Proposed law will increase disclosure of control of trusts

The Trust Property Control Act, 1988 (TPCA) was last amended in 1997.  It is a short act that deals on a high level with trust operations and the office of the Master of the High Court as the trust regulator.  The General Laws (Anti-Money Laundering and Combating Terrorism Financing) Amendment Bill (B18 – 2022), however, proposes significant changes to the TPCA.

South Africa needs to strengthen the legal and regulatory framework intended to prevent money laundering and other financial crime.

The Bill, if enacted, will include a new definition of a “beneficial owner” of a trust. The definition will align with the definition of “beneficial owner” in the Financial Intelligence Centre Act, 2001 (FICA). The definition covers “anyone who directly or indirectly ultimately owns the relevant trust property or exercises effective control of the administration of the trust”. This specifically includes:

• trustees, including the controllers of a corporate trustee (i.e. a trustee which is a legal person or representative of a partnership and not a natural person);
• the trust’s founders, and if a founder is a legal person or partnership, its ultimate controllers;
• any beneficiary referred to by name in the trust instrument, and if a beneficiary is a legal person or representative of a partnership, its ultimate controllers;
• any person who can control the votes of, or appoint, trustees or beneficiaries.

The legislation would go on to insert a new section 11A of the TPCA stating that:

• trustees must keep up-to-date records of the beneficial ownership of the trust and lodge a register of the prescribed information on the beneficial owners (as defined) with the Master;
• the Master must keep a register in the prescribed form containing the prescribed information about the beneficial ownership of trusts; and
• trustees and the Master must make the information contained in the register available to any person as prescribed after consultation with the Minister of Finance and the Financial Intelligence Centre.

The intention of the amendments is to prevent the misuse of trusts and ensure that there is adequate, accurate, and timely information on the control of trusts available to the authorities.

Currently, the Master’s Office only has records of the identity of trustees, founders and the beneficiaries specifically named in the trust instrument. There is no requirement to disclose the ultimate ownership or control of these persons. The requirement for trustees to record and disclose this information would make the control and use of trust structures significantly less uncertain. The Bill also contains provisions on who can serve as a trustee, and the powers of the Master to remove trustees.

The Bill (and particularly the definition of “beneficial owner”), has received significant opposition from politicians and the public, and amendments have been proposed to the Bill. Nevertheless, given the 2022 threat of grey-listing, the Bill is likely to be enacted by early 2023. Trustees, founders of trusts and advisors should keep up to date with the Bill’s progress and be prepared to comply with the Bill in the near future.

First published by: Financial Institutions Legal Snapshot