Trusts and greylisting; when do trustees have to comply? 1 November 2023

After South Africa’s greylisting in February 2023 by the Financial Action Task Force (FATF), and the introduction of more stringent measures for trusts by the South African Revenue Service (SARS), the extent of the lack of South African trust compliance became apparent. Trustees, trust service providers, accountants, and tax practitioners are struggling to meet all the new requirements and often they have to catch up with historical non-compliance first. Although some believe that government’s perceived lack of action to get us off the greylist by the targeted January 2025, with only one (of two) years to go, can be interpreted that they will not enforce the new measures (with their punitive consequences for non-compliance) and that trustees and trust service providers are ‘off the hook’ so to speak, the Minister of Finance Enoch Godongwana reminded us in his Medium Term Budget Policy Statement delivered on 1 November 2023, that government expects to address all the deficiencies identified by the FATF by early 2025. It can only be deduced that the coming year will see government ‘pulling out all the stops’ to prove to the FATF that they have done enough for us to be removed from the grey list. As a country, there is no alternative for us but to work together, as the consequences of non-compliance will be too ghastly to contemplate.

Medium Term Budget Policy Statement

The minister indicated that the FATF noted at its plenary meeting towards the end of October 2023 that government’s work is showing positive results. Although South Africa has addressed 15 of the 20 technical deficiencies in its legal framework and has made good progress on 17 of the 22 effectiveness action items he, however, acknowledged that “there is also a significant amount of work that must still be done”.

Some of the relevant areas the FATF requires South Africa to address still:

• Improve risk-based supervision of designated non-financial businesses and professions such as lawyers, notaries, other independent legal professionals and accountants, and trust and company service providers. Many trust service providers who qualify as “accountable institutions” in terms of Schedule 1, item 2, of the Financial Intelligence Centre (FIC) Act have not yet registered as “accountable institutions” and comply with the requirements. They now have only about six months to register and become fully compliant or face huge penalties for non-compliance.
• Demonstrate that all anti-money laundering and counter-terrorism finance supervisors apply effective, proportionate, and effective sanctions for non-compliance. Although the South African Reserve Bank is conducting inspections at designated non-financial businesses and professions, more needs to be done.
• Ensure that competent authorities have timely access to accurate and up-to-date Beneficial Ownership information on legal persons and arrangements and apply sanctions for breaches of violations by legal persons to Beneficial Ownership obligations. Although this requirement is being addressed at a legislative level, implementation is still lacking. Although the South African Revenue Services (SARS) is one of the entities given access to the Master’s Beneficial Ownership Register in terms of the Regulations, they have introduced their own beneficial ownership reporting in the trust tax returns (from the February 2023 tax year). This is probably due to a lack of access to the Master’s information. This adds an extra compliance burden and costs to the submission of trust tax returns. 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 the Master was perceived as relatively quiet on this front, recent activity (discussed below) indicates that there is action on the way.
• Demonstrate a sustained increase in law enforcement agencies’ requests for financial intelligence from the FIC for its money laundering/terrorist financing investigations. To achieve this outcome, the FIC needs accountable institutions to provide useful reports, which are often lacking. The FIC has been tasked with establishing the required forensic capacity to analyse the information that it receives and assist other state institutions with investigations. 

The Master’s new measures

Government’s ongoing efforts to get us off the greylist is also noticed in the acting Chief Master’s Directive 8 of 2023, effective 16 October 2023, dealing with the Master’s duty to keep an electronic Beneficial Ownership Register. The directive reminds trustees that they are legally obliged to submit ‘beneficial ownership’ registers electronically on a platform provided by the Master. In April 2023, “given the urgency of the matter”, the Master introduced a temporary Google-based Beneficial Ownership Register for trusts. The industry complained about the usability and security of information on the temporary solution, which resulted in low compliance levels. The new system is a “web-based system that will enable trustees and other authorized parties to submit Trust Beneficial Owners details in a safe and secure environment”. The previously used Google form will therefore be decommissioned. The information already submitted on the Google form will be migrated by the Master to the new system. Any incorrect formats already submitted will have to be redone. Trustees and other authorised parties have to register on the new platform to submit and view data. A slightly amended Excel template is provided for upload.

The directive reminds trustees that the requirements apply to all trusts, “irrelevant of when and for what purpose it has been registered”. The real-time requirement for submission (unlike with companies) is enforced as it states that in the event of any change to the submitted information, a brand new, complete register needs to be submitted. The directive also reminds trustees that updated beneficial ownership information should be provided to SARS with the annual tax return and that it should correlate with the information submitted to the Master. Take note that SARS requires this information as at the end of February each year and the Master requires real-time information to be submitted, which may result in discrepancies to explain. No extension is provided to submit beneficial ownership information to the Master and the directive stresses that “all South Africans are required to provide records and reports on all information about beneficial owners as from 1 April 2023”. The directive states that trustees should submit information “within a reasonable time after the launching of the Master’s electronic BOR”. Trustees are reminded of the penalty for non-compliance (up to R 10 million and/or five years imprisonment). Trustees will be given 48 hours to comply in the event of non-compliance with the requirements to avoid the penalty to be activated.

Conclusion

Trustees have to become compliant as soon as possible and brace themselves for action by law enforcement agencies in 2024 in an attempt to get us off the greylist by January 2025.