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.

Are you impacted by the TPCA, the FIC Act or both?

There seems to be confusion about the extent to which independent trustees, trust administrators, and accountants are impacted by the legislation changes promulgated in December 2022. The General Laws Amendment Act amended the TPCA, the FIC Act, the Companies Act, Financial Sector Regulation Act, and the Nonprofit Organisations Act. Although everyone focuses on the “beneficial owner” measures introduced into the TPCA, two of the new provisions introduced into the TPCA expect trustees to have knowledge of who are “accountable institutions” in terms of the FIC Act and to act as required. They have to keep a record of this extensive list of “accountable institutions” they deal with in their capacities as trustees and keep paperwork of their interactions with them. The list of “accountable institutions” certainly includes many more than just the banks that traditionally ‘fica’ us, and now includes a wide range of designated non-financial businesses and professions (DNFBPs) that may facilitate money laundering such as those who sell any items to the value of R 100 000 or more to anyone and payment is made in any form, certain credit providers, estate agents, etc. When trustees deal with third parties, one of the first questions they now have to ask is whether the person or entity is an “accountable institution” so that they can meet the requirements in terms of the new provisions in the TPCA. Clearly, this requires educating layperson trustees about the extensive list of “accountable institutions” as well as their new obligations.

Similarly, new provisions of the FIC Act have been introduced. Independent trustees, trust administrators, and accountants are regarded as DNFBPs in terms of Schedule 1, item 2 of the FIC Act. Trust service providers impacted by these provisions have to specifically register as “accountable institutions” under this item, regardless of whether they are also registered under any other item on this Schedule (therefore registration is compulsory per item of service provided). On 6 June 2023, the FIC held a webinar titled “Registration, RBA & FICA Obligations For Accountants”, clearing up any misconceptions and making it clear that accountants are also included as trust and company service providers in terms of Schedule 1, item 2 of the FIC Act. They emphasised the registration process on their portal, item 2, a risk-based approach (RBA), and the regulatory obligations for accountants in terms of the FIC Act. According to a media statement released by the FIC on 30 November 2022: “In the first 18 months from the date of commencement of the amendments, the FIC and supervisory bodies will focus on entrenching [FICA] risk and compliance provisions and implementation among the new sectors in Schedule 1 to the FIC Act. Supervisory bodies will conduct inspections and, where warranted, issue remedial administrative sanctions, based on a risk-based approach, to correct identified areas of non-compliance. In respect of the new sectors, the FIC and supervisory bodies do not envisage issuing financial penalties for non-compliance with [FICA] during the transitional 18-month period.” This, however, does not mean that impacted service providers do not have to start meeting the requirements in terms of this Act. In fact, apart from the requirement to register as an “accountable institution”, affected service providers had to submit a risk and compliance return by 31 May 2023 in terms of Directive 6, which served to inform all accountable institutions that are DNFBPs listed in items 1, 2, 3 and 9 of Schedule 1 to the FIC Act that they must submit information regarding their understanding of money laundering, terrorist financing and proliferation financing risks. They also had to provide their assessment of compliance with obligations in terms of the FIC Act.

Getting off the greylist is a team effort of both government and the industry (all South Africans!)

Many affected service providers do not take the new measures seriously, relying on the government’s inability to police the new measures. Most service providers are also worried about the security of information uploaded onto the Master’s portal, given that the Master‘s temporary solution provided is Google Docs, and advise their clients not to load the required information (or even unilaterally decide not to load it). The media statement published on 4 May 2023 specifically warns trustees of the fines that may be imposed. It is, therefore, good practice to advise the board of trustees about the risks, and for them to decide whether they are prepared to take the risk of non-compliance. It would be reckless to advise trustees not to comply with the law. All trust service providers and their professional bodies should rather demand the Master to meet its requirements as envisaged in the regulations published on 31 March 2023, specifically regulation 3D requiring the Master to provide an electronic register that provides for “adequate security measures for the protection of the information contained in the register” (3D(c)) and for “a trustee to only have access to the information that the trustee has lodged and the documents that the trustee has uploaded on the electronic register” (3D(g)). It does not appear if the current (temporary) solution provided by government meets these legal obligations imposed upon them by themselves. Getting off the greylist is a team effort and requires full government and industry cooperation. The legislation changes did not impose a one-sided obligation, allowing the non-cooperating party to hold the stick.