Upcoming amendments to the Companies Act will require businesses in South Africa to disclose who their beneficial owners are in an attempt to fight fraud and corruption.
On 1 April, the General Laws (Anti-Money Laundering and Combating Terrorism Financing) Amendment Act (GLAA) will come into effect, amending the Companies Act.
The Act will now require companies to keep a record of individuals who own or control the company, according to law firm Cliffe Dekker Hofmeyr (CDH).
Companies will also have to make this information easily accessible to the Companies and Intellectual Property Commission (CIPC), which should be able to keep accurate and updated beneficial ownership information.
CDH defined a beneficial owner as “an individual who, directly or indirectly, ultimately ‘owns’ or exercises ‘effective control’ of that company”.
The amendments will therefore require South African companies – excluding regulated companies or companies controlled by a regulated company – to record information about such individuals in their securities registers.
The amendments were made in response to a 2021 report by the Financial Action Task Force (FATF) – the same organisation that recently greylisted South Africa.
In February 2023, the FATF put the country on a list of states that have failed to meet international standards on money laundering and terrorism financing.
Prior to this decision, the FATF released its Mutual Evaluation Report of South Africa, which exposed gaps in South Africa’s anti-money laundering and counter-terrorism financing measures.
Following the report, South Africa was given the opportunity to make adjustments and bring these measures up to international standards.
While South Africa did not make all the necessary adjustments in time to avoid being greylisted, it made some policy and regulatory changes.
Finance minister Enoch Godongwana said earlier this month that South Africa has already complied with regulatory reforms required by the FATF, and must now only focus on policy implementation.
One such regulatory reform is the GLAA, which was signed into law in December 2022, just two months before South Africa was greylisted.
There are some legitimate reasons for a company to “hide” the identity of its beneficial owner. For example, for the privacy and safety of the owner.
However, this tactic is increasingly used to facilitate money laundering, tax evasion, and corruption.
“In South Africa, the use of ‘no-name brand’ companies has become endemic in facilitating government tender fraud and corruption,” said CDH.
While this amendment will not necessarily make ownership information publicly available, it could allow the CIPC to penalise companies that do not comply with the new requirement.
“Once the regulations to give effect to the provisions of the GLAA are promulgated, it will be important to note the nature of the administrative penalties that the CIPC will be able to impose,” said CDH.