Identifying beneficial owners is a regulatory requirement

Understanding the legal and beneficial ownership of corporate vehicles plays an integral part in identifying natural persons who may try to camouflage the proceeds of crime using companies and trusts.

The lack of adequate, accurate and up-to-date beneficial ownership information facilitates money laundering, terrorist financing and proliferation financing by enabling criminals to hide their true identities, the true purpose of an account or property held by a corporate vehicle, or the source or use of funds or property associated with a corporate vehicle. 

SA has tightened its beneficial ownership regulatory requirements to enhance the transparency of corporate vehicles, making  them less attractive for criminal exploitation. 

Amendments to the Financial Intelligence Centre (FIC) Act in 2022 included expanding the definition of a beneficial owner and further aligning 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 includes a natural person who directly or indirectly owns or exercises effective control of a client of an accountable institution, legal persons, partnerships or trusts. 

The accountable institution must obtain accurate, adequate and up-to-date information about the nature of the client business, the ownership structure and the beneficial owners.

The accountable institution must be satisfied that it knows who the beneficial owner(s) is of a client including a legal person, trust and partnership, and the extent of the ownership interest. 

Where the accountable institution only identifies a legal owner that is a legal person itself, the requirement as set out in section 21B of the FIC Act will not have been fulfilled.

Identifying the natural person who is the beneficial owner provides the required understanding as to who ultimately benefits from a client.

More than one natural person can ultimately own or exercise effective control over a client, and therefore be beneficial owners. 

When determining which natural persons are the beneficial owners of a legal person, accountable institutions must follow a process of elimination.

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 who is the natural person who exercises control over the legal person through other means, which may include nominee shareholders and so on.

Alternatively, the accountable institutions must identify the natural persons who manage the legal person, such as a director or chairperson. 

Accountable institutions must adopt a risk-based approach to verifying beneficial owners of an entity.

It is often necessary to use a combination of public information sources and seek further information from the client on beneficial owners. 

Where the legal person presents a money laundering, terrorist financing and proliferation financing risk, the accountable institution may seek to identify all natural persons who have an ownership interest as the beneficial owners.

Accountable institutions must scrutinise client information, which includes the information of beneficial owners to determine whether they are listed on the targeted financial sanctions list as published on the FIC website. 

The FIC published draft public compliance communication 121 that  provides guidance on beneficial ownership.

Risk and compliance return

Accountable institutions are urged to file their risk and compliance returns (RCR) in terms of FIC directive 6 and 7 of 2023 with the FIC without delay.

The returns enable the FIC to better assess the inherent money laundering, terrorist financing and proliferation financing risks an institution faces.

Accountable institutions can access the RCR questionnaire on the FIC website by clicking on the link on the home page that states: File your 2023 risk and compliance return today.

The risk and compliance return questionnaire can only be submitted on the online form. 

For more information visit the FIC website for guidance notes and public compliance communications.

Call FIC’s compliance contact centre at 012-641-6000 or log an online compliance query on the FIC website.

This article was sponsored by the Financial Intelligence Centre.