Understanding Financial Intelligence Centre Act Beneficial Ownership and Targeted Financial Sanctions Obligations

Trust and company service providers (TCSPs) operate in an environment that makes them vulnerable to abuse by entities or individuals who may seek to misuse corporate structures to hide illicit funds and their beneficial owners.

Although the business of the TCSP may be legitimate, crime syndicates or individual criminals may seek out their services for the facilitation of money laundering, terrorist financing and proliferation financing.

To help mitigate the risk of criminal abuse, TCSPs have been brought into South Africa’s anti-money laundering, counter terrorist financing and counter-proliferation financing (AML, CFT and CPF) regulatory framework. TCSPs are included as accountable institutions under the Financial Intelligence Centre (FIC Act) and must meet certain regulatory requirements. Among these obligations are the requirements to conduct customer due diligence, maintain transaction records, report suspicious and unusual transactions, as well as develop and implement a risk management and compliance programme for AML, CFT and CPF.

Who are trust and company service providers?

A TCSP includes any person who, in the ordinary course of business:

• assists their client in the creation, operation and/or management of a company, external company, foreign company, close corporation or trust,
• acts as a nominee for their client, as defined in the Companies Act, 2008 or
• invests, control or administers trust property (including as a trustee)

A person who performs the activities of a TCSP, regardless of the professional accreditation they hold, is an accountable institution and must register with the Financial Intelligence Centre (FIC). TCSPs can include accountants, attorneys or other professionals.

The FIC provides guidance to TCSPs, on how to meet their FIC Act obligations, refer to public compliance communication (PCC) 6A on the interpretation of a TSCP and the risk indicators relating to money laundering and terrorist financing.

The FIC issued PCC 59, which provides guidance to TCSPs on how to identify and take reasonable steps to verify beneficial owners of legal persons, trusts and partnerships. A beneficial owner is a natural person who ultimately owns, controls, or benefits from a legal person, trusts or partnerships. This also includes persons who exercise effective control over a company or trust, even if they are not named in official documents, such as the company registration certificate or trust deed.

In order to identify the beneficial owners TCSPs must:

• Look through layers of legal persons to identify the natural person/s that owns or exercises ultimate effective control (do not just stop at legal ownership). Apply a process of elimination starting with identifying the natural persons with direct ownership, if in doubt, then the natural person with control through other means such as voting rights or control over the management.
• Identify all relevant parties to a trust, including the founder, trustees, protector, and beneficiaries. If a class of beneficiaries is designated, the FIC recommends that TCSPs take reasonable steps to identify individuals within that class at the time of onboarding and during the lifecycle of the business relationship.
• Keep up to date records of beneficial ownership and make these available for inspection by the FIC and other relevant supervisory bodies.

Where the beneficial owners are high-risk persons, such a factor should be considered when determining the overall risk rating of the client as part of the TCSPs risk-based approach.

In addition to adhering to the beneficial ownership transparency requirements, TCSPs must meet their targeted financial sanctions (TFS) obligations. The latter obligation is geared at restricting access to funds and assets for designated persons and entities involved in terrorism and proliferation financing.

PCC 44A outlines the responsibilities of accountable institutions in this regard. Accountable institutions must document in their risk management and compliance programmes (RMCPs) how they will meet their TFS obligations. As part of their obligations, TCSPs must screen clients, beneficial owners, and related parties against the TFS list of designated individuals and entities the FIC publishes on its website. Screening must happen at onboarding, when transactions are conducted and whenever the TFS list is updated. When a United Nations Security Council Resolution (pursuant to Chapter VII of the UN Charter) is adopted designating persons or entities or any amendment made to such a Resolution, it has immediate effect in South Africa. TCSPs must screen their client information against the updated TFS list without delay within a matter of hours.

Where there is a positive match on a TFS list to a client, beneficial owner, person acting on behalf of a client, or party to a transaction, the TCSP must immediately cease any activity in relation to that designated person or entity, freeze property without delay, and report to the FIC immediately via the registration and reporting platform called goAML.

TCSPs must work in partnership with the FIC to help combat money laundering and terrorist financing while creating a safe domestic and global financial system. By embedding the compliance principles prescribed in the FIC Act, TCSPs contribute to the broader integrity of South Africa’s financial system.

For sector specific compliance information and guidance, kindly refer to the FIC web page. The FIC’s compliance contact centre can be reached on +27 12 641 6000 or log an online compliance query by clicking on: https://www.fic.gov.za/compliance-queries/