Article by Financial Intelligence Centre
A person who seeks to obscure the ownership or control of funds in the financial system can attempt to make use of a corporate vehicle to transact with a business so that the institution won’t know who the natural person is behind the legal entity.
The identification of the beneficial owners of your client is a key step to bringing greater transparency to activities in the financial system. Tougher global beneficial ownership rules have been agreed to by intergovernmental bodies to stop criminals from hiding their illicit activities and dirty money behind secret corporate structures.
These rules close loopholes that could have allowed fake companies to be used as a cover for criminal activity or to hide wealth from tax authorities.
This will ensure that investigators can quickly and easily find out who the true beneficial owners of companies are. This will help prevent and combat financial crime, curb corruption and tax evasion.
The recent amendments to the Financial Intelligence Centre Act (FIC Act), in line with the Financial Action Task Force Recommendations which are the international anti-money laundering and counter terrorist and proliferation financing standard, now defines a beneficial owner as a natural person who directly or indirectly ultimately owns or exercises effective control of a client of an accountable institution or a legal person, partnership or trust that owns or exercises effective control of a client of an accountable institution.
The beneficial owner definition also includes scenarios where a natural person exercises control of a client of an accountable institution, on whose behalf a transaction is being conducted.
Where the client is a legal person, partnership, trust or similar instrument, accountable institutions must establish the nature of the client’s business as well as the ownership and control structure.
The accountable institution must identify and take reasonable steps to verify beneficial owners in respect of clients including those who are legal persons, trusts and partnerships in terms of section 21B of the FIC Act.
Legal person
The FIC Act provides for a process of elimination which accountable institutions must follow to determine who the beneficial ownership of a legal person is:
- At the outset, the accountable institution must identify the natural person who, independently or together with another person, has a controlling ownership interest in the legal person. For example, with a company, the percentage of shareholding with voting rights is a good indicator of control over a legal person as a shareholder with a significant percentage of shareholding, in most cases, exercises control.
- If the ownership interests do not indicate a beneficial owner, or if there is doubt as to whether the person with the controlling ownership interest is the beneficial owner, the accountable institution must establish the natural person who is exercising control of the legal person through other means. This may include through voting rights attaching to different classes of shares or through shareholders agreements or nominee shareholders.
- If no natural person can be identified who exercises control through other means, the accountable institution must determine who the natural person is who exercises control over the management of the legal person, including in the capacity of an executive officer, non-executive director, independent non-executive director, director or manager.
Trust
When establishing a business relationship or conducting a single transaction for a trust, the accountable institution must identify all the natural persons linked to the trust. This requirement applies because the decision-making power within a trust lies with the trustee. However, in practice, the trustees, founders and/or beneficiaries can all exercise influence over the decisions and/or operations of a trust.
The beneficiary of a trust is not always the equivalent of the beneficial owner as is the case with legal persons. Beneficiaries are also not the only persons who benefit from the trust. The trustees and founders also have the capacity to gain from a trust, depending on the manner in which the trust is set up and the purposes for which the trust is operated. Accountable institutions must therefore identify all-natural persons who are linked to the trust.
Partnership
Similarly, where a partnership consists of a partner that is a legal person, the accountable institution must identify the partnership and identify each legal person that is a partner in accordance with section 21B(3) of the FIC Act. This includes the person acting on behalf of the legal person, the legal person itself and the beneficial owner.
For more compliance information and guidance offered to accountable institutions, refer to the FIC website (www.fic.gov.za). The FIC’s compliance contact centre can be reached on +27 12 641 6000 or log an online compliance query by clicking on: http://www.fic.gov.za/ContactUs/Pages/ComplianceQueries.aspx | 
