What, the FIC, is beneficial ownership?

In terms of section 21B of the Financial Intelligence Centre Act 38 of 2001 (“FICA”), as amended by the General Laws (Anti-Money Laundering and Combating Terrorism Financing) Amendment Act 22 of 2022, accountable institutions are required to establish the ownership and control structure of clients that are legal persons, trusts and partnerships.

In a nutshell, the beneficial owner of a client is the natural person who directly or indirectly ultimately owns or exercises effective control of the client, or a legal person, partnership or trust that owns or exercises effective control of, as the case may be, the client, or exercises control of the client, on whose behalf a transaction is being conducted.

The Financial Intelligence Centre (“FIC”), South Africa’s anti-money laundering watchdog, on 8 August 2024, published Public Compliance Guideline 59 (“PCC59”) providing guidance as to how accountable institutions should establish the beneficial ownership of clients who are legal persons, trusts or partnership.

According to PCC59, accountable institutions must have evidence that they took reasonable steps to establish and verify the identities of beneficial owners.

Determining who the natural person of a legal person is involves three steps. The first is to identify the natural person(s) who has/have influence over the decisions and operations, be it directly or indirectly, as a result of the person’s ownership interest or shareholding. To this end, PCC59 “strongly recommends” that accountable institutions identify all persons who hold five per cent or more of ownership interest in a legal person. We pause to note that regulation 32A of the Companies Act 71 of 2008 requires “affected companies” to establish a register of persons who hold beneficial interest equal to, or in excess of, five percent of the total number of securities.

Where no such person is identified, the accountable institution should proceed to the second step. This involves identifying the natural person(s) who exercises control through other means, such as a power of attorney, nominee shareholders, nominee directors, delegations of authority, court orders, the ability or powers to exercise effective control and make influential decisions through formal or informal contracts or arrangements; formal or informal nominee arrangements and usufructs.

If step 2 turns out to be unsuccessful, the final step would be to identify the natural person(s) who exercise direct control over the management of the legal person. This could, for example, be an executive officer; a non-executive director; or an independent non-executive director.

In addition, to establishing the beneficial owner(s) of legal-person clients, accountable institutions must, when establishing a business relationship with or conducting a single transaction on behalf of a trust, identify all the natural persons linked to the trust. In terms of law, decision-making power within a trust lies with the trustee. However, in practice, according to PCC59, the trustees' founders or donors, settlors, protectors and/or beneficiaries or categories of beneficiaries, as well as any other persons exercising effective control over the trust, can all exercise influence over the decisions or operations of a trust.

The accountable institution must also identify and take reasonable steps to verify each partner within a partnership, regardless of the threshold percentage of ownership that each partner owns, including every member of a partnership en commandite, an anonymous partnership or a similar partnership.

In terms of the risk-based approach, the accountable institution must use its own discretion in deciding what information it would require to verify the identity of the beneficial owner. Such information could be a letter from the client’s accountant/auditor confirming who the shareholders and beneficial owners are or a CIPC printout showing who the beneficial owners are.

The process for establishing and verifying beneficial ownership must be set out in the accountable institution’s risk management and compliance programme (“RMCP”).

ENS has developed a FICA toolkit, which includes an RMCP template and training, to help fast-track compliance. Should you like to know more, get in touch below:

Era Gunning

Executive | Banking and Finance

egunning@ENSafrica.com