The impact of SA’s greylisting on trusts

SA’s greylisting and its consequences have impacted many aspects of our lives, and trusts are no exception. As many financial advisors and individuals are trustees of trusts in SA, we cannot emphasise enough how much the trust landscape has changed over the years. It is, therefore, essential that you are up to date with the new legislation if you are a settlor, trustee, beneficiary of a trust, owner of a company, or are involved in a loop structure. In this article, we focus primarily on trusts.

BUT first, some background to the greylisting, who is responsible for its introduction and its implications for trusts.

 

Background

The Financial Action Task Force (FATF) is the global money laundering and terrorist financing watchdog, setting international standards to prevent such illegal activities and the harm they can cause society. The FATF was founded in 1989 and comprises 39 member countries, including SA.

FATF greylisted SA in February 2023 – what does that mean? Greylisting happens when a country has deficiencies in its anti-money laundering (AML), combatting the financing of terrorism (CFT) and counter-proliferation financing (CPF) regulations. The said country is placed under increased monitoring by the FATF. The FATF provided SA with 38 recommendations, and according to Werksmans Attorneys, almost all of these impact trusts directly or indirectly. Recommendations which directly impact trusts are preventing abuse regarding trusts which are non-profit organisations (NPOs), transparency regarding settlors, trustees, beneficiaries and protectors of trusts, transparency regarding the beneficial owners of trusts other than the above and stringent obligations for the providers of services to trusts.

The Financial Intelligence Centre (FIC) is the SA body established to combat money laundering and terror financing and enforce compliance with the FIC Act (the FATF’s watchdog on the ground, as it were!). The FIC recently conducted a survey covering anyone providing services to trusts relating to administration, advice and compensated trustees. It now expects trustees to be able to identify money laundering, terrorist financing and tax evasion. The FIC’s (and FATF’s) particular concerns are cash held by trusts, cross-border transactions, a lack of records in trusts, abuse of NPOs and the lack of reporting on contraventions.

SA was given 18 months from November 2021 to become compliant but did not do so, and what follows are the consequences of that.

 

New legislation

The General Laws Amendment Act 22 0f 2022 was signed into law in December 2022. The legislation aims to align SA’s regulatory framework with that of the FATF. Major amendments came into effect on 1 April 2023 (we have been given six months to comply) and have significant implications for trust, company law, and accountable institutions. These changes affect the Trust Act and the Companies Act and will impact all these structures in SA. Rules for companies and trusts are not identical, so ensure you are familiar with both rules. In this article, we only focus on trusts.

An important point to note for trustees is that there are now hefty fines and jail time which apply if they do not adhere to the new reporting obligations – these are:

  • Direct sanctions: A trustee who fails to comply with these new obligations commits an offence and, on conviction, is liable to a fine not exceeding R10mn, imprisonment for a period not exceeding five years, or to both such fine and imprisonment. Additionally, the Master of the High Court may impose sanctions, including declining approval for a person to be a trustee of the same or other trusts.
  • Indirect sanction: Non-compliant trustees and non-compliant beneficiaries will not be issued with the SA Revenue Service (SARS) Tax Compliance Status (TCS) PINs regarding their personal tax affairs. They will then not, for example, be able to utilise their R10mn foreign investment allowances.

So how do we, as trustees, comply with FATF and FIC’s increased rules and regulations to avoid the above?

 

Trusts

New rules have been introduced in the Trust Property Control Act (TPCA) regarding the disclosure of beneficial ownership of assets. For trusts, a new section (11A) was introduced into the TPCA – a trustee must establish and record the beneficial owner of the trust.

 

Who is the beneficial owner?

A beneficial owner must be a natural person who directly or indirectly owns the trust property, a natural person who exercises effective control of the administration of the trust, the founder/settlor of the trust, a trustee of the trust and all beneficiaries named in the trust deed – a broader definition than applied previously.

 

Duties of trustees

Trustees are bound to do the following with immediate effect – they must keep records on file, lodge records electronically with the Master of the High Court and keep records up to date. The records to be lodged with the Master must be uploaded as data files, and this has to be done six months from the effective date (1 April 2023) by the end of September 2023 and then regularly after that. Considering everyone involved, this is no small task and should not be taken lightly. As South Africans, we are used to deadlines being extended, but this deadline (of 30 September 2023) has been put in place by FATF and is unlikely to change.

To add further to the compliance issues, a new public electronic register of disqualified trustees (with reasons for disqualification) will be in place as well as a requirement that trustees must record details of transactions with accountable institutions. SARS, not to be left out of the party, has announced new requirements for trustees to report information about ALL distributions to beneficiaries (or other persons) from SA trusts in the previous tax year by the end of September of each year.

All of the above is to be done electronically. One can go to the Master’s office for assistance if there are problems uploading data, but this is not a practical solution considering the current state of the Master’s capacity.

 

Conclusion

We believe it is important that all trustees (not just the independent trustees) and trust service providers are aware of the challenges we face and should work closely together to meet these more onerous obligations foisted on us due to SA’s greylisting.

If you do have any issues relating to loop structures, companies or trusts where you are either the settlor, trustee, beneficiary or all of the above and are not sure what is required, please contact us to clarify or assist you in any way by contacting Di Haiden at di@rcinv.co.za or Andrew Lawson at andrewl@rcinv.co.za.

Reference: Michael Honiball, Werksmans, Trusts and Transparency – 18 April 2023.

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