Posted: March 15, 2023
The Minister of Trade, Industry and Competition invites interested parties to submit written comments on the draft regulations of the Companies Act 71 of 2008, as amended, relating to the establishment of a Beneficial Ownership Register.
The draft regulations were developed by the Department of Trade, Industry and Competition as a result of the General Laws (Anti-Money Laundering and Combating of Terrorism Financing) Amendment Act (Act No. 22 of 2022), intended to improve the regulatory framework in order to maintain the integrity of South Africa’s financial system. The regulations have been published for public comment in the Government Gazette and a summary of the provisions are available on the website of the Department.
The draft regulations would facilitate the implementation of a Beneficial Ownership register, to enable the Companies and Intellectual Property Commission (CIPC) to collect beneficial ownership information of legal persons.
The aim of establishing the Beneficial Ownership register is to have a repository/register of natural persons who own or exercise control over legal entities; to assist law enforcement with relevant information when it comes to their investigations of who the ultimate owners of an entity are; and to mitigate the risks identified in the national risk assessment where legal persons were identified as vehicles prone to abuse for money laundering and terror financing activities.
Interested parties should submit written comments on these draft amendments within 14(fourteen) days from the date of publication.
Information to Editors: The following Explanatory Note provides further details on the regulations published for comment.
Explanatory Note: Draft Regulations of the Companies Act 71 of 2008, as amended, relating to the establishment of a Beneficial Ownership Register.
The Companies and Intellectual Property Commission (CIPC), responsible for the development of the Beneficial Ownership register, has been participating in the mutual evaluation process conducted by the Financial Action Task Force (FATF). The purpose of the evaluation was to assess the country’s laws and measures in place that have been put to combat money-laundering and the financing of terrorism. The mutual evaluation process was then concluded and the mutual evaluation report was published in October 2021. The country as a jurisdiction was expected to take certain measures to address the deficiencies which were highlighted in the Mutual Evaluation report.
One of the eight (8) areas of strategic deficiencies identified by the Financial Action Task Force (FATF) requires South Africa to ensure that competent authorities have timely access to accurate and up-to-date Beneficial Ownership information on legal persons and arrangements and applying sanctions for breaches of violation by legal persons to beneficial ownership obligations.
The following were some of the key findings related to the reasons for developing a Beneficial Ownership register:
- There are serious international challenges in obtaining beneficial ownership information on companies, trusts and partnerships.
- The authorities rely primarily on obtaining beneficial ownership information from Accountable Institutions (AI’s), but the measures in place are not sufficient to ensure that AI’s are able to provide adequate, accurate, up-to-date, and verified beneficial ownership information in a timely manner.
- Where such information is available, it takes law enforcement agencies too long to obtain it.
- The measures which South Africa has put in place to promote transparency and beneficial ownership of legal persons and arrangements address only to a limited extent the main vulnerabilities that allow abuse of legal persons and trusts for money-laundering and the financing of terrorism.
- Competent authorities only have a general understanding that legal persons and trusts are exposed to money-laundering and the financing of terrorism but have not properly identified or assessed the specific vulnerabilities that lead to that exposure.
- Companies are abused for money laundering and used regularly to facilitate corruption in the awarding of government tenders and laundering of proceeds thereof.
- Company Service Providers, when selling and transferring shell companies to new ownership, are not subjected to anti-money laundering and counter terror financing measures.
- Not all Company Service Providers are Accountable Institutions which limits the availability of beneficial ownership information on companies.
- The authorities could not demonstrate that they applied effective, proportionate, and dissuasive sanctions for failure to comply with information requirements
Amendment to regulations
In light of the above, and the General Laws (Anti-Money Laundering and Combating of Terrorism Financing) Amendment Act (Act No. 22 of 2022), the Companies Act, Act 71 of 2008 as amended, needs to introduce legal provisions in support of the collection of beneficial ownership information and give the CIPC a mandate to request companies to file and update Beneficial Ownership information, as and when applicable.
The beneficial owner in respect of legal persons is defined as follows:
‘‘‘beneficial owner’, in respect of a company, means an individual who, directly or indirectly, ultimately owns that company or exercises effective control of that company, including through
(a) the holding of beneficial interests in the securities of that company;
(b) the exercise of, or control of the exercise of the voting rights associated with securities of that company;
(c) the exercise of, or control of the exercise of the right to appoint or remove members of the board of directors of that company;
(d) the holding of beneficial interests in the securities, or the ability to exercise control, including through a chain of ownership or control, of a holding company of that company;
(e) the ability to exercise control, including through a chain of ownership or control, of— (i) a juristic person other than a holding company of that company; (ii) a body of persons corporate or unincorporate; (iii) a person acting on behalf of a partnership; (iv) a person acting in pursuance of the provisions of a trust agreement; or
(f) the ability to otherwise materially influence the management of that company;’’.
Filing of Securities Register for Companies which are not affected companies as per Regulation 32.
A company which does not qualify as an affected company must file their securities register which should include beneficial interest holders of the securities of that company if they are held by one person for and on behalf of another. A securities register of a company which is not an affected company must also include information of its Beneficial Owners (Regulation 32 (3) (b)).
Filing of Securities Register for Companies which are affected companies as per Regulation 30A.
An affected company is defined as follows:
“‘affected company’ means a regulated company as set out in section 117(1)(i) and a private company that is controlled by or a subsidiary of a regulated company as a result of any circumstances contemplated in section 2(2)(a) or 3(1)(a)”
An affected company must file its securities register as prescribed in the regulations. The securities register must comply with the prescribed requirements.
State-Owned companies are considered “affected companies” and will be required to file a register of its beneficial owners, unless exempted by the Minister in terms of section 9(2) of the Companies Act.
Bongani Lukhele – Director: Media Relations
Tel: (012) 394 1643
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Issued by: The Department of Trade, Industry and Competition (the dtic)
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