Call for nondisclosure of ownership to be a crime
The Companies and Intellectual Property Commission (CIPC) is urging the department of trade, industry & competition to introduce a criminal sanction for nondisclosure or incorrect disclosure of the beneficial ownership of companies and trusts.
CIPC commissioner Rory Voller would like this provision to be included in the Companies Amendment Bill, which is expected to be tabled in parliament later in 2023.
Beneficial ownership refers to the ultimate owner who owns and controls a company or trust, either directly or indirectly.
The obligation to declare beneficial ownership is required by the recently promulgated General Laws (Anti-Money Laundering and Combating Terrorism Financing) Amendment Act to meet the requirements of the Financial Action Task Force (FATF). FATF is a global body that sets standards for and monitors systems in place for the combating of money-laundering and terrorism financing.
The FATF greylisted SA earlier in 2023 as it found there were deficiencies in the country’s systems, particularly with regard to law enforcement. This has heightened the risk premium of doing business with SA.
Voller said in an interview after a presentation to parliament’s trade & industry committee that many countries around the world imposed criminal sanction for the nondisclosure or incorrect disclosure of beneficial ownership. He said that in interactions with the CIPC’s counterparts in Mauritius
— which got itself out of greylisting — criminal sanctions are one of the biggest deterrents.
According to a 2022 article on the website of the internationally based NGO Open Ownership — which helped the CIPC in its preparatory work on beneficial ownership — a person who violates the Cameroonian beneficial ownership law can be jailed for up to three months.
In France and the Netherlands, imprisonment could be for a maximum term of six months; in the UK it could be up to eight years; in Zambia, it could be up to five years; and in Poland, it could be up to eight years.
“Criminal sanctions are often argued to be more effective than financial sanctions in ensuring compliance with beneficial ownership disclosure requirements,” Open Ownership says.
The CIPC launched its beneficial ownership register on April 1 and Voller said this would be a big part of the commission’s work this year.
He said the CIPC has sufficient budget for its work on the registration of beneficial ownership, and had established a dedicated unit of 10-15 people for this. They have been working on voluntary disclosures received thus far and will begin work on mandatory disclosures once regulations are passed.
The commission is working very closely with fellow regulators in the interdepartmental committee as well as with banks, the SA Revenue Service, the Financial Sector Conduct Authority, Reserve Bank, and the Financial Intelligence Centre to verify and authenticate beneficial ownership data. The technology-based system of triangulating data would be strengthened in phases, Voller told MPs.
Agreements are in place with law enforcement and prosecuting authorities for them to have access to the data.
The CIPC will adopt the Belgian model, which requires the submission of an organogram of a complicated corporate structure detailing the directors and owners.
Voller noted that one problem the CIPC experienced was the verification of data with the department of home affairs because its system is often down. The CIPC was working around this by not requiring verification with home affairs of prior registrations, which had already been verified. This would accelerate registrations.
Another amendment to the Companies Act, which Voller would like to see, is the payment for CIPC data and for it to start a subscription service for big data users such as the banks and credit bureau who would pay on an annual basis.
He told MPs that the CIPC had a dedicated team looking into state capture, with two senior investigators, which had gone through the Zondo report to identify company law maladministration, and was looking at the disqualification of directors.