South Africa remains on the FATF greylist, at least until February 2025.
Although major progress has been made in meeting the requirements of the FATF, it is clear that Ultimate Beneficial Ownership of trusts remains an issue.
What is a Trust? A trust in South African law is a legal person that operates an estate separate from its owners. South African trust law is heavily sourced from English law. Trust can be created by living persons for a specific purpose, and often from Testaments for minor children.
Like a company? This is similar to a company, although ownership here has different meaning. With companies, directors and shareholders need to be disclosed and these records are kept by the CIPC, the Companies Office.
The Problem The problem appears to be not so much with the legal concept of trust, but rather the administration of the trust and its assets. In South Africa no formal registry or repository of trust administration records exist. This means that although a legal trust may operate a bank account and continue with its activities, there is no legal framework or central registry which readily informs on who the trustees or beneficiary of a given trust is.
And this is one of the core problems being address by FIC at the moment.
The practical implication is that any Accountable Institution dealing with trusts, should expect enhanced scrutiny by FIC.
FICA Regulations recognize three distinct categories of Accountable Institutions dealing with trust
- Attorneys (or Advocates with Trust accounts)
- Property Practitioners (Estate Agents)
- Trust & Company service providers
- Banks
Example Property Purchase with a Trust involved. Where a new trust is created, or a new trustee appointed to an existing trust, the Trust & Company service provider must comply with FIC KYC requirements. The Estate Agent handling the transaction will likewise be required to perform independent KYC. The attorney responsible for the Deeds Office transfer will likewise be required to perform an independent KYC. And finally, any commercial bank, with a bond being cancelled or registered, and/or ownership passing from or to a trust, will likewise be required to perform KYC.
In the event that any one of these Accountable Institutions reports to FIC concerning suspicious activity, it can be anticipated that the other involved entities will be subject to additional FIC scrutiny.