By: Stacy Rouchos, Managing Director at Bannister Trust and Estate Planning consultant to Hobbs Sinclair
One might recall last year, in an effort to avoid being grey listed by the Financial Action Task Force (FATF), South Africa made significant legislative changes. One major legislative change was the amendment of the Trust Property Control Act, aimed at combating, inter alia, terrorism financing and money laundering.
It seemed almost overnight that South Africans were expected to comply with these new regulations relating to beneficial ownership and the sudden demand for compliance has posed significant challenges for trustees and fiduciary service providers.
Let’s rewind…
Since the 1980s, the leading legislation surrounding the governing and management of trusts in South Africa has been the Trust Property Control Act. However, its framework had become increasingly outdated and as a result failed to align with today’s FICA requirements and the global financial and legal environment.
This changed significantly with the implementation of the Trust Property Amendment Act in April 2023, marking a shift in trust management and its associated regulations.
These amendments came off the back of the amendments made to the General Law Amendment Act (GLAA) at the end of 2022 with the intent to give anti-money laundering agencies more autonomy and power to counter corruption and money laundering.
Enhancing regulatory control
The main purpose of these amendments has been to tighten regulatory control over Trusts and were released in line with SARS’ new compliance requirements for submission of trust annual financial statements. There have always been problems with South Africa’s trust framework, in that there was very little transparency in terms of beneficial ownership, including the identity of the beneficiaries, trustees and especially the people behind these entities in the case where they are legal or juristic entities. With a global increase in financial crimes such as money laundering and corruption, the Act amendments seek to allow SARS and law enforcement the ability to scrutinise trust ownership structures more rigorously and more effectively.
Specific amendments to the Act
The two major changes to the Act include the mandate for trustees to maintain up-to-date beneficial ownership registers and to submit them to the Master’s Office on a regular basis. Additionally, trustees now have a requirement to disclose to accountable institutions that the transaction or business relationship pertains to trust property.
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These changes are significant because trustees must maintain and submit comprehensive records of all beneficiaries and trustees. Additionally, the founder must keep an up-to-date FICA profile for each beneficial owner on file. If a legal entity assumes the role of a beneficial owner in any capacity, the natural persons who ultimately benefit from the trust must also be listed in the records. The onus is on trustees to safeguard the integrity of the trusts operations.
It is important to note that this electronic register of beneficial owners of trusts requires secure protection and is only made accessible to the trustees of the trust. There have been concerns that beneficial owners’ personal information might be compromised through leaks in the Department of Justice’s systems (especially due to a cyber security breach that took place in 2021). The department has announced, since then that they are beefing up their cyber security, especially given that they were fined R5 million for their non-compliance to cyber security regulations in 2023.
Penalties for non-compliance
Non-compliance with the new regulations now carries severe penalties. Trustees who fail to comply with their obligations can be subjected to fines of up to R10 million and/or imprisonment of up to five years. As such, it is more important than ever that trustees take their duties and responsibilities to the trust seriously and keep on top of the changes in legislation accordingly to ensure that the trust remains compliant.
The current status quo
It has been over a year since these amendments came into effect and there have been many complaints about how they impose significant challenges in terms of reporting, especially in cases where beneficial owners are juristic entities such as companies who are owned by many individuals. Current registers created by the Master’s office are not equipped to account for fringe or complex ownership scenarios, and guidelines on the frequency of accountable institutions reporting on changes in beneficial ownership remain unclear.
Surprisingly, many trustees and fiduciary service providers are still unaware of these significant changes to the legislation and the possible consequences for non-compliance. With both SARS and the Master’s office going through regulatory updates at present, it is vital that trustees take responsibility for the trusts that they manage into their own hands, and even if there is a fiduciary service or independent trustee handling most of the administrative work, to follow up with these amendments.