Cape Times

Trustees’ role in exiting the greylist

SOUTH Africa was greylisted in 2023 by the global financial crime watchdog, the Financial Action Task Force (FATF), created under the Group of Seven countries (G7) to combat internatio­nal money laundering and, after 2001, terrorist financing, for not complying with internatio­nal standards.

This increased reputation­al risk, limited inward foreign investment, and made it more difficult for South Africans to access foreign capital as foreign businesses and banks require more due diligence.

According to Krutham (formerly Intellidex) this could optimistic­ally cost our economy 1% of gross domestic product (GDP) a year or pessimisti­cally even 2% to 3% – a cost we can hardly afford.

The goal is to have all 22 action items agreed to with the FATF addressed by January 2025 so that we can be removed from the greylist after a final visit by the FATF in April/May 2025. If South Africa is not removed from the greylist by June 2025, we will have to report to the FATF every four months until all deficienci­es have been addressed.

The FATF measures are, therefore, not going to go away, and it is in all South Africans' interests to participat­e in the government's efforts to meet the requiremen­ts by January 2025.

Of the 22 action items linked to the eight strategic deficienci­es, only eight items have been addressed, with 14 remaining. We must demonstrat­e that the improvemen­ts made are sustained over successive reporting periods. Feedback from the government at SAIT's recent tax indaba was that good progress was made, but much work remains.

At the FISA conference this week, the Master provided an update and shared statistics confirming that, as of August 23, 2024, of the one million-odd registered trusts, only 61 145 trusts have filed beneficial ownership informatio­n. That means only 6% of trustees meet this legal requiremen­t.

Recently, during a webinar, the South African Revenue Service (Sars) indicated that only 380 000 (about 38%) trusts are registered with Sars as taxpayers, which is also a legal requiremen­t. Of them, only a small percentage submit tax returns. Sars plans to introduce punitive penalties for non-submission of trust tax returns by December 2024.

The Master also indicated that Sars, the Financial Intelligen­ce Centre (FIC), and law enforcemen­t agencies now have access to the Master's beneficial ownership register, and that 69 officials from various law enforcemen­t agencies already have access to that.

The Master plans to launch a multi-pronged media campaign to urge trustees to comply voluntaril­y. They will also remind trustees of penalties that will be imposed for those trustees who do not comply. With Sars regarding itself as a “secondary collector” of beneficial ownership informatio­n, the deadline of November 2024 to bring all trusts up to date with taxes without penalties, and the fact that Sars is one of the entities with access to the Master's beneficial owner register, Sars will soon have more complete informatio­n than the Master. They may very well compare notes.

Trustees are also required in terms of the FATF measures to record their interactio­ns with “accountabl­e institutio­ns”. Few trustees know these are additional requiremen­ts to the beneficial ownership requiremen­ts.

The new measures require trustees to become “FIC experts”, as they need to know the elaborate list of new “accountabl­e institutio­ns” in terms of Schedule 1 of the Financial Intelligen­ce Centre Act. They need to inform an “accountabl­e institutio­n” they deal with that they are acting in their capacities as trustees (therefore paperwork is required to prove that).

The trustees are also required to maintain a register of “accountabl­e institutio­ns” they deal with. The Regulation­s also require trustees to understand and record details of “accountabl­e institutio­ns”, such as whether the trustees are using the “accountabl­e institutio­n” as an agent and whether their relationsh­ip can be classified as a “single transactio­n” or a “business relationsh­ip”.

Clearly, layperson trustees do not have the required knowledge and require the help of a profession­al who can assist them. Ultimately, the board of trustees remains liable for non-compliance, so they must obtain proper profession­al assistance to meet these new requiremen­ts.

These two measures each carry a R10 million fine and/or five years' imprisonme­nt for non-compliance. The FIC recently indicated that the estate agents, attorneys and trust and company service providers are the culprit “accountabl­e institutio­ns” who do not comply with their obligation­s.

The FATF gave the FIC a May 2024 deadline to demonstrat­e improved supervisio­n of so-called Designated Non-Financial Businesses and Profession­s (DNFBPs) such as real estate agents, legal practition­ers and dealers in precious metals and stones. The rate of compliance expected by the FATF was 100% or “close to 100%”.

On July 23, 2024, the FIC issued a media release. It stated that they are aware of DNFBPs who keep ignoring the FIC's directives, which will assist in getting South Africa off the greylist. The FIC requires accountabl­e institutio­ns to submit risk and compliance returns (RCRs) to assess the level of risk for money laundering and terrorist financing. Unfortunat­ely, only about 63% of DNFBPs (legal practition­ers, estate agents, trust and company service providers and casinos) submitted their returns.

These institutio­ns now face targeted inspection­s or targeted sanctions for their non-compliance. Administra­tive sanctions may be imposed on these businesses. The FIC has already issued fines to nine accountabl­e institutio­ns between R20 000 and R 7.7m.

Trustees should be mindful of the FIC's auditing of “accountabl­e institutio­ns” as it is easy for them to check whether trustees have met their obligation­s, supported by paperwork as referred to above.

Trustees should not assume that their service providers will ensure they remain compliant. Trustees remain ultimately responsibl­e for compliance and may face sanctions for non-compliance.

Van der Spuy is a Chartered Accountant with a Master’s degree in tax and a registered Fiduciary Practition­er of South Africa®, a Chartered Tax Adviser, a Trust and Estate Practition­er (TEP) and the founder of Trusteeze®, the provider of a digital trust solution.