Amendments to the Requirements for Beneficial Ownership and Beneficial Interest in Companies.

Jun 28, 2023 | News

  • On February 24, 2023, South Africa was added to the “grey list,” leading to potential impacts on its economic growth and global competitiveness. This designation was made by the Financial Action Task Force (FATF), an inter-governmental organization that sets international standards and promotes policies to combat money laundering, terrorist financing, and the financing of weapons proliferation.
  • South Africa has already begun taking measures to demonstrate its commitment to addressing these issues. The country is actively working to showcase its efforts in combating money laundering and terrorist financing to the FATF. By doing so, South Africa aims to alleviate the implications of being on the grey list and restore its reputation in the global financial system.
  • South Africa was put on the Grey List, due to South Africa’s 2021 Mutual Evaluation Report, revealing its inferior performance and institutional weaknesses, particularly in law enforcement, stemming from the state capture period in 2019. The evaluation found that South Africa was inadequately compliant with 20 of the FATF’s recommendations and had weaknesses in all 11 immediate outcomes.
  • In October 2021, South Africa entered a one-year observation period to address 67 Recommended Actions. During this time, the country made substantial progress, passing major Amendment Acts in 2022 and strengthening its institutions. A January 2023 assessment showed significant and positive progress, reducing the Recommended Actions to 8 strategic deficiencies that require further improvement.
  • As a result, South Africa was placed on the grey list while working on these remaining issues. Nonetheless, the FATF acknowledged the considerable progress made by South Africa since 2019.
  • When a country is placed on the grey list, the most significant implication is the damage to its reputation due to perceived inadequacy in combating financial crimes like corruption, money laundering, and terrorist financing, falling below international standards. This can have a negative impact on the country’s global image.
  • Another implication arises from actions taken regarding cross-border transactions, especially by foreign banks providing correspondent banking services. These banks may impose additional scrutiny or restrictions on transactions involving the grey listed country, affecting its international financial relationships.
  • As one of the measures to combat the inefficiencies and to remediate the position, South Africa enacted “The General Laws Amendment (Anti-Money Laundering and Combating Terrorism Financing Amendment) Act 22 of 2022″(“the Act”) which was written into law in December 2022 and promulgated on 1 April 2023.

The Act has amended several existing Acts, including the:

  • Companies Act 71 of 2008 (“The Companies Act”),
  • Trust Property Control Act, Act 57 of 1988 (“Trust Property Control Act”),
  • Non-profit Organisation Act, Act 71 of 1997 (“Non-Profit Organisation Act”), and
  • the Financial Intelligence Centre Act, Act 38 of 2001 (“Financial Intelligence Centre Act).
  • By amending the Companies Act, the Act mandated the Companies and Intellectual Property Commission (CIPC) to establish a Beneficial Ownership Register. Such register became functional on the CIPC e-services platform on 1 April 2023.
  • The amendments to the Companies Act, introduce several measures to ensure better transparency and compliance within companies in the following manner:
  • The Act has amended the Companies Act, in relation to beneficial ownership and has given CIPC a mandate to request Companies to file updated beneficial ownership information, as and when applicable.
  • The Act requires companies to maintain records of individuals who own or control the Company, according to the definition of beneficial owner. This definition will be more fully dealt with below, under the “Guidance Note”. The Act has also established specific timelines, for updating this information when changes occur to a beneficial owner of a Company.
  • Companies are obligated to file a record with CIPC, disclosing the natural persons who own or control the Company, as per the definition of beneficial owner.
  • The Act prohibits individuals convicted of money laundering, terrorist financing, or proliferation financing offences, as well as those subject to United Nations Security Council resolutions, from serving as Company directors.
  • In addition, the Act stipulates that financial institutions, key personnel, representatives, or contractors must comply with regulatory directives issued by the regulator in accordance with Part 2 of Chapter 10 of the Financial Sector Regulation Act of 2017.
  • Lastly, the Act introduces a new chapter specifically incorporating beneficial owners under the Financial Sector Regulation Act, Act 7 of 2017 including but not limited to, defining the term beneficial owner, and granting the power to establish standards and regulatory directives concerning beneficial owners, along with related matters.
  • On the 29th of May 2023, Advocate Rory W. Voller the Commissioner of CIPC, issued a Guidance Note titled “Guidance Note 2 of 2023″ pertaining to beneficial ownership filing requirements (‘Guidance Note”). This Guidance Note was issued to give effect and provide guidance on filing of beneficial owner information as required by the Act. The Act, as indicated above, amended the Companies Act and has given CIPC a mandate, to request companies to file and update Beneficial Owner information.
  • Beneficial owner is defined as follows:
  • “For a Company, it refers to an individual who directly or indirectly owns the Company or exercises effective control over it, including:
  • Holding beneficial interests in the Company’s securities,
  • Controlling voting rights associated with the securities,
  • Appointing or removing board members,
  • Holding beneficial interests in securities of a Holding Company, including through a chain of ownership or control of a Holding Company and
  • Having control, including the exercise of control through a chain ownership or control over other juristic persons (other than a Holding Company of the Company) corporate or unincorporate bodies, partnerships, or trusts that can influence the management of the Company.
  • It is important to note that a threshold of 5% ownership and/or control is applicable for all entities obligated to submit beneficial ownership information to CIPC.
  • The  Companies Amendments Regulations 2023 (” The Regulations”) has been published and came into effect on 24 May 2023, as a result of the Act being enacted, which incorporates disclosure and verification requirement provisions, relating to CIPC ‘s and other  Regulatory Agencies powers, to make enquiries and obtain verifications of and concerning companies registered with it, as well as verifying company’s founding documents set out hereunder:
  • Regulation 5 of the Regulations, provide CIPC with a mandate, to verify information that has been filed with it, including but not limited to: –
  • The name and registration number of the Company or External Company,
  • The legal type and status of the Company and/or External Company,
  • The address of the registered office of the Company and/or External Company,
  • The memorandum of incorporation or other similar constitutional or founding documents of the Company and /or External Company, and
  • A list of all the directors’ full names together with identity numbers (if South African) or passport numbers, country of issue (if non-South African and where country of issue and country of birth differ), the Company or External Company.
  • Regulation 5 of the Regulations, further requires CIPC, to keep proper files and records of the information and documents that have been listed above and such records must be kept in an electronic format and the CIPC must provide adequate precautions against loss of the records as a result of damage to or failure of, the media on which the records are kept and such records must be brought up to date, as and when a compliant notice of change, to any of the information listed above of in relation to a Company, is received and processed by the CIPC.
  • Regulation 5 of the Regulations, further makes provision for a  “Regulatory Agency” (comprising of the CIPC, the Panel, or the Companies Tribunal) appointed or designated in terms of Regulation 167) to require at any time, the verification of any information and any documentation filed with it, and may for such purposes require a Company or External Company who filed, or the person seeking to file information or request from companies certified copies of any document retained and may further require written confirmation signed by such person, or an authorised representative of a Company or External Company that the documentation or the information disclosed to the Regulatory Agency at the time of the filing is truthful and complete and may, in addition, require such other supporting information or documentation to verify the information and/or documentation filed or to be filed with the Regulatory Agencies.
  • Regulation 32 deals with the filing of a Company’s securities register, for companies which are not classified as Affected Companies, who must include within its securities register to be filed with the CIPC the following information:
  • A record of all such disclosures, including the following information for any securities in respect of which a disclosure was made:
  • The name and unique identifying number of the registered holder of the securities,
  • The number, class and in the case of a certificated securities, the distinguishing numbers of the security, and
  • For each person who holds a beneficial interest in the securities, the extent of the person’s interest in the securities, together with that person’s name and unique identifying number, business, residential or postal address, email address if available,
  • A record of each beneficial owner of the Company, including the following information of such beneficial owner:
  • The full name, date of birth, identity number (if South African) or passport number and date of birth (if non-South African),
  • Residential and postal address,
  • Email address if available, unless the person has declined to provide an email address,
  • Confirmation as to the scope of participation in and extent of ownership, or effective control of, the Company.
  • The securities register must be kept up to date and
  • A Company must soon as practical, but not later than 10 business days update any change to its information that it has received, within its securities register, and
  • A Company that does not fall within the meaning of an Affected Company must as soon as practical, but not later than 10 business days after receipt of any notification, as to the change of information listed under sub regulation 3, in its securities register, update its securities register to reflect the changes to such information.
  • Regulation 32A deals with an Affected Company’s Register, classified as disclosure of beneficial interest. An Affected Company is defined as a regulated Company, set out in section 117 (1) (i) of the Companies Act. A regulated Company, in turn means a Company to which this part, part C of chapter 5 and the Takeover Regulations apply, as determined in accordance with section 118 (1) and (2) of the Companies Act.

An Affected Company’s register, of its disclosure of its beneficial interest, must comprise of the following:

  • An Affected Company must establish and maintain a register of persons who hold beneficial interest equal to or in excess of 5 % of the total number of securities of that class of securities, issued by the Company, which register must be in one of the official languages of the Republic of South Africa and must record the following information regarding each such person:
  • If natural person is South African, their full name, date of birth and identity number is required. If natural person is a non-South African, their passport number, passport country of issue, and country of birth is required,
  • If the Affected Company is a juristic person, the full name and registration number of the juristic person as well as its business address and email address if available and,
  • Confirmation as to the participation and extent of the person’s beneficial interest in the total number of issued securities of that class, whether directly or indirectly, ownership of a Company or exercising effective control of such Company,
  • The above register of an Affected Company must be kept up to date and an Affected Company must as soon as practical, but not later than 10 business days of any notification, pursuant to section 122 (1) of the Act, effect any changes within its register of the disclosure of its beneficial interest, update that register to reflect the changes to such information.
  • The register of the disclosure of beneficial interest is required to be kept by an Affected Company under the Act. It must be kept in such a manner to provide indexed access to all relevant entries for any one person, to provide adequate precautions against theft, loss or intentional or accidental damage or destruction and falsification, and to facilitate the discovery of any falsification,
  • If  an Affected Company’s register of its disclosure of  beneficial interest, is kept in electronic form, the Affected Company must provide adequate precautions against loss of the records, as a result of damage to, or failure of the media on which the records are kept and ensure that the records are at all times capable of being retrieved to a readable and printable form, including by converting the records from legacy to later systems, storage media or software to the extent necessary from time to time,
  • Insofar as the identity number and email address of a person being entered into such a register, such information may at the instance of the Affected Company be regarded as confidential,
  • Any entry, in the register of disclosure of beneficial interest, pertaining to a person, who has ceased to hold beneficial interests equal to or in excess of 5% of the total number of securities of that class of securities issued by the Affected Company, may be disposed of 7 years after that person, last held such beneficial interest, in the securities of that Affected Company.
  • Regulation 32B provides for, notification to the CIPC, for change to beneficial owners within a securities register. A Company that does not fall within the meaning of an Affected Company, must file with the CIPC, the applicable CoR Form together with a copy of its securities register in such form and manner as prescribed by the CIPC, within 10 business days after updating its securities register in accordance with Regulation 32 (3A).
  • Regulation 121A provides for, notification to the CIPC, by an Affected Company. Should the information contained in the beneficial register of an Affected Company change, such Affected Company, must update the beneficial register to reflect such changes as soon as practical, but not later than 10 business days of the receipt by the Affected Company of any notification pursuant to section 122 (1) of the Act. Upon receipt the aforesaid notice, the Affected Company is obliged to notify CIPC by filing with CIPC, a certified copy of the notice received, pursuant to section 122 (1) of the Act,  the completed applicable CoR Form and a certified copy of the Company’s register of the disclosure of beneficial interest, within 10 business days after updating its register of the its disclosure of beneficial interest.
  • Examples of entities, which are not required to file a register of its beneficial owners/ beneficial interest holders with the CIPC comprises of:
  • Affected Companies listed on a local stock exchange, if such information is already kept at such stock exchange,
  • or at any institution who has the authority of collecting and keeping such records (this will also apply to entities related (i.e.) a subsidiary, or an entity controlled by the affected company in question).
  • Filing requirements for non-profit companies, with CIPC, will require such companies together with its members, to file a register containing details of their members. In line with the definition of beneficial owner, persons, who exercise effective control of a non-profit company, must be included with such filing.
  • Transitional arrangements with regards to the filing of beneficial ownership of exercising companies require that from the 24th of May 2023 onwards, entities incorporated after this date must file their beneficial ownership records within 10 days of incorporation.
  • Entities incorporated before the 24th of May 2023, will need to include within their securities register or beneficial interest register, depending on whether they are Affected or Non-Affected Companies with their Annual Returns filing process. This requirement is also effective from 24th of May 2023.
  • Non-compliance with the provisions regarding the beneficial ownership register and beneficial interest register is considered an offence under the Companies Act. In cases of non-compliance, a compliance notice may be issued, and an administrative penalty may be imposed.
  • To facilitate the filing of beneficial ownership information, the website www.cipc.co.za offers e-services where the information can be submitted, coupled with additional guidance on how to complete the filing process.

The Trust Property Control Act was amended to introduce a new reporting obligation for trustees to keep up-to-date records of the beneficial ownership of trusts and to submit that information to the Master of the High Court. The trustees now have the responsibility to ensure they maintain comprehensive records regarding the beneficial ownership of trusts.

Beneficial Ownership is defined to include:

  • Settlors,
  • Trustees,
  • Named beneficiaries, and
  • Individuals who have effective control over a trust.
  • If a juristic entity is the beneficial owner, it will be necessary to supply as beneficial owners, the individuals who ultimately benefit from the entity as beneficial owners of the trust.
  • The obligation falls on the trustees, to ensure they record the beneficial ownership data via the portal of the Master of the High Court (https://www.justice.gov.za/master/trust.html). They can, however, appoint a trust administrator to upload the data on their behalf through a Power of Attorney.
  • Trusts and trustees have additional obligations that must be fulfilled:
  • If a trustee receives funds, they are required to deposit such funds, into a separate trust account at a bank. This requirement is typically met by opening a dedicated bank account for the trust,
  • Trustees are required to disclose their role as a trustee to any “accountable institution” that the trust interacts with. Further to this, they are required to inform the institution that their relationship with the trustee involves trust property and that the trustee acts as a representative of the trust,
  • Accountable institutions are entities that must comply with the Financial Intelligence Centre Act, which include banks, foreign exchange dealers, insurers, brokers, and other financial service providers,
  • Additionally, the trustee is obligated to keep accurate records of the accountable institutions that carry out any duties related to the trust property.
  • It is crucial to note that the Act introduces penalties for trustees, who fail to comply with these obligations. Penalties may include fines of up to R10 million, imprisonment for up to 5 years, or a combination of both.

Article by:

Jodi Poswelletski  – A Director in the Corporate Department of Fairbridges Wertheim Becker Attorneys.

and

Bernard Joffe – A consultant in the Corporate Department of Fairbridges Wertheim Becker Attorneys.