Between April 2019 and June 2021, South Africa underwent a mutual evaluation of its anti-money laundering and counter-financing of terrorism controls, which culminated in the publication of the Mutual Evaluation Report (“MER”) by the FATF. In an effort to address the deficiencies identified in the MER, several laws, including the Trust Property Control Act[1] (“TPCA”), were amended through the introduction of the General Laws Amendment Act (the “Amendment Act”).[2]
The amendments to the TPCA, which took effect on 1 April 2023, are inter alia aimed at establishing registers of beneficial owners of trusts. These amendments, introduced through section 11A of the TPCA, in conjunction with the newly issued Regulations (“Regulations”) seek to develop a comprehensive mechanism to bring transparency to the beneficial ownership of trusts to aid authorities in their fight against crime and corruption perpetrated by criminal syndicates.
Beneficial ownership of a trust
Under section 11A of the TPCA read together with Regulation 3C, a trustee is now required to establish and keep a record of the beneficial ownership of a trust (and other information relating to the beneficial owners of the trust) and must lodge same with the Master’s office.
The term “beneficial ownership” is not defined in the TPCA. However, the term “beneficial owner” as defined in section 1 of the TPCA in respect of a trust instrument, means amongst others:
- a natural person who directly or indirectly ultimately owns the relevant trust property;
- a natural person who exercises effective control of the administration of the trust arrangements that are established pursuant to the trust instrument;
- a founder of the trust;
- each trustee of the trust; and
- each beneficiary referred to by name in the trust instrument or other founding instrument in terms of which the trust is created.
Where the founder, trustee or beneficiary is a legal person or a partnership, the natural person who directly or indirectly ultimately owns or exercises effective control of that legal person, partnership, trust property or trust arrangements qualifies as the beneficial owner.
It is unclear why a trustee is included as a beneficial owner, as the details of the trustees of a trust must already be submitted to the Master.
This wide definition of beneficial owner will in effect mean that a beneficiary in a discretionary trust which may not receive any benefit from the trust will qualify as a beneficial owner if they are named in the trust. Their details must be included in the relevant register.
The exact meaning to be attributed to subparagraph (a) above is less clear, as until a benefit in a trust is vested in a beneficiary, the trust property is owned by the trustees in their capacity as such. It is therefore arguable that as soon as any trust property or income is vested in a beneficiary (notwithstanding that such vesting is discretionary and only happens once) that beneficiary qualifies as a beneficial owner and must be included in the list of beneficial owners of the trust. This may become administratively burdensome. It remains to be seen how widely the Master and the Courts will interpret this provision.
Regulation 3C further enhances the clarity of the obligations outlined in section 11A, imposing on trustees, the responsibility to maintain a comprehensive record of specific information for every identified beneficial owner of a trust. This includes collecting information such as full names, date of birth, nationality, identity document or passport details, citizenship, class/category of beneficial ownership, tax numbers (if applicable), and residential addresses. Trustees are also required to keep certified copies of identity documents or passports that match the recorded information.
In essence, in terms of the new amendments to the TPCA and its Regulations, trustees are now required to:
- establish and document the beneficial ownership of the trust;
- maintain a comprehensive record of the prescribed information pertaining to the beneficial owners of the trust, as discussed above;
- submit a register containing the prescribed information on the beneficial owners of the trust to the Master’s Office; and
- ensure that the prescribed information mentioned in points (a) to (c) remains current and up to date.
Who has access
Regulation 3E requires the Master of the High Court (“Master”) and trustees to grant access to the information contained in the beneficial ownership register, established under section 11A of the Act, to various governmental entities, authorities and individuals in limited instances. These include the National Prosecuting Authority, South African Revenue Service (“SARS”), Financial Intelligence Centre, and individuals authorised by other national legislation.[3]
The list of beneficial owners will therefore not be available to the public. The Master (and possibly a trustee) is only obligated to provide access to such information to designated individuals or entities as specified in the Regulations and then only upon written request from such entity or authority together with proof to the satisfaction of the Chief Master that they qualify to be granted access to such information.
Even though SARS has the ability to obtain the disclosed beneficial ownership information as required by section 11A of the TPCA read together with Regulation 3E, in terms of a draft public notice issued by the SARS on 29 March 2023, Trustees will be considered third-party data providers and will be obliged to submit information to the SARS inter alia concerning any amount vested in a beneficiary including income, capital gains and capital amounts distributed.
Consequences of non-compliance
One of the key areas addressed by the amendments is the issue of a trustee’s failure to account for or perform their duties. The revised section 19 of the TPCA outlines the consequences for trustees who fail to comply with their obligations.
Trustees who fail to meet their obligations outlined in section 11A(1) now commit an offence. Upon conviction, they may be subject to a maximum penalty of a fine not exceeding R 10 million, imprisonment for a period not exceeding five years, or both.
It is very important that trustees understand and comply with these additional obligations and ensure they are not subject to heavy penalties for non-compliance.
[1] 58 of 1988.
[2] The General Laws (Anti-Money Laundering and Combating Terrorism Financing) Amendment Act 22 of 2022.
[3] The list includes the State Security Agency, Intelligence Division of the National Defence Force, Special Investigating Unit, investigative divisions in national departments, Public Protector, Independent Police Investigative Directorate, and the investigative division of the Auditor-General.
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Read the original publication at Fasken.
