Accountable institutions will be responsible for verifying beneficial ownership information
The Financial Intelligence Centre's (FIC) new proposed guide, Draft Public Compliance Communication Guidance 121, outlines the responsibilities of accountable institutions (AIs) relating to collecting and verifying the beneficial ownership information of clients. PCC 121 is issued for consultative purposes, demonstrating the basic duties AIs must undertake as defined in the Financial Intelligence Centre Act, 2001 (FIC Act). In this article, we look at the significance of beneficial ownership information and the additional requirements proposed for registered AIs.
South Africa needs reliable, beneficial ownership information
In recent years, the regulatory framework in South Africa has undergone various updates to accommodate international good practices to combat anti-money laundering and terrorist financing. The FIC Act was one of the key legislations updated due to this initiative.
South Africa is subject to a growing trend of criminals exploiting legal entities, trusts, and partnerships through illegal activities. Criminals often hide behind complex ownership structures with multiple layers, obscuring true ownership and making it incredibly challenging for authorities to identify the actual beneficiaries. Inherent characteristics make trusts and partnerships particularly vulnerable to misuse. Reporting beneficial ownership information by companies aims to provide necessary information to equip better authorities in dealing with illegal activities.
South Africa needs reliable, beneficial ownership information
In recent years, the regulatory framework in South Africa has undergone various updates to accommodate international good practices to combat anti-money laundering and terrorist financing. The FIC Act was one of the key legislations updated due to this initiative.
South Africa is subject to a growing trend of criminals exploiting legal entities, trusts, and partnerships through illegal activities. Criminals often hide behind complex ownership structures with multiple layers, obscuring true ownership and making it incredibly challenging for authorities to identify the actual beneficiaries. Inherent characteristics make trusts and partnerships particularly vulnerable to misuse. Reporting beneficial ownership information by companies aims to provide necessary information to equip better authorities in dealing with illegal activities.
Proposed responsibilities of accountable institutions
Registered AIs, as part of their now, have additional obligations to identify and verify beneficial ownership (BO) information. Entities in South Africa have already submitted this information to the regulator, such as the Companies and Intellectual Property Commission (CIPC) and the Master's Office. While this may seem like a duplication of effort, it will go a long way towards the accuracy and reliability of beneficial ownership information.
Section 21B(1) of the FIC Act lists the responsibilities of AIs regarding the beneficial ownership of legal entities, trusts, and partnerships. The draft PCC 121 proposes that AIs must:
Identify beneficial owners for clients.
Take reasonable steps to verify the beneficial owners as part of customer due diligence (CDD) checks. This includes:
Assessing whether the identified natural person meets the legal definition of a beneficial owner.
Confirming the existence and identity of the natural person identified as a beneficial owner by inspecting relevant ID documents issued by the authorities.
Ensuring that the person identified as the beneficial owner is actively exercising the rights associated with their level of ownership or control.
Verifying that the identified beneficial owners align with the structure and risk profile of the respective legal entities.
It needs to be noted that entities are already obliged to submit beneficial ownership information to the CIPC and the Master's Office. The information submitted, however, is not accessible to the public. Consequently, AIs cannot verify beneficial ownership information in the databases of CIPC or the Master.
Furthermore, the level of verification by AIs should link to the risk profile of the entity. ‘High-risk’ clients should undergo more extensive scrutiny and should have enhanced control measures implemented to mitigate risks effectively.
Conclusion
The draft guidance provided by the Financial Intelligence Centre emphasises the critical role accountable institutions play in verifying beneficial ownership information. By fulfilling their responsibilities diligently, AIs can contribute to the fight against financial crime, money laundering, and corruption in South Africa. AIs must remain vigilant, especially in cases of higher-risk clients, and prioritise the accurate and reliable verification of beneficial ownership information to protect the integrity of the financial system and the nation's economy.
