Financial crimes: FIC’s new 5% ownership threshold expected to combat corruption

The Financial Intelligence Centre (FIC) has added new regulatory guidance in its ongoing battle against financial crime.

The new regulatory guidance in question lowers the threshold expected for identifying controlling ownership from 25% to 5%.

Hawken McEwan, Director of Risk & Compliance at DocFox supports the new regulation, as he views it as a significant step forward to making it hard for criminals to hide behind corporate structures.

The financial regulation  

McEwan says the change represents a crucial shift in our approach to combating money laundering, corruption, and other financial crimes. “For years, it was generally understood that a 25% shareholding was sufficient to establish ownership or control of a company.”

However, with criminals becoming sophisticated, and making use of complex webs of smaller shareholdings to obscure their control over legal entities. The new 5% threshold is expected to help with such tactics.

He says the change aligns with the Companies and Intellectual Property Commission’s (CIPC) Beneficial Ownership Register and addresses the high levels of financial crime in South Africa. “It particularly aims to tackle the well-publicised issue of tender corruption, where shell companies are often used to front illicit transactions.”

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FIC explains the regulation

In the Public Compliance Communication 59, it is explained that the threshold of 5% was determined through risk assessments conducted on various sectors, which highlighted the risk of legal person structures being abused by criminals who are beneficial owners.

Another factor that was used to determine the 5% threshold was the emerging risks and media reports that highlighted the abuse of the public procurement process, using illegitimate companies with criminal beneficial owners.

“There are numerous instances in South Africa that highlight the concealment of criminal beneficial owners which have enabled corrupt activities using complex legal structures. The abuse of legal persons within South Africa is concerning where beneficial owners deliberately use legal entities to evade detection.”

Impact on the fight against financial crime

The lowered threshold is seen as a valuable tool in uncovering what criminals might try to hide.

“By looking closer at ownership structures, investigators are much more likely to identify scenarios where one person holds multiple smaller shareholdings across various entities—a common tactic used to maintain control while staying under the radar.”

The change is also expected to bring some challenges to businesses.

This is because companies have historically viewed detailed shareholder disclosures as an invasion of privacy. The new 5% threshold demands an even closer look at ownership structures, which McEwan believes may be met with some resistance.

It is worth noting that the recent requirement for the Beneficial Ownership Register at CIPC, that mandates the declaration of all shareholders at 5% or greater, should make this task less laborious.

“Many companies will have already done the groundwork to comply with CIPC requirements.”

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Consequences of non-compliance

He says non-compliance with FICA will have consequences, ranging from reprimands to substantial fines. “In a post-greylisting environment, where South Africa is under increased international scrutiny, the stakes for compliance have never been higher.”

He believes increased transparency in business ownership will also have an impact on the lives of ordinary people. When businesses are more transparent, it becomes harder for corrupt individuals to exploit company structures for personal gain.

“This can lead to fairer competition, potentially lower prices for consumers, and reduced risk of job losses because of fraudulent business practices.”

Looking ahead

He adds that businesses must remember that compliance is not just about ticking boxes. It is about creating a financial ecosystem that is hostile to criminals and welcoming to legitimate businesses and investors.

“This shift towards greater transparency represents a significant cultural change in how we approach business and finance in South Africa.”

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