In February 2023, the Financial Action Task-Force (FATF) placed South Africa on what is commonly known as a grey list, in other words, that we are a potential risk to investors. One of the findings relating to the business register which is hosted by the Companies and Intellectual Property Commission (CIPC) is that South Africa did not collect ownership information for companies and trusts, and in the event of this information existing, it is not up-to-date and verifiable.
The CIPC, a custodian of companies’ information and a regulator embarked on an exercise to introduce a Beneficial Ownership (BO) Register, which became active in April 2023. All companies, and in particular affected companies, have an obligation to file its Beneficial Ownership Declaration/securities register with the CIPC.
The obligation to file the Beneficial Ownership declaration was brought forward by the General Laws Amendment Act (Anti-Money Laundering and Combating Terrorism Financing), Act 22 of 2022, which amended the Companies Act, 2008 (“the Act”) for the purpose of mandating the CIPC to establish a Beneficial Ownership Register.
All companies and close corporations must file Beneficial Ownership information within ten business days upon registration of a company and thereafter, when there are changes or when the company or close corporation files its Annual Return. The significance of Beneficial Ownership Declaration is to have a repository/register of natural persons who own or exercise effective control over legal entities; to assist law enforcement with relevant information during their investigations of who the ultimate owners of an entity are; and to mitigate the risks identified in the national risk assessment where legal persons were identified as vehicles prone to abuse for money laundering and terror financing activities.
With effect from the 1st of July 2024, the CIPC is strictly enforcing the filing of Beneficial Ownership Declarations and security register or beneficial interest register (as applicable) with the filing of Annual Returns.
While CIPC customers were initially afforded an “option” to defer the filing of beneficial ownership information together with Annual Returns, this will no longer be the case. In terms of the hard-stop functionality, companies and close corporations will not be allowed to file its Annual Returns via any of the CIPC electronic platforms unless Beneficial Ownership Declaration has been submitted and/or is up to date. As per the Act, as amended, Beneficial Ownership Declarations, Annual Financial Statements /Financial Accountability Supplements must be filed with Annual Returns.
Beneficial ownership declaration should entail the full name, date of birth, ID or passport number, the address and contact information (mobile & e-mail) of a beneficial owner. The latter is always a natural person – in the event a company, trust or other legal arrangement is a beneficial owner of a declaring company, this would constitute a complex structure and the natural person/s behind the company, a trust or other legal arrangement need to be declared as beneficial owner. In instances where there is no beneficial ownership to declare, the corporate vehicle must still submit its securities register / members register / beneficial interest register, as the case may be.
Compliance with beneficial ownership has been steadily increasing. However, the level of compliance must still improve significantly. Companies and close corporations are encouraged to comply with the legislative requirement. There are several consequences for non-compliance with the filing of Beneficial Ownership information. These are Incurring penalties for the late filing of Annual Returns, Enforcement action (i.e., investigation into the administration of a business and even the issuing of a compliance notice), and/or Referral for deregistration and even final deregistration due to non-compliance.
Thus, it is imperative that all companies and close corporations ensure compliance with the beneficial ownership filing requirements, to ensure good corporate governance and business continuity. The CIPC encourages its customers not to view the enforcing of Beneficial Ownership filing as a punitive measure, but rather as a collective effort to promote transparency and to minimize the risk of financial crimes in South Africa.
CIPC customers are urged to familiarise themselves with the obligation of Beneficial Ownership declaration and other obligations in terms of the Companies Act, as amended. For more information, customers can visit the CIPC website; https://www.cipc.co.za or contact the CIPC Call Centre at 086 100 2472.