Beneficial Ownership - What You Need to Know

In this series we have been focusing on the importance of compliance and specific requirements that your business should be aware of, such as the submission of your annual report to the Information Regulator, the outcome of court judgments, how this paves the way for amendments to the Protection of Personal Information Act (POPIA) going forward and the ongoing evolution of the General Data Protection Regulation (GDPR).  In this article, we look at how data privacy links with the requirement of filing beneficial ownership in South Africa. 

Covered in this article

SA is Grey-listed - Now What? 
What is Beneficial Ownership? 
Why Should Beneficial Ownership be Disclosed? 
Beneficial Ownership and Data Privacy
How to Disclose Beneficial Ownership 

SA is Grey-listed - Now What? 

In February 2023, South Africa was placed on the “Grey List” by the Financial Action Task Force (FATF), the global watchdog for money laundering and financial crimes. This means that South Africa will be subject to increased monitoring by the FATF and must actively work to address identified deficiencies in respect of the country’s Anti-Money Laundering / Combating the Financing of Terrorism (AML/CFT) laws. 

One of the corrective actions taken has been to amend the Companies Act, via the General Laws (Anti-Money Laundering and Combating Terrorism Financing) Amendment Act 22 of 2022. Through this amendment, the Companies and Intellectual Property Commission (CIPC) has been mandated to collect beneficial ownership information.  

What is Beneficial Ownership? 

Beneficial ownership (BO) refers to the natural person(s) who ultimately owns or exercises effective control of a company - either directly or indirectly through share ownership (more than 5%), control over voting rights, appointment or removal of board members, or materially influencing the management of the company by other means. 

All companies that meet the definition of an “affected company” (i.e. regulated companies and private companies) must file BO information with the CIPC without delay. There is no transitional period for this submission and therefore businesses should urgently tend to the matter or risk a compliance notice being issued, which could result in an administrative penalty of over R1 million or 10% of the entity’s turnover being imposed. 

Going forward, whenever there are changes in beneficial ownership, a company must update its Beneficial Ownership Register within 10 days of the change.

Why Should Beneficial Ownership be Disclosed? 

In response to the FATF’s global transparency standards, the General Laws (Anti-Money Laundering and Combating Terrorism Financing) Amendment Act 22 of 2022, effective from 1 April 2023, the Companies Act, the Financial Intelligence Centre Act (FICA) and the King IV Report on Corporate Governance all contribute to the legislative framework governing transparency and integrity in managing and disclosing beneficial ownership. The ultimate aim is to promote safer, transparent finances. To prevent the abuse of corporate entities, access to ownership data is vital for law enforcement. 

Benefits of filing beneficial ownership 

There are various benefits to filing BO details, including: 

• Prevention of financial crimes: By promoting transparency in ownership structures, the risk of financial crimes such as money laundering is reduced. 
• Compliance: By filing BO details, your business can help ensure compliance with national and international regulations. 
• Enhanced corporate governance: By aligning SA legislative requirements with international best practices in transparency and accountability, corporate governance within the country is enhanced. This can pave the way to improved investor confidence. 

Challenges in filing BO

Some of the challenges in filing beneficial ownership are: 

• Complex ownership structures: Identifying beneficial owners in complex structures can be difficult. 
• Increased burden of compliance: The process involved in identifying and filing BO details can be time-consuming and costly for businesses. 
• Privacy concerns: The individuals whose information is disclosed may be concerned about data privacy. 

Beneficial Ownership and Data Privacy

Beneficial ownership transparency is a measure used internationally to combat financial crimes and the misuse of corporate entities through the financing of terrorism, money laundering, and tax evasion. By making more beneficial ownership information available to the relevant parties, the risks around corporate accountability and illicit financial flows can be reduced. 

Over 120 countries have committed to implementing reforms, to help meet anti-corruption requirements set by the FATF. One such reform is to establish a register of beneficial owners of corporate entities and allow interested parties access to such information. This has however raised concerns over data privacy rights.

In today’s information age, where data is gold, the right to privacy is still vital to democracy - it helps to protect autonomy, security, and dignity. In South Africa, the right to privacy is protected under the Constitution and further enhanced by the Promotion of Access to Information Act (POPIA). The POPIA prescribes specific conditions that must be met when processing personal information.

Director and shareholder information is classified as personal information under POPIA. However, Section 26 of the Companies Act grants the public access to the company’s share register.  The responsible party in POPIA is therefore legally obligated to make this personal information available. Granting of such access would be made on a lawful basis i.e. in terms of the Companies Act. Therefore, if all other processing conditions are met, then the right to privacy of the director and/or shareholder is not infringed upon. 

How to Disclose Beneficial Ownership 

To file beneficial ownership with the CIPC you need to follow these steps:

• Identify the beneficial owners: Companies must identify individuals who hold a significant interest or control over the company.
• Conduct verification: Verify the details of the beneficial owners to ensure accuracy.
• Register with CIPC: Companies must register the details of beneficial owners with the CIPC. 
• Ensure ongoing monitoring and reporting: Regularly monitor and update the information to comply with the legal requirements.

For more details on how to file beneficial ownership information with the CIPC, you can refer to these user guidelines. 

By embracing the requirement for filing beneficial ownership, South African companies can contribute to a transparent and accountable business environment that aligns with global standards and promotes investor confidence. When it comes to legal matters, we suggest that you consult a legal expert.