FIC obligations unpacked for trust and company service providers

Trust and company service providers play a vital role in combating money laundering, and terrorist and proliferation financing — as these methods can be used to facilitate criminal activities. 

These service providers are considered as gatekeepers in the financial system as they assist with the creation of companies, trusts and other corporate vehicles.

Criminals often abuse trust and company service providers to set up front companies for the purpose of laundering, and in this way attempt to avoid law enforcement detection.

In its 2019 assessment report of SA’s anti-money laundering and combating of financing of terrorism system, the Financial Action Task Force (FATF) found that trust and company service providers were “inherently vulnerable to misuse”.

FATF, which SA is a part of, is the international standard-setting body on measures to combat money laundering, terrorist and proliferation financing.

“Insufficient corporate ownership transparency also represents an acute vulnerability in SA. Companies and trusts are often misused for money laundering or to carry out predicate crimes, and there is no comprehensive framework for accessing accurate and up-to-date beneficial ownership information,” says the FATF in the “Mutual Evaluation Report of SA”.

In March 2022, the Financial Intelligence Centre (FIC) published a report on the inherent risks of money laundering and terrorist financing the trust and company service provider sector faces. The report aims to improve sector role players’ understanding of the money laundering and terrorist financing risks. 

In June 2020, the National Treasury published the proposed amendments to schedule 1 to the FIC Act in the government gazette no 43447.

Accountants are among the new types of trust and company service providers to be included under schedule 1 as accountable institutions, which is in line with the FATF requirements. 

The FIC Act compliance obligations include applying a risk-based approach and developing and documenting a risk management and compliance programme (RMCP). The FIC’s public compliance communication (PCC) 53, which is available on the FIC website, explains how to develop a risk-based approach and document a RMCP.  

As part of customer due diligence, where the client is a legal person, trust or partnership, the trust and company service provider must also conduct additional due diligence. This includes identifying and taking reasonable steps to verify beneficial owners.

The FIC Act defines a beneficial owner in respect of a legal person, as a natural person who, independently or together with another person, directly or indirectly, owns a legal person or exercises effective control of the legal person. 

Trust and company service providers must scrutinise client information to identify designated people on targeted financial sanctions lists and domestic prominent influential people and foreign prominent public officials. The PCC 44 and PCC 54 has more information on targeted financial sanctions, while the PCC 51 weighs in on domestic prominent influential people. 

The trust and company service provider must keep records of client information, transactional information and regulatory reports filed with the FIC, appoint a compliance officer and provide adequate training to the employees based on the FIC Act and the RMCP.

They must register with the FIC before they can begin submitting reports to the FIC. Registration must be done through goAML, the FIC’s online registration and reporting system called. 

The three main regulatory reporting obligations for accountable institutions consist of suspicious or unusual transactions reports, cash threshold reports, and terrorist property reports. FIC guidance notes 4B, 5B and 6A provide insight on the reporting obligations. 

Click here for more information, guidance notes and public compliance communications. Or contact the FIC’s compliance centre on +27 (0) 12- 641-6000 or log an online compliance query on the FIC website.

This article was paid for by the Financial Intelligence Centre.