On 8 August 2024 the FIC published a guideline on how to determine beneficial ownership of a legal entity. It is CRITICAL that all property professionals take note of these guidelines. The document consists of 54 pages and is guaranteed to aid those with insomnia! Being The Conveyancers, we have gone to the trouble of preparing an executive summary for you. Here is a link to the guideline itself, for those with insomnia – or an insatiable lust for knowledge.

We have also updated our agent RMCP template and PTY/CC questionnaire template. These are available on our website click here

ESTABLISHING THE IDENTITY OF THE BENEFICIAL OWNER – SUMMARY OF THE FIC’S Public Compliance Guideline 59 dated 8 August 2024.

The bottom line is this: an accountable institution must have evidence that it took REASONABLE steps to address this.

How does one do this?

ESTABLISHING THE IDENTITY OF THE BENEFICIAL OWNER (BO’s) OF LEGAL PERSONS (PTY LTD and CCs).

STEP 1: Identify the natural person(s) who has/have a controlling ownership interest in the Legal Person – this mainly comes down to:

• The natural person/s who has/have influence over the decisions and operations, be it directly or indirectly, as a result of the person’s OWNERSHIP INTEREST (Shareholding).
• According to the FIC, this could mean anyone holding as little 5% shareholding.
• There are however cases where persons who hold less than 5% ownership interest can be regarded as a BO, for example, where voting rights are given to such persons giving them substantial control over the decisions of a legal person.OR

Where a person holding less than 5% ownership interest is one of the high-risk persons identified in the FIC ACT, such as a foreign politically exposed person, high risk prominent influential person etc.

STEP 2: Identify the natural person(s) who exercises control THROUGH OTHER MEANS

(This step only needs to be taken where doubt exists, or where no natural person could be established as having controlling ownership interest.)

OTHER MEANS of exercising effective control could entail the following, namely: Power of Attorney, nominee shareholders, nominee Directors, delegations of authority, court orders, the ability or powers to exercise effective control and make influential decisions through formal or informal contracts or arrangements; formal or informal nominee arrangements, usufructs, etc. This will have to be investigated based on the structure and circumstances of each of the legal persons in question when or if this step is necessary in establishing who the BO’s are.
STEP 3: Identify the natural person(s) who exercise direct CONTROL over the MANAGEMENT of the Legal Person

Step 3 is only necessary in exceptional circumstances where the 1st and 2nd Steps were inconclusive, exhausted and where evidence is on file that the BO’s cannot be identified.

Examples of natural person(s) who exercise control over management are:

• Executive officer;
• Non-executive director;
• Independent non-exécutive director, etc.It is not meant to include management at all levels, but rather persons who have effective control to influence key decisions made by a legal person.SCOPE: Each accountable institution must use its own discretion in deciding what info and documentation to request in verifying the information in accordance with their RMCP and risk-based approach. With regards to the responsibility of each accountable institution, the bottom line is that there must be “reasonable steps” taken to verify the BO’s identity.Examples:
• Insist on a letter from the entity’s accountant/auditor confirming who the shareholders AND beneficial owners are.
• Insist on a CIPC printout showing who the beneficial owners are and use this as comparison, as it will set out the shareholding. All existing legal entities had until 31 May 2024 to file this with the CIPC so no existing entity has an excuse.ESTABLISHING THE IDENTITY OF THE BENEFICIAL OWNERS (BO’s) OF TRUSTS
• The accountable institution must identify ALL THE NATURAL PERSONS associated with a Trust.
• This includes the Founder/Donor, Settlors, Trustees and determinable Beneficiaries as all the aforementioned persons can exercise control over the decisions or operations of a trust.
• Circumstances do exist where external persons have the ability to exercise undue influence or obtain a benefit from a trust without being legally associated with the trust – accountable institutions are to monitor such transactions to determine such influence.
• Where ANY of the person’s linked to a trust is a LEGAL PERSON, the accountable institution must IDENTIFY the authorized person acting on behalf of the Legal Person as well as the BO’s of the Legal Person through the PROCESS OF ELIMINATION.ESTABLISHING THE IDENTITY OF THE BENEFICIAL OWNERS (BO’s) OF PARTNERSHIPS
• The accountable institution must identify ALL THE NATURAL PERSONS associated with a Partnership, this includes every partner regardless of each partner’s separate ownership interest or percentage of ownership it may have.
• The same applies here where a partner is a Legal Person, an authorized representative or the legal person itself. The BO’s must be identified through the PROCESS OF ELIMINATION.Accountable Institutions must ALWAYS VERIFY the self-declared beneficial ownership information obtained by the client against a THIRD-PARTY SOURCE such as the auditor.Conclusion:
• Where the Accountable Institution is not able to identify and verify a BO, they MAY NOT CONDUCT A TRANSACTION and must consider filing a suspicious transaction report.
• TFS Searches must be done on ALL BO’s and depending on the outcome, a report may have to be filed.
• If any BO happens to be a sanctioned individual, we recommend that you first seek permission from the FIC before you proceed with the transaction.The Conveyancing Process simplified for you by Miltons Matsemela – The Conveyancers