Crackdown on companies with ‘hidden’ owners in South Africa

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The Financial Intelligence Center (FIC) says changes to the country’s economic ownership framework will increase companies’ transparency, making them less attractive to criminals.

Xolisile Khanyile, the director of the FIC, spoke at a collaborative workshop with the UN Office on Drugs and Crime in Southern Africa on tools and methods for accessing beneficial ownership data during investigations into suspicious corporate activity.

The FIC is now planning to revamp the system in which trusts, corporations and partnerships can be scrutinized, for example, when it comes to who is involved in such business vehicles or has a stake in said company.

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“Access by authorized recipients to beneficial ownership information would significantly support efforts to safeguard and protect the financial system from unauthorized use,” said Khanyile.

He said understanding the legal and beneficial ownership of commercial vehicles can play an integral role in assisting appropriate authorities, particularly law enforcement and the FIC.

Assessing beneficial owners can help identify individuals involved in criminal activity at arm’s length through companies or trusts.

An economic ownership framework is a set of regulations, policies and procedures designed to identify the true owners of an entity or asset. This policy requires companies to provide information about their beneficial owners.

Beneficial owners refer to an individual or group that has ultimate control or ownership of a financial institution, whether or not their name is under which the company is registered.

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Khanyile said aligning South Africa’s investigative powers over beneficial ownership with international standards would prevent illegal actors from using legal entities to conceal proceeds of criminal acts.

The Financial Action Task Force (FATF) recently tightened its standards on beneficial ownership of legal entities to better prevent and deter problems from legal entities, the FIC said.

As a result, law enforcement agencies around the world must ensure they have all the necessary powers to obtain beneficial ownership information from companies.

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The FATF is the international watchdog that recently graylisted South Africa for its substandard regulation of money laundering and other financial crimes.

South Africa’s economic ownership framework was scrutinized by the FATF, it was found unable to access accurate and adequate beneficial ownership information in a timely manner, the FIC said.

According to the FIC, the recently enacted General Laws (Anti-Money Laundering and Combating Terrorism Financing) Amendment Act (General Laws Amendment Act) made several changes to the beneficial ownership framework.

Definitions of beneficial owner have now been added, through an amendment, to several functional legal texts to align the concept of beneficial owner with international standards.

The country’s Companies and Intellectual Property Commission, which manages about 2.1 million companies, announced this month that it plans to create a beneficial ownership registry.

Read: The government leaves South Africa’s biggest retailers with a R1 billion note

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