ADVERTORIAL: Identifying beneficial ownership: A crucial step in combating financial crime

October 2nd, 2023
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By The Financial Intelligence Centre

Understanding who ultimately benefits from business relationships or a single transaction is key to combating crime in South Africa’s financial system. Businesses listed as accountable institutions in terms of the Financial Intelligence Centre Act 38 of 2001 (FIC Act) are, therefore, required to determine the ownership and control structure of their clients.

Money laundering, terrorist financing and proliferation financing trends have shown that criminals often misuse legal persons to obscure the true ownership or control of funds, which are derived from illegal activities or intended for illegal activities.

The amendments to the FIC Act in December 2022, further aligned domestic legislation to the international anti-money laundering, counter-terrorist financing and counter-proliferation financing standards set by the Financial Action Task Force.

A ‘beneficial owner’ is a ‘natural person who directly or indirectly – ultimately owns or exercise’s effective control of – a client of an accountable institution; or a legal person, partnership, or trust … ’ (our italics). Section 21B of the FIC Act sets out the obligations for accountable institutions to identify and take reasonable steps to verify the beneficial owner.

Natural person

The definition of ‘beneficial owner’ includes the scenario where a natural person ‘exercises control of a client [that is also a natural person] of an accountable institution on whose behalf a transaction is being conducted’.

Legal person

Where the client is a legal person, the accountable institution must follow a process of elimination to identify the beneficial owners. An accountable institution must first identify the natural person who has a controlling ownership interest in the legal person. If the ownership interests do not indicate a beneficial owner, or if there is doubt as to whether there is a person with the controlling ownership interest, then the accountable institution must establish the natural person who exercises control over 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’ (see FIC Guidance Note 7).

Trusts

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 principle applies as beneficiaries are often not the only person(s) who benefit from the trust. The trustees and founders also have the capacity to gain from a trust dependent on the way the trust is set up and its purpose. In addition, the trustees, founders, and beneficiaries all can exercise influence over the decisions or operations of a trust.

Where either one of the trustees, founders, and beneficiaries are a legal person, then the accountable institution must follow the process of elimination that applies for legal persons to identify the natural person who is the beneficial owner.

Partnerships

The accountable institution must identify each natural person that is a partner to a partnership. Where a partner is a legal person, then the accountable institution must follow the process of elimination to identify the natural person that is the beneficial owner of that legal person who is a partner.

Reasonable steps to verify a beneficial owner’s information

Once the accountable institution has identified the beneficial owners, it must then take reasonable steps to verify the beneficial owner’s information. This entails applying measures that are commensurate with the assessed money laundering, terrorist financing and proliferation financing risk the business relationship or single transaction poses.

The accountable institution could use information obtained by reasonably practical means while striking a balance between the accuracy of the verification required and the level of effort invested to obtain such verification. The underlying element of this requirement is that the accountable institution must be satisfied that it knows the identity of the beneficial owner.

Call to register as an accountable institution and submit the risk and compliance return

Attorneys and advocates required to have a Fidelity Fund Certificate (FFC), as stated in the sch 1 of the FIC Act are reminded of their obligation to register as accountable institutions with the FIC on the registration and reporting portal, goAML (see FIC Draft Public Compliance Communication 47A). All attorneys and obliged advocates are required to submit a risk and compliance return (see Directive 6 (www.fic.gov.za)).

 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 at +27 (0) 12 641 6000 or log an online compliance query by clicking on: www.fic.gov.za.

 

This is an advertorial and has been paid for by the client. 

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