person founders, trustees and beneficiaries, as it also referred to “a trust agreement between natural persons”.

The General Laws (Anti-Money Laundering and Combatting Terrorism Financing) Amendment Act 22 of 2022, promulgated on 29 December 2022, introduced new requirements for information to be obtained and verified in terms of the amended Financial Intelligence Centre Act, in alignment with the new definition of “beneficial owner” in the Trust Property Control Act. Again the “accountable institution” has to take reasonable steps to verify the particulars identities of such natural persons so obtained. The term “reasonable” was not defined so it is not clear how far accountable institutions should go and whether their efforts should be at all cost.

Are trust service providers “accountable institutions”?

In the Financial Intelligence Centre Act (“Act”), the definition dealing with trust service providers (item 2 in the Schedule) has also been amended as follows: A “board of executors or a trust company or any other person that invests, keeps in safe custody, controls or administers trust property within the meaning of the Trust Property Control Act, 1988 (Act 57 of 1988)” has been replaced with

“…(c) A person who carries on the business of creating a trust arrangement for a client.
(d) A person who carries on the business of preparing for or carrying out transactions (including as a trustee) related to the investment, safe keeping, control or administering of trust property within the meaning of the Trust Property Control Act, 1988 (Act 57 of 1988).”

The first part of the definition under (d) is confusing, as it is not clear what is intended with “preparing for or carrying out transactions”. Is the Financial Intelligence Centre (FIC) referring to someone who prepares or executes transactions for the board of trustees (who may also be acting as the independent trustee), such as a trust service provider, or does it also include a person who only serves as independent trustee with their co-trustees and who may not be in the business of “of preparing for or carrying out transactions”. Clarity was sought from the FIC and an answer is awaited.

The persons envisaged in this item are obliged to register with the FIC as “accountable institutions”. They have to be registered with the FIC as such for all items in which they conduct business, even though their system only allows for one registration per user at this point (a system glitch). All these newly identified “accountable institutions” had 90 days since 19 December 2022 to register. The deadline for registration was therefore 20 March 2023, but was extended until 31 March 2023.

The independent trustees and/or trust service providers will have to comply with the duties of “accountable institutions” as set out in Chapter 3 of the Act. These regulatory obligations include implementing customer identification and verification processes; conducting customer due diligence; appointing a compliance officer; training employees on the Act compliance; undertaking business risk assessments; and maintaining and implementing a risk management and compliance program.