The Guptas were able to pillage SA in large part because we have no public registry of beneficial ownership of companies.
Had a public registry of beneficial ownership been available 10 years ago, the Guptas would either be in jail or booted out of the country before they could loot it.
The current version of the Companies Act allows crooks to hide their dirty deeds behind front companies and trusts. One of the problems is SA law has no definition of beneficial ownership. That shouldn’t be difficult to fix: simply cut and paste the definition from UK law – that would be a good start.
The absence of such a law in SA frustrates law enforcement, investigative journalists and civil society groups campaigning to end corporate corruption.
In 2015 Transparency International (TI) report highlighted SA’s sluggish response to developing a beneficial ownership registry was due to lack of a proper definition, and no requirements for the collection and maintenance of information on the natural persons who ultimately own legal companies. According to TI: “It is crucially important to have an accurate and comprehensive definition in order to establish a strong beneficial ownership regulatory framework.”
This came up more recently in the Open Secrets report Entitled ‘The Enablers: The bankers, accountants and lawyers that cashed in on state capture‘. It’s clear from reading this report that the lack of a public registry on beneficial ownership is an open door to thieves and corrupt officials.
Shell companies were set up for the Guptas and others both in SA and abroad. The institutions (mainly the Big Four audit firms) implicated in state capture are conflicted in performing their duties and torn between their obligations under law and the need to protect their clients.
“The failure of SA’s financial institutions and professional bodies to prevent grand corruption has meant that investigative journalists and activists have been solely responsible for pursuing transparency and accountability,” says The Enablers report.
Former president Jacob Zuma signed the FIC Amendment Act, 2017, which inserted the following definition into the Act, however this has not been included in the Companies Act, nor is there any obligation on companies to keep a register matching the following definition:
“beneficial owner” in respect of a legal person, means a natural person who, independently or together with another person, directly or indirectly, (a) owns the legal person; or (b) exercises effective control of the legal person.
“By failing to guarantee open access to information and making the information only available to certain authorities, the project excludes an essential aspect of the OGP (Open Government Partnership) values. It also contravenes its own commitment to ‘share in writing by means of developing, publishing and reporting regular progress on a Country Implementation Plan’,” says Corruption Watch.
SA falls far behind other countries in disclosing beneficial ownership, even traditional tax havens such as Bermuda and Cayman Islands. Accountancy Today reports that eight of the UK’s overseas territories have committed to introducing publicly accessible registers of company beneficial ownership within the next three years as part of attempts to improve financial transparency, leaving the British Virgin Islands (BVI) as the only significant financial centre still to do so.
The eight territories – Anguilla, Bermuda, Cayman Islands, the Falkland Islands, Montserrat, the Pitcairn Islands and St Helena, Ascension Island and Tristan da Cunha, and the Turks and Caicos Islands – have all demonstrated good progress and political leadership as part of the global effort to increase transparency in financial services and tackle illicit finance, according to Accountancy Today.
The move follows an earlier announcement made by the crown dependencies to implement publicly accessible registers of company beneficial ownership within the next few years, and the establishment of a publicly accessible register by Gibraltar in March this year, in line with the EU’s Fifth Anti-Money Laundering Directive.
The government expects that beneficial ownership information on businesses registered in the overseas territories will be accessible to the public by 2023.
The move to make registers compulsory and public had been strongly opposed by the overseas territories, who claimed it amounts to constitutional interference, adds compliance costs and is a threat to the local economies which are dependent on the financial sector, according to AT.
The UK government has led an international campaign to make such registers a global norm by 2023.
The British Virgin Islands (BVI) has developed an electronic search portal, the beneficial ownership secure search system (BOSSs), which provides BVI authorities with a database of information on BVI companies, which it uses to share information with the UK under the Exchange of Notes on Beneficial Ownership legislation signed in 2016.
In a statement the Cayman government said the territory has significantly strengthened and enhanced its beneficial ownership regime through the introduction of a more advanced technology platform for managing beneficial ownership information held centrally, and had enhanced the powers of the beneficial ownership Competent Authority to verify beneficial ownership information, request additional information, and introduce penalties for non-compliance.
The Cayman government said: ‘An administrative fines regime has been introduced with a breach in beneficial ownership obligations incurring a $5,000 fine, with a further $1,000 penalty every month until the issue is rectified. Where there is non-payment for 90 days, the BO Registrar has powers to strike the company off the register.’
SA has spent millions of rands on the Zondo Commission of Inquiry into State Capture, but perhaps this would have been superfluous if we had a public registry on beneficial ownership.