Willing to comply but worried about complying – and when the authorities want to show they are being proactive the easy targets won’t necessarily be money launderers or terrorism financiers.Image: iStock
Members of the fiduciary industry have raised serious concerns about the lack of clarity regarding a plethora of new requirements placed on all trust administration and service suppliers and the security of sensitive trust and company information.
The legislative changes were necessitated when the Financial Action Task Force (FATF) greylisted South Africa after reviewing its ability to detect, prevent and prosecute money laundering and terrorism financing.
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Important requirements include the creation and upkeep of a beneficial ownership register for trusts and public benefit organisations at the offices of the Master of the High Court and the maintenance of a report of accountable institutions that trustees deal with.
This has caused a flood of data to flow to the offices of the master as administrators and suppliers work in a frenzy to be compliant.
The regulations were published on 31 March and became effective hours later on 1 April.
Phia van der Spuy, CEO and Founder of Trusteeze, has on numerous occasions expressed concerns about the ability of the masters’ offices to prevent data breaches of confidential personal trust and company information that is now uploaded on a system supported by Google Docs.
“We need assurance from the Department of Justice that our clients’ data will be properly protected … We must know what measures are being implemented to keep it safe. If we do not get sufficient assurance, we will need to approach the Information Regulator, established to ensure the protection of personal information.”
Van der Spuy says members of the fiduciary industry are quite reluctant to make use of the current system provided by the master – but find themselves between a rock and a hard place.
If they are found to be non-compliant with the new regulations in terms of the amended Trust Property Control Act they can be sentenced to a fine of up to R10 million, five years in prison, or both.
Mathys Briers-Louw, CEO of Twenty2Services, says in terms of the amended Financial Intelligence Centre Act (Fica) anybody who supplies trust or company administration services must be registered as an accountable institution.
According to the Financial Intelligence Centre “a trust and company service provider” is any person in the ordinary course of business who assists their client in the creation, operation and management of an external company, a foreign company, a close corporation, or a trust. This includes attending to the registration of the business entity with the relevant authority.
This means that an accountant providing these services to a trust has become an accountable institution and must be registered as such.
The trustees have to keep a list of accountable institutions the trust deals with. For instance, if there is a fire on a farm owned by a trust, the attorneys dealing with the insurance and the insurance company must be included on the accountable institutions list retained by trustees.
Van der Spuy also expressed concerns about a lack of awareness of these changes among professionals in the fiduciary industry and trustees, saying trusts are still administered rather sloppily.
‘Dormant’ trusts, those not registered with the South African Revenue Service (Sars) or that do not have a bank account, must get their affairs in order, Van der Spuy warns.
She believes many people have been ill-advised about the creation of trusts, but that it could potentially be quite costly to “undo” the trust.
“Unfortunately, if you have a trust, you have a trust. It’s like being pregnant. You cannot be half-pregnant,” she says.
Van der Spuy notes that Sars is one of the government agencies with access to information supplied to the master.
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Sars will now pick up on trusts that were never registered for tax and that have never filed tax returns. This has serious implications in terms of potential tax liabilities, penalties, and interest.
Briers-Louw says for South Africa to get off the grey list it will have to demonstrate that it is serious about implementing the new legislation. Government will have to make examples of non-compliant entities.
When Mauritius landed up on the FATF grey list its government was quite desperate to get off it a quickly as possible. It started dishing out fines “left, right, and centre” to demonstrate that it was implementing the changes it had made, says Van der Spuy.
She believes the South African authorities will be going for “low hanging fruit” and dish out fines to the entities they can get to – not necessarily money launderers or terrorism financiers.
“They will want to show how proactive they are.”
However, the intended outcome (to demonstrate that SA is effective in combatting money laundering and terrorism financing) is not easily achievable because of a lack of proper systems, information, and coordination between government institutions.
The consequences if the country does not achieve the intended outcomes are too ghastly to contemplate.
We either stay on the grey list or we end up on the blacklist where nobody will invest in SA and we will have nowhere to invest because our money is too risky, warns Briers-Louw.
This article originally appeared on Moneyweb and was republished with permission. Read the original article here.
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