It may come as a surprise to some that new legislation amending the Companies Act 71 of 2008 (“Companies Act”) has recently come into effect, to relatively little fanfare. The General Laws (Anti-Money Laundering and Combating Terrorism Financing) Amendment Act 22 of 2022 (the “Amendment Act”) was assented to by the President on 22 December 2022 and Gazetted on the 29th of that month. Some of the changes promulgated were only due to take effect on 1 April 2023. So, be ahead of the curve and read on to find out what the significance of this Act is and why it can have such a profound effect on our economy.
The catalyst for the promulgation of the Amendment Act was the publication of the Financial Action Task Force’s (“FATF”) Mutual Evaluation report of South Africa in October 2021.[1] The FATF describes itself as “the global money laundering and terrorist financing watchdog”. The organisation’s 2021 report raised several aspects of concern in respect of the FATF’s technical compliance recommendations and South Africa was afforded 12 months to effect substantial changes to cure deficiencies.[2] As a result, the FATF announced the greylisting of South Africa on 24 February 2023.[3]
Greylisted countries are subject to increased scrutiny while they take active steps to address the shortfalls of existing frameworks aimed at combatting money laundering and the funding of terrorists. Greylisting can have a ripple effect on the economy, adversely impacting the stock market, discouraging potential foreign investment (partially due to the costs of compliance with the increased monitoring) and creating reputational damage that, in South Africa’s case, serves to exacerbate our already fragile economy.[4] In response to the looming threat of greylisting by the FATF, the Amendment Act was passed. However, it is clear from their decision to greylist South Africa that the FATF did not find that the actions of the South African state sufficiently addressed the deficiencies in the regulatory system.[5] Despite this, it is encouraging to note that the FATF acknowledged South Africa’s significant progress on the 67 recommended actions stemming from the Mutual Evaluation Report, having managed to reduce them to 8 major actions yet to be addressed.[6]
As for the Amendment Act itself, it alters not only the Companies Act, but four other Acts, including the Financial Intelligence Centre Act 38 of 2001 (“FICA”), the Financial Sector Regulation Act 9 of 2017, the Nonprofit Organisations Act 71 of 1997 and the Trust Property Control Act 57 of 1988. Besides the need to comply with the FATF requirements, the law is more broadly aimed at combatting fraud, corruption and terrorism.[7] The changes to the Companies Act are tailored towards making the identity of the beneficial owner more apparent, so as to aid investigators in uncovering abuse of juristic persons (where the companies are used to fund and organise the activities of criminal syndicates).[8]
The newly inserted definition of beneficial owner, as contained in section 55 of the Amendment Act, refers to an individual who, whether directly or indirectly, “ultimately owns” the company or exercises effective control through: (a) holding 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; or (f) the ability to otherwise materially influence the management of that company. Section 55 also introduces the concept of affected company, which is defined to mean 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);
These new definitions are accompanied by duties for both the Companies and Intellectual Property Commission (CIPC) and companies generally. Some of the duties on companies include the annual filing of a copy of the securities register which must include details of beneficial ownership of the company and must be done within a prescribed period (which must be set by the Minister of Finance and the Financial Intelligence Centre). The task that falls on affected companies is rather more onerous. At all times, affected companies must endeavour to maintain a register of persons who hold beneficial interests equal to 5% or more of any type of a security, with details of the extent of that interest. So, if there are three types of securities, the percentage of the preference shares a person may own will only be considered, rather than looking at the entirety of the securities issued by the company.
Additionally, the Amendment Act in section 59 expands the grounds for disqualification from being a director or prescribed officer. Since this amendment took effect, those convicted of money laundering, terrorist financing or proliferation financing activities, as per the definitions in FICA, can be barred from being directors or prescribed officers.
It is critical to be aware of these amendments. Non-compliance with the new requirements can have devastating consequences, as a staggering fine of up to R1 million or 10% of the company’s turnover during the period of non-compliance can potentially be imposed.[9] So, make sure to adhere to these updated requirements so as not to incur any penalties under the Companies Act.
- [1] Wood, K. South African companies need to take action after FATF greylisting. Published: 27 February 2023. Website: https://www.pwc.co.za/en/blog/south-african-companies-need-to-take-action-after-fatf-greylisting.html (accessed 12 April 2023).
- [2] Wood, K. FATF greylisting.
- [3] Sabinet. Beneficial Ownership Regulations are Strengthened to Address FATF’s Grey Listing. Published: 31 March 2023. Website: https://sabinet.co.za/beneficial-ownership-regulations-are-strengthened-to-address-fatfs-grey-listing/ (accessed 13 April 2023).
- [4] Wood, K. FATF Greylisting.
- [5] CIPC. Implementation of the beneficial ownership regime by the Companies and Intellectual Property Commission (CIPC). Website: https://www.cipc.co.za/?p=18696 (accessed 13 April 2023).
- [6] National Treasury. What does FATF greylisting mean for a country? Website: https://www.treasury.gov.za/comm_media/press/2023/2023022501%20FATF%20Grey%20Listing%20Fact%20Sheet.pdf (accessed 11 April 2023).
- [7] National Treasury. Enactment of key Anti-Money Laundering and Combating of Terror Financing Law. Published: 6 January 2023. Website: https://www.treasury.gov.za/comm_media/press/2023/2023010601%20MEDIA%20STATEMENT-ENACTMENT%20OF%20KEY%20ANTI-MONEY%20LAUNDERING%20AND%20COMBATING%20OF%20TERROR%20FINANCING%20LAWS%20.pdf (accessed 11 April 2023).
- [8] National Treasury. Enactment.
- [9] Sabinet. Beneficial Ownership.
This article is a general information sheet and should not be used or relied on as legal or other professional advice. No liability can be accepted for any errors or omissions nor for any loss or damage arising from reliance upon any information herein. Always contact your adviser for specific and detailed advice. Errors and omissions excepted (E&OE).