PCC 59 – Beneficial ownership

FIC

Financial Intelligence Centre

PUBLIC COMPLIANCE COMMUNICATION

59

RELATING TO BENEFICIAL OWNERSHIP AND THE APPLICATION OF SECTION 21B OF THE FINANCIAL INTELLIGENCE CENTRE ACT

08 August 2024

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1. INTRODUCTION

1.1. The Financial Intelligence Centre (FIC) has issued this public compliance communication (PCC) in terms of section 4(c) of the Financial Intelligence Centre Act, 2001 (Act 38 of 2001) (FIC Act).

1.2. The General Laws (Anti-Money Laundering and Combating Terrorism Financing) Amendment Act, 2022 (Act 22 of 2022) (GLA Act) which commenced in December 2022, amended the obligations imposed on accountable institutions regarding beneficial ownership in terms of the FIC Act.

1.3. Trends show that criminals often abuse legal persons, trusts, and partnerships to obscure the ownership or control of funds derived from illegal activities or intended to be used for illegal activities. Criminals do this by creating different levels of ownership which makes it difficult to identify the ultimate beneficial owner of the legal person, trust, and partnership. Certain legal persons, trusts or partnerships are more vulnerable to being abused by criminals because of the way they are structured or because of their characteristics.

1.4. It is vital that accountable institutions identify the natural person(s) who own or control clients that are legal persons, trusts and partnerships.

1.5. As part of establishing the ownership and control structure of the legal persons, trusts and partnerships in terms of section 21B(1) of the FIC Act, the accountable institution must determine all natural persons who own or have control over the entity. It is from understanding the ownership and control structure that the accountable institution will be able to determine which natural persons it must identify as the beneficial owners in accordance with sections 21B(2), 21B(3) and 21B(4) of the FIC Act.

1.6. This PCC comprises five parts:

- Part A – Legal persons

- Part B – Trusts

Part C – Partnerships

Part D – Non-profit organisations

Part E – Adequate, accurate and up-to-date information

2. ESTABLISHING THE OWNERSHIP AND CONTROL STRUCTURE TO DETERMINE THE BENEFICIAL OWNER OF A CLIENT

2.1. A legal person is defined in the FIC Act as:

“any person, other than a natural person, that establishes a business relationship or enters into a single transaction with an accountable institution and includes a person incorporated as a company, close corporation, foreign company or any other form of corporate arrangement or association but excludes a trust, partnership or sole proprietor.”

2.2. In terms of the FIC Act beneficial owner:

(a) means a natural person who directly or indirectly—

(i) ultimately owns or exercises effective control of—

(aa) a client of an accountable institution; or

(bb) a legal person, partnership or trust that owns or exercises effective control of, as the case may be, a client of an accountable institution; or

(ii) exercises control of a client of an accountable institution on whose behalf a transaction is being conducted; and

(b) includes—

(i) in respect of legal persons, each natural person contemplated in section 21B(2)(a);

(ii) in respect of a partnership, each natural person contemplated in section 21B(3)(b); and

(iii) in respect of a trust, each natural person contemplated in section 21B(4)(c), (d) and (e);

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2.3. Section 21B(1) of the FIC Act requires that accountable institutions establish (a) the nature of the client's business, as well as (b) the ownership and control structure of the client.

2.4. The accountable institution is to obtain information on the ownership and control structures of its clients, understand the ownership and control structure of its clients and take reasonable steps to verify the ownership and control structure information. For the verification of information obtained, reliance should be placed, as far as possible, on reliable and independent third-party sources.

2.5. Documentation indicating the ownership and control structures, which the accountable institutions rely on, should provide information on the different types of ownership interest, as well as which persons own the interest. Accountable institutions have the flexibility to choose the type of information by means of which it will establish clients' identities and also the means of verification of clients' identities.

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**Ownership and control structures**

Examples of documentation that may provide information on the client's ownership and control structure include, but are not limited to:

A share certificate (which indicates voting rights or no voting rights, names of the holders of the shares), an organogram approved or signed by the board, director(s) or senior management, an approved prospectus, signed trust deed, signed partnership agreement, signed shareholder agreement, signed constitution document, share register, signed letter from auditors outlining the shareholding structure, memorandum of incorporation etc.

Further examples may include: a signed beneficial ownership declaration.; signed board resolutions which include details in relation to the ownership and control; any official certificate by the registrar of company of the respective jurisdiction which may indicate the shareholders/owners, notarised declarations (official documents notarised by a public notary that attest to the ownership and control structure), regulatory filings, annual reports; independent external entity search tools for listed entities and signed joint venture agreement

These examples do not constitute a complete list.

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Beneficial owner

2.6. The definition of a beneficial owner extends to the scenario where the beneficial owner is a natural person who exercises effective control of the client who could be a natural person as well.

2.7. Accountable institutions must identify the **natural persons** who are the beneficial owners as provided for in section 21B of the FIC Act. Where the accountable institution does not identify a natural person, the requirement as set out in section 21B of the FIC Act will not have been fulfilled. Identifying the **natural person(s)** who are the beneficial owner(s) provides the required understanding as to who ultimately receives the benefits from a client.

2.8. **More than one natural person** can ultimately own or exercise effective control over a client. The accountable institution must identify all the natural persons who ultimately own or exercise effective control over a client.

2.9. The accountable institution must identify the beneficial owner who ultimately, **directly or indirectly**, owns or exercises effective control of the client. Where a beneficial owner indirectly owns or exercises effective control over a legal person through multiple layers in an ownership and control structure, the accountable institution’s obligation to identify that beneficial owner remains and must be fulfilled.

Legal ownership versus beneficial ownership

2.10. A distinction must be drawn between the beneficial owner and legal owner. A natural person may be considered a beneficial owner on the basis that he or she is the ultimate owner or controller of a legal person, either through his or her ownership interests or through exercising ultimate effective control through other means. Legal ownership means the natural or legal persons who, according to the respective jurisdictions’ legal provisions, owns the legal person (e.g. a direct shareholder). The legal owner may not always be the beneficial owner.

Different types of clients, including legal persons, trusts or partnerships

2.11. With reference to the definition of a legal person, there are different forms of legal persons, trusts, partnerships and other similar arrangements with whom an accountable institution may establish a business relationship or conduct a single once-off transaction on behalf of. Accountable institutions are required, in terms of section 42(2)(f) of the FIC Act, to provide for the manner and the processes by which the institution conducts additional due diligence measures in respect of their clients.

2.12. The accountable institution should understand:

2.12.1. The different types, forms and basic features of legal persons, trusts or partnerships onboarded as their clients or potential clients

2.12.2. The manner in which the legal persons, trusts or partnerships are created,

2.12.3. how to obtain beneficial ownership information per client type

2.12.4. How to determine the possible types of beneficial owners each client type could have and

2.12.5. How to identify money laundering (ML), terrorist financing (TF), and proliferation financing (TF) risks posed by each type of client. There may be certain types of legal persons, trusts or partnerships that are inherently more vulnerable to abuse by criminals.

2.13. The requirement to identify beneficial owners applies, in addition to the requirement as set out in sections 21 and 21A of the FIC Act. Therefore, accountable institutions must identify the legal person, trust or partnership, and the person(s) acting on behalf of the legal person, trust or partnership, as well as the beneficial owners.

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*Illustrative guide, not conclusive.

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PART A

ESTABLISHING THE BENEFICIAL OWNERS OF LEGAL PERSONS

2.14. Section 21B(2) of the FIC Act requires that accountable institutions establish the identity of the beneficial owners of clients that are legal persons, and take reasonable steps to verify the identity of the beneficial owners, in accordance with the risk management and compliance programme (RMCP) of the accountable institution.

SECTION 21B – BENEFICIAL OWNER PROCESS OF ELIMINATION


2.15. When determining which natural person is the beneficial owner of a legal person in terms of section 21B(2) of the FIC Act, accountable institutions must follow a process of elimination as follows:

2.15.1. Identify the natural person who independently or together with another person, has controlling ownership interest in the legal person.

2.15.2. If in doubt about whether a natural person owns a controlling ownership interest or no natural person owns a controlling ownership interest, identify the natural person(s) who exercises control by other means, including through his or her ownership or control of other legal persons, partnerships, or trusts or

2.15.3. If a natural person is not identified, identify the natural person(/s) who exercises control over the management of the legal person.

The process of elimination as stated in paragraph 2.15.1. to 2.15.3. above is expanded upon below:

Step 1 – Controlling ownership interest

2.16. The term “controlling ownership interest” as used in section 21B(2)(a)(i) of the FIC Act is not defined in the FIC Act. The Centre is of the view that “controlling ownership interest” should be interpreted to mean, the ability of a natural person by virtue of ownership interest in a legal person, to control and/or to take decisions regarding or influence the resolution, decisions and/or business operations of that legal person.

2.17. The deciding factor when determining whether a person owns a controlling ownership interest in a legal person, is whether that natural person has influence over the decisions taken by the legal person and the operations of the legal person as a result of the person’s ownership interest. This controlling ownership interest can be determined with reference to the percentage of ownership interest the natural person has in the legal person, and reference to the level of influence or control that the person can exercise over the legal person. Where a natural person can exercise decisive influence directly or indirectly over the decisions of the legal person and/or the legal person’s operations as a result of the person’s ownership interest, then that natural person owns a controlling ownership interest in that legal person.

Controlling ownership interest

“The ability of a natural person by virtue of ownership interest in a legal person, to control and/or to take decisions regarding and/or influence the resolutions, decisions or business operations of that legal person.”

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Hybrid approach to determining controlling ownership interest includes a threshold approach and an overall assessment of ownership influence

2.18. The percentage of total ownership interest is a good indicator of controlling ownership over a legal person, as a person who holds sufficient percentage of ownership interest in most instances exercises influence or control over a legal person and benefits from that legal person. In this context the Centre is of the view that holding five percent or more of ownership interest in a legal person is usually sufficient to exercise a controlling ownership interest in the legal person. The Centre strongly recommends that accountable institutions identify the persons who hold five percent or more of ownership interest in a legal person, which persons can be regarded as beneficial owners for purposes of section 21B(2) of the FIC Act.

2.19. The threshold of five percent was determined with reference to the following factors:

2.19.1. Through alignment to other legislative requirements, including regulation 32A to the Companies Act, 2008 (Act 71 of 2008) which requires affected companies to establish and maintain a register of persons (both natural and juristic) who hold beneficial interest equal to or in excess of five percent of the total number of securities or class of that securities¹.

2.19.2. Risk assessments conducted on various sectors has highlighted the risk of legal person structures being abused by criminals who are beneficial owners.

2.19.3. Emerging risks and media reports highlighting 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. The recommended percentage threshold is therefore set sufficiently low to identify beneficial owners.

¹ https://www.cipc.co.za/wp-content/uploads/2023/08/USER-GUIDELINES-BO-LEGISLATIVE-REQUIREMENTS_Aug-23.pdf

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2.20. In complex structures with multiple layers there may be instances where a number of legal persons form a group with a natural person holding a small percentage ownership interest across all entities in the structure (referred to as parallel beneficial ownership structure) which, when aggregated, equals a controlling ownership interest.

2.21. This parallel beneficial ownership structure highlights the importance of an accountable institution gaining a full understanding of the legal person's ownership structure.

2.22. Accountable institutions may, in terms of their own risk-based approach, opt to identify persons who have less than five percent ownership interest. Even though such persons are not considered to be beneficial owners. There may be other client factors that warrant the accountable institution to identify natural persons who hold less than five percent ownership interest in a legal person.

2.23. Where the accountable institution assessed a legal person as high risk for money laundering, terrorist and proliferation financing (ML, TF and PF) in terms of its risk-based approach, where,

2.23.1. It becomes apparent that the legal person is closely associated with a natural person that is a foreign politically exposed person, high-risk domestic politically exposed person or a high-risk prominent influential person.

2.23.2. There are significant adverse media findings on the legal person. When conducting a risk assessment on the legal person and it becomes apparent that there is negative media coverage or findings, which also relates to the holder(s) of less than five percent the accountable institutions may, according to its risk-based approach, opt to also identify those persons.

2.23.3. The client or person is the subject of numerous reports, or there are suspicions that the person is linked to terrorist or terrorism financing or related activities, or proliferation of weapons of mass destruction.

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Different types of legal persons and forms of ownership interest

2.24. Based on the different types of legal persons, the forms of ownership interest would differ. For example, companies issue shares owned by shareholders and co-operative members' own interest, referred to as membership shares. In some instances, accountable institutions would have to determine from the legal person's founding documents what type of ownership interest is issued in respect of a particular legal person.

2.25. For legal persons, different sub-types of ownership interest may carry different weights in terms of influence or decision-making power over the legal person, it is recommended that the accountable institution determine the different classes of beneficial ownership interest the legal person issues, because different classes of beneficial ownership interest afford different levels of influence or decision-making power to their holders over the legal person.

2.26. There may be instances where beneficial owners form coalitions and/or enter into agreements in terms of which they take decisions regarding or exercise influence over a legal person in an aligned manner, which results in the exercising of controlling influence over that legal person. In this manner, such a group or coalition of beneficial owners jointly hold the controlling ownership interest. As part of determining the ownership and control structure of the legal person, accountable institutions should take reasonable steps to verify information on whether such coalitions or agreements exist.

2.27. An example includes a shareholders' agreement between the shareholders of a company. It can be between all or, in some instances, only some of the shareholders (e.g. the holders of a particular class of share).

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Example – Identifying the beneficial owners who exercise controlling ownership interest through coalitions

Company X has five shareholders, the shares are owned as follows:

Natural person A – 5 percent

Natural person B – 4 percent

Natural person C – 20 percent

Natural person D – 20 percent

Natural person E – 2 percent

Natural person F – 49 percent

Persons A, B, C, D and E enter into a shareholder agreement in terms of which they decide to vote in an aligned manner. Because they jointly hold 51 percent and take decisions in an aligned manner, they are each deemed to be controlling owners.

The accountable institution must identify natural persons A, B, C, D, E and F, in this scenario.

2.28. In instances where shareholders are so dispersed that no natural person can be regarded as having a controlling ownership interest, the accountable institution must move to the next level of elimination.

2.29. There may be persons who own less than the recommended five percent threshold, who are beneficial owners because of direct or indirect control over the legal person.

Example

Person T owns 96 percent securities with no voting rights and Person J owns four percent securities with voting rights in company Y. Person J is the chairperson of the company, and operationally controls the company.

Following a threshold approach only would result in the accountable institution having to identify and take reasonable steps to verify Person T, foregoing the identification of another key beneficial owner.

Step 2 – Exercises control through other means

2.30. Where an accountable institution doubts whether a natural person has controlling ownership interest, or no natural person has controlling ownership interest in the legal person, the accountable institution must establish the identity of the natural person(s) who exercise control of the legal person through other means. This includes through his or her ownership or control of other legal persons, partnerships, or trusts. The General Law (Anti-Money Laundering and Combating Terrorist Financing) Amendment Act, 2022 (Act 22 of 2022) (GLA Act) amended section 21B(2)(a)(ii) of the FIC Act in 2022.

2.31. There are various ways by which a natural person can exercise effective control over a legal person by other means, including but not limited to:

2.31.1. Power of attorney.

2.31.2. Nominee shareholders.

2.31.3. Control can also be exercised through debt instruments or other financing arrangements. For example, where a lender or creditor can control a legal person via the provisions of the lending agreement (debt that is convertible into voting equity).

2.31.4. Nominee directors.

2.31.5. Delegations of authority.

2.31.6. Delegated authority in terms of law (e.g. governing legislation and accounting officer).

2.31.7. Court orders.

2.31.8. Power to appoint or remove the majority of the board of directors or senior managers of a legal person. Control over a legal person may be exercised if an individual has the power to appoint the majority of senior management directly or indirectly.

2.31.9. Power or influence to take decisions for a legal person or veto decisions taken, which impacts the profit of the legal person.

2.31.10. Ability to exercise control over a legal person either solely or jointly with other

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persons, either through formal or informal contracts.

2.31.11. Use of formal or informal nominee arrangements.

2.31.12. The right to appoint or remove more than half of the members of the board or similar officers of the corporate entity.

2.31.13. The ability to exert a significant influence on the decisions taken by the corporate entity, including veto rights, decision rights and any decisions regarding profit distributions or leading to a shift in assets. Natural persons who exercise substantial control over a legal person and are responsible for strategic decisions that fundamentally affect the business practices or general direction of the legal person may be considered a beneficial owner under some circumstances.

2.31.14. Control, whether shared or not, through formal or informal agreements with owners, members or corporate entities, provisions in the articles of association, partnership agreements, syndication agreements, or equivalent documents, depending on the specific characteristics of the legal person, as well as voting arrangements.

2.31.15. Usufruct – where a beneficial owner gives a legal right to someone else to use or consume benefits from the beneficial owner's property.

2.31.16. Ability to exercise control through immediate family members or known close associates. Control through informal means. Control over a legal person may be exercised through informal means, such as through close personal connections to relatives or associates. When an individual is using, enjoying or benefiting from the assets owned by the legal person, it could be grounds for further investigation if such individual is in the condition to exercise control over the legal person.

2.31.17. While the above list exists in law through statute or legal form, it is possible for natural persons that neither hold voting rights nor hold any of the roles in the aforementioned list, to still impact decisions taken in respect of the client of the accountable institution and further benefit from this. This is usually a form of undue influence, which presents heightened ML, TF and PF risk. Where it becomes apparent that a legal person has taken a decision or

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transacted in a manner which is not consistent or normal for the legal person, which outcome has the effect of unduly benefiting external parties, the accountable institution should consider whether the external party exercises control over the legal person. Furthermore whether the accountable institution has fully applied customer due diligence (CDD) in respect of the legal person including identifying the external party who exercises control through other means as a beneficial owner.

2.31.18. Links with family members who exercise control of the entity in a comparable manner to managers or directors or those owning or controlling the corporate entity.

Example – External persons exercising undue influence over legal person

The accountable institutions should monitor and understand the nature of the client (e.g., a municipality) business transactions. Where it becomes evident that the legal person transacts in a manner that benefits an external party, then the accountable institution should consider whether the external party exercises control through other means over the municipality, and therefore consider applying CDD to that person as beneficial owners.

Step 3 – Exercises control over the management

2.32. Where the accountable institution cannot identify the natural person(s) who exercises control through other means, the accountable institution must determine who the natural persons are who exercise control over the management of the legal person. In all possible cases, the identification of natural persons who exercise control over the management should not supersede steps 1 and 2 of the process of elimination set out above. Thus, the third elimination step should be applied only in exceptional cases, provided that all means of identification under first and second elimination steps are exhausted, and there are reasonable grounds as to why the beneficial owner (under first and second elimination steps) cannot be identified.

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2.33. Natural persons who exercise control over the management may include but may not be limited to:

2.33.1. Executive officer

2.33.2. Non-executive director

2.33.3. Independent non-executive director

2.33.4. Director or

2.33.5. Manager.

2.34. When identifying the natural persons who exercise control over the management of the legal person, regard must be had to the definition of "beneficial owner" which refers to "effective control". This limits the natural persons who fall within the ambit of section 21B(2)(iii) of the FIC Act referred to as "management", which is not meant to include management at all levels of a legal person.

2.35. Refer to Centre's Guidance Note 7 which states that "effective control" means the "ability to materially influence key decisions in relation to a legal person (e.g. the manner in which the majority of voting rights attached to shareholdings are exercised, the appointment of directors of a legal person, decisions taken by a board of directors, key commercial decisions of a legal person), or the ability to take advantage of capital or assets of a legal person".

Examples of effective control:

Further examples of "control over the management" and "effective control" may include:

- Clear appointment to a position by owners or in terms of law

- Founder

- Chancellor

- Nominee director

- Chief executive officer

- Board membership (the board of directors and chairperson.)

- Board committee members

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Legal persons – Companies listed on exchanges

2.36. When establishing a business relationship or conducting a single transaction with exchange listed companies, the accountable institution must comply with section 21B of the FIC Act. Accountable institutions are still required to follow the process of elimination when identifying beneficial owners of exchange listed companies. Exchanges may have differing requirements regarding the disclosure of beneficial owners by listed companies. Depending on whether disclosure of beneficial ownership is required by the exchange and successfully obtained, this may simplify the process for the accountable institutions.

Foreign created legal persons

2.37. When establishing a business relationship or conducting a single transaction with a foreign-created legal person, the accountable institution must comply with section 21B of the FIC Act.

2.38. Regarding foreign-created legal persons, it may be necessary to engage the client or respective entity responsible for the creation of the foreign legal person to provide the required information on beneficial ownership.

Legal persons – state owned entities

2.39. Identifying the natural person who owns a state-owned company could prove challenging. When dealing with state owned companies, it is vital to identify the natural person who controls the legal person as the beneficial owner. The accountable institution may either follow the second stage of elimination and/or the third stage of elimination. Certain organs of state are incorporated as companies and must be identified as companies.

2.40. In other instances, government institutions are constituted as legal persons by statute. This category of legal persons constituted by statute can be referred as "other legal persons". In these instances, the governing statute would provide an understanding of which natural persons exercise effective control over the legal

person, e.g. the board and accounting officer.

2.41. There is a further type of government entity that is neither a company nor a legal person created by statute. This would include national, provincial and local government departments. When dealing with these entities, the beneficial owner would usually be the natural person(s) who exercise control over the management of the legal person.

Evidence that the process of elimination was followed

2.42. Accountable institutions should be able to evidence that they followed the process of elimination as required in section 21B(2)(a) of the FIC Act, having first attempted to identify the natural person who has a controlling ownership interest, thereafter where there is no natural person who has a controlling ownership interest, or the accountable institution has doubts in this regard, only then can the accountable institution identify the natural person who exercises control through other means or identify the natural persons who exercises control over the management of the legal persons. In practice, where an accountable institution fails to follow the process of elimination, they are non-compliant with the requirement set out in section 21B(2)(a) of the FIC Act.

2.43. Where the legal person presents a heightened ML, TF and PF risk, it may be prudent for the accountable institution, according to its own risk-based approach, opt to identify all the beneficial owner levels, thus not eliminating any level of beneficial owner.

Scope of beneficial owner information

2.44. Refer to the Centre's Guidance Note 7 for guidance on the verification of natural persons who are beneficial owners. Note that the accountable institution has the flexibility to determine what information to request and what documentation to rely on to verify the information as part of the accountable institution's risk-based approach. The accountable institution must take reasonable steps to verify the beneficial owner's identity.

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PART B

3. ESTABLISHING THE BENEFICIAL OWNERS OF TRUSTS

3.1. It is important for accountable institutions to understand that when establishing a business relationship with or conducting a single transaction on behalf of a trust, that the accountable institution must identify all the natural persons linked to the trust. This requirement applies because decision-making power within a trust lies with the trustee (in terms of law). However, in practice the trustees, founders or donors, settlors, protectors and/or beneficiaries or categories of beneficiaries (including direct or indirect beneficiaries), as well as any other persons exercising effective control over the trust can all exercise influence over the decisions or operations of a trust.

3.2. Beneficiaries are not the only persons who gain benefit from the trust. The trustees and founders also have the capacity to gain from a trust, depending on the manner in which the trust is set up and the purposes for which the trust is operated. Accountable institutions must therefore identify all natural persons who are linked to the trust.

3.3. Founders often use trusts as a vehicle to di-vest assets from the founder on paper and set up the beneficiary structure in such a manner that the founder ultimately can still gain the benefits through the trust. Criminals exploit this structure, as they are aware that trusts may be abused for ML, TF and PF purposes.

3.4. When dealing with trusts it must also be noted that there are scenarios where external persons are able to exercise undue influence over and/or extract benefit from a trust without a legal link to the trust (not a trustee, founder or beneficiary) but rather through virtue of affiliation to the trustee, founder or beneficiary. Accountable institutions should remain aware of this risk and monitor the trust's transactions or activities to determine such undue influence.

3.5. In order to mitigate the ML, TF and PF risks, accountable institutions must identify the natural persons who are the founders, trustees and named beneficiaries of a trust in terms of section 21B(4) of the FIC Act.

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3.6. Where a trustee is a legal person, such a trustee has nominal trustees who are the natural persons acting on behalf of the trustee, similar to an authorised representative. The accountable institution must identify the trustee as it would any other legal person in terms of section 21B(1) of the FIC Act. This includes identifying the authorised person who acts on behalf of that legal person trustee as the nominal trustee, the legal person trustee, as well as the beneficial owners of that legal person trustee through the process of elimination. The type of legal person holding the position as trustee will determine who to identify as the beneficial owner.

3.7. The same applies where a founder and/or beneficiary is a legal person. The accountable institution must identify the founder and/or beneficiary as it would any other legal person in terms of section 21B(1) of the FIC Act. That includes identifying the authorised representative, the legal person, as well as the beneficial owners of the legal person by following the process of elimination.

3.8. When seeking to identify the beneficial owner of a foreign trust, the accountable institution must understand the ownership and control structure requirements and apply CDD measures in a similar manner as it would with domestic trusts. In complex cases, trust company services providers and administrators may be involved and additional engagement with respective trust and company service providers may be required to obtain the beneficial ownership information required.

3.9. Where an entity is structured and functions in a manner similar to a trust (apart from the establishment thereof), the same principles of CDD apply as for a trust, which include identifying all the natural persons linked to the entity. For example, certain private foundations, although not registered as trusts, function in a similar manner.

3.10. Refer to South African Reserve Bank (SARB) Directive to all insurers conducting life insurance business falling under the supervision of the Prudential Authority in terms of section 45 and item 8 of Schedule 1 read with Schedule 2 of the FIC Act which sets out the accountable institution's obligation to conduct CDD when a life insurance beneficiary benefit accrues.

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3.11. When dealing with a foreign trust where there are further natural persons such as a protector, the accountable institution must also identify the natural person in this instance.

PART C

4. ESTABLISHING THE BENEFICIAL OWNERS OF PARTNERSHIPS

4.1. The accountable institution must identify and take reasonable steps to verify each partner within a partnership, regardless of the threshold percentage of ownership that each partner owns, including every member of a partnership en commandite, an anonymous partnership or a similar partnership.

4.2. Where a partnership consists of two or more legal persons, then the accountable institution must, in addition to identifying the partnership, identify each legal person who is a partner, in accordance with section 21B(2) of the FIC Act. This includes identifying the person acting on behalf of the legal person, the legal person itself and the beneficial owner, through the process of elimination, as discussed in Part A above.

4.3. Guidance Note 7 provides guidance on what information and documents may be requested for CDD purposes. In addition, it is recommended that the accountable institution obtain the partnership agreement.

4.4. There may be scenarios where one partner exercises significant control over the partnership. This could include, for example, the rights (whether directly or indirectly):

4.4.1. To direct or veto the conduct or management of the partnership including but not limited to the investment decisions, profit share or capital returns of the partnership's funds or assets.

4.4.2. To direct amendments to the partnership's constitutional documents (e.g. the partnership agreement).

4.4.3. To dissolve or convert the partnership; or

4.4.4. Is entitled to the assets of the partnership in the event of the dissolution of the partnership.

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PART D

5. ESTABLISHING THE BENEFICIAL OWNERS OF NON-PROFIT ORGANISATIONS

5.1. Accountable institutions should apply a similar approach to non-profit organisations (NPOs), as is applied with trusts, identify all the founders of the NPO, as well as the management of the NPO. Where the beneficiaries are named, identify the named beneficiaries, or where the beneficiaries are not named, the process by which a beneficiary will be determined.

PART E

6. ADEQUATE, ACCURATE AND UP TO DATE BENEFICIAL OWNERSHIP INFORMATION

6.1. The accountable institution should obtain accurate, adequate, and up to date beneficial ownership information. Through identification and taking reasonable steps to verify the beneficial owner, the accountable institution must be satisfied that it knows "who" the beneficial owner is, and "why" or "how" the person is a beneficial owner. This requires understanding of the beneficial owner interest.

6.2. **Adequate information** – which includes sufficient information to know who the beneficial owner is, and how that natural person has ownership or exercises control.

6.3. **Accurate information** – the beneficial owner information should be verified against a reliable, independent third-party source as far as possible. Identity and status of the beneficial owner must be accurate. Accountable institutions are cautioned that sole reliance on self-declared beneficial ownership information provided by the client without verifying that information against a third-party source is not adequate and should be avoided. Accountable institutions are advised to rely on multiple sources (multi-pronged approach) to gather credible beneficial ownership information.

6.4. **Up-to-date information** – where beneficial ownership information changes, the accountable institution must update its CDD information within a reasonable period.

6.5. The accountable institution should adopt a risk-based approach to verify beneficial owners of a client who is a legal person, trust or partnership. It is often necessary to use a combination of information sources and to seek further confirmation from public sources that is correct and up-to-date or to ask for additional documentation that confirms the beneficial ownership and legal person, trust or partnership structure.

Sources of beneficial ownership information

Examples include but are not limited to client self-declaration, the Companies and Intellectual Property Commission, the Master of the High Court, the Department of Social Development, the Department of Home Affairs, etc. Further examples include International Registries (of other countries), reliable third-party databases, online public databases as well as credit reports.

Inability to identify and verify

6.6. Where an accountable institution is unable to identify and take reasonable steps to verify a beneficial owner, that accountable institution must comply with section 21E of the FIC Act. The accountable institution must not establish a business relationship or conduct a single transaction and must consider filing a suspicious and unusual transaction report in terms of section 29 of the FIC Act.

Obligation to scrutinise client information

6.7. The accountable institution must scrutinise client information, including the client's beneficial ownership information to determine whether the client and/or the beneficial owners are listed on the targeted financial sanctions list as published in terms of section 26A of the FIC Act.

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Public procurement

6.8. In the update to the Financial Action Task Force (FATF) Recommendation 24, the importance of obtaining beneficial ownership information for legal persons, trusts and partnerships that are involved in public procurement, has been highlighted.

6.9. Accountable institutions are cautioned to apply enhanced due diligence when establishing business relationships or conducting single transactions with legal persons, trusts or partnerships who conduct business with public entities.

7. GUIDANCE OF IMMEDIATE EFFECT AND SUPERVISORY APPROACH

7.1. The guidance takes effect immediately on date of issue. The provisions of the FIC Act relating to beneficial ownership have been in force since 13 June 2017 and accountable institutions are required to comply with these requirements of the Act. Accountable institutions immediately should commence the adjustments in their compliance efforts, to the extent necessary, to meet the requirements of the FIC Act, as amplified /read with the Centre's formal position on its expectations of compliance with the FIC Act as detailed in this guidance.

7.2. During supervisory engagements (monitoring and inspections), the accountable institutions will be assessed on the state and extent of compliance by the accountable institution of its adherence to Chapter 3 of the FIC Act, associated sections and directives as amplified by all formal guidance issued, including PCC 59.

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8. COMMUNICATION WITH THE CENTRE

8.1. The Centre has a dedicated contact call centre geared to assist in understanding the obligations in terms of the FIC Act. Should you have any queries please contact the Centre's compliance call centre on 012 641 6000 and select option 1.

8.2. In addition, you can submit an online compliance query by clicking on: https://www.fic.gov.za/compliance-queries/ or visiting the Centre's website and submitting an online compliance query.

Issued By:

The Acting Director Financial Intelligence Centre

08 August 2024

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ANNEXURE A

EXAMPLES OF OWNERSHIP STRUCTURES


Example 1. Simple, Direct Shareholding

This is an example of a simple direct ownership structure.

Natural Person 1 (58% of company ownership) and Natural Person 2 (38% of company ownership) are the only direct beneficial owners of the legal entity, provided that they are not the nominal owners and there are no other persons who could have an indirect influence on the company's activities.

Natural Person 1 is the beneficial owner of the legal entity, as he directly owns 58 percent of the legal entity.

Natural Person 2 is also the beneficial owner of the legal person, as he directly owns 38 percent of the legal entity.

Natural Person 3 is not the beneficial owner of the legal person as he owns less than five percent of the company shares of the legal entity.

Also, it is important to emphasise that Natural Person 1, Natural Person 2 and Natural Person 3 are not the intermediaries, agents, or nominal owners and there are no other natural persons who could have an indirect influence on the company's activities.

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Example 2. Multi-Level Indirect Shareholding

Natural Person 1 (60% * 60% = 36%) and Natural Person 2 (60% * 40% + 40% * 90% = 24% + 36% = 60%) are the beneficial owners, provided that they are not the nominal owners and there are no other persons who could have an indirect influence on the company's activities.

This is an example of multi-level-indirect shareholding.

Natural Person 1 is the beneficial owner of the Legal Entity 1, as he indirectly owns shares in Legal Entity 1 through Legal Entity 2. The percentage of shareholding is calculated using the formula (60% * 60% = 36%). He owns 36 percent of shareholding.

Natural Person 2 is also the beneficial owner of Legal Entity 1, as he indirectly owns a share in the Legal Entity 1 through Legal Entity 2 and Legal Entity 3. The percentage of shareholding is calculated using the formula (60% * 40% + 40% * 90% = 24% + 36% = 60%). In total he owns 60 percent of shareholding.

Natural Person 3 is not the beneficial owner of Legal Entity 1, as he indirectly owns only four percent of shareholding of Legal Entity 1, which is less than five percent.

It is important to emphasise that Natural Person 1, Natural Person 2 and Natural Person 3 are not the intermediaries, agents or nominal owners and there are no other persons who could have an indirect influence on the company's activities.

Example 3. Aggregate shareholding (trust)


This is an example of a scenario where the aggregate shareholding and holistic assessment of the structure is key.

Natural Person 2 is the beneficial owner of Legal Entity 1 because Natural Person 2 directly owns 92 percent shareholding.

Although Natural Person 1 does not directly own five percent or more shareholding, Natural Person 1 is the beneficial owner of Legal Entity 1 because he is a beneficiary of the trust which holds four percent shareholding in Legal Entity 1.

It is important to emphasise that Natural Person 1 and Natural Person 2 are not the intermediaries, agents, or nominal owners and there are no other natural persons who could have an indirect influence on the company's activities.

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Example 4. Combination of Direct and Multi-Level Indirect Shareholding

Natural Person 1 (4% + 96% * 60% = 4% + 57.6% = 61.6%), and Natural Person 3 (96% * 40% * 90% = 34.6%) are the beneficial owners, provided that they are not the nominal owners and there are no other natural persons who could have an indirect influence on the company's activities.

We are in jurisdiction that uses 5% threshold.

This is an example of a combination of direct and multi-level indirect shareholding.

Natural Person 1 is the beneficial owner of Legal Entity 1, as he owns shareholding directly and indirectly (directly he owns five percent of shares and indirectly he owns 57.6 percent of shares in Legal Entity 1) through Legal Entity 2 and Legal Entity 3. In total, he owns 61.6 percent of the shareholding (4% + 96% * 60% = 4% + 57.6% = 61.6%).

Natural Person 2 is not the beneficial owner of the legal person as he owns less than five percent of the company shares (96% * 40% * 10% = 3.8% (<5%)).

Natural Person 3 is also the beneficial owner of Legal Entity 1, as he indirectly owns shareholding in Legal Entity 1 through Legal Entity 2 and Legal Entity 4 with 34.6 percent shareholding (96% * 40% * 9% = 34.6%).

Also, it is important to emphasise that Natural Person 1 and Natural Person 2 are not the intermediaries, agents, or nominal owners and there are no other natural persons who could have an indirect influence on the company's activities.

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Example 5. Multi-Level Indirect Shareholding


In this scenario, there is an individual with a relatively small percentage of indirect multi-level shareholding of 3.5%.

Natural Person 1 owns 51 percent of Legal Entity 5, which owns 51 percent of Legal Entity 4, which owns 51 percent of Legal Entity 3, which owns 51 percent of Legal Entity 2, which in turn owns 51 percent of Legal Entity 1.

The ownership percentage of Natural Person 1 can be calculated using the formula (51% * 51% * 51% * 51% * 51% = 3.5%)

Natural Person 1, despite a relatively small percentage of ownership 3.5%, is the beneficial owner of Legal Entity 1, because, through the multi-level chain of ownership he has the influence and power to appoint the senior management of Legal Entity 1, he also has control over the voting results of shareholders of Legal Entities 5, 4, 3, 2 and 1.

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Example 6. Multi-Level Indirect Shareholding (formal nominee arrangements)


Natural Person 1 (50% * 93% = 46.5%)

and Natural Person 3 (50% * 93% = 46.5%)

are beneficial owners, as they both own more than 5% of Legal Entity 1.

Natural Person 4 (50% * 7% + 50% * 7% = 3.5% + 3.5% = 7%), is also the beneficial owner as Natural Person 2 is acting as a nominee on behalf of Natural Person 4.

There are no other nominee arrangements and other persons who could have an indirect influence on Natural Persons mentioned in the diagram.

We are in jurisdiction that uses 5% threshold.

This is another example of multi-level-indirect shareholding.

Natural Person 1 is the beneficial owner of Legal Entity 1, as it indirectly owns shareholding in the Legal Entity 1 through Legal Entity 2, with shareholding of 46.5 percent.

The percentage of ownership is calculated using the formula (50% * 93% = 46.5%).

Natural Person 3 is also the beneficial owner of Legal Entity 1, as it indirectly owns shareholding in Legal Entity 1 through Legal Entity 3. The percentage of ownership of 46.5 percent is calculated using the formula (50% * 93% = 46.5%).

Natural Person 2 who, indirectly through Legal Entity 2, owns 3.5 percent (50%* 7% = 3.5%) of Legal Entity 1 is a formal nominee acting on behalf of Natural Person 4.

Natural Person 4, indirectly, through Legal Entity 3, owns 20 percent (50% * 7% = 3.5%) of Legal Entity 1. He also indirectly, through Natural Person 2, owns/controls another 3.5 percent of Legal Entity 1 through Legal Entity 2. In total he indirectly owns/controls seven percent of Legal Entity 1. Natural Person 4 is the beneficial owner of the Legal Entity 1.

It is important to emphasise that Natural Person 1, Natural Person 3 and Natural Person 4 are not the intermediaries, agents or nominal owners and there are no other persons who could have an indirect influence on the company's activities.

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Example 7. Looping Relationships and multi-level indirect shareholding


In this scenario, for example, we have a relatively small 3% owner. In reality, this individual is the only beneficial owner, who can receive profits from activity of both companies.

In many cases, on practice, such individual also have influence over company's management through informal means.

Natural person 1 is the beneficiary owner of both legal entities as he is the only one who can receive profits and exercise control over it's activity.

We are in jurisdiction that uses 5% threshold.

This is an example of looping relationships and multi-level indirect shareholding.

Natural Person 1 is three percent owner of Legal Entity 1.

Legal Entity 1 and Legal Entity 2 own each other.

Natural Person 1 is the only person who can receive profit from the company's activity. In many cases, such persons also have influence over the company's management.

Natural Person 1 is the beneficiary owner of both Legal Entity 1 and Legal Entity 2 as he receives profit from the company's activity and may exercise control over its activity through other means.

Example 8. "Football team" (informal nominee arrangements)


In this scenario, Legal Entity 1 is owned by two legal entities, Legal Entity 2 and Legal Entity 3, which in turn are owned by a "football team" of unknown individuals. There is no one who own more than 5% of shares.

At the same time Natural Person 1 is the one who can control all decisions of the management of Legal entity 1 and Legal entity 2.

Natural Person 1 is the ultimate beneficial owners of Legal Entity 1.

As he can control Legal entity 2 and Legal entity 2 through other means.

We are in jurisdiction that uses 5% threshold.

In this scenario, Legal Entity 1 is owned by two legal entities, Legal Entity 2 and Legal Entity 3, which in turn are owned by "football teams" of unknown individuals. No one natural person owns more than five percent of shares.

All mentioned individuals are formal or informal nominees.

Do we have a beneficial owner? Yes, but he is not reflected in any ownership documents. There is a Natural Person 1 who controls all shareholders and management of Legal Entity 1 and Legal Entity 2.

Natural Person 1 is the beneficial owner of Legal Entity 1, as he can controls Legal Entity 2 and Legal Entity 3 through other means (e.g. through informal nominees).

This is an example of the ownership structure that has significant AML/CFT concerns.

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Example 9. Joint-Stock company


In this example, Legal Entity 1 is a subsidiary of a Joint-Stock company. Number of shareholders - 10,000. The largest percentage of shareholding is 3%.

In such public company, there is no individual who owns 10% or more, and control is exercised by individual through positions held within a legal entity, such as a chief executive officer (CEO), managing or executive director, or president.

Such a Individual is the ultimate beneficial owner as he can exercises executive control over the daily or regular affairs of the company.

We are in jurisdiction that uses 5% threshold.

In this scenario, Legal Entity 1 is a subsidiary of a joint-stock company.

The number of shareholders of this publicly traded company is around 10 000. The largest percentage of shareholding is three percent.

Do we have a beneficial owner in this situation? Yes.

In such public companies, there is no one natural person who owns five percent or more, and control is exercised by the individual through positions held within a legal entity, such as a chief executive officer, managing or executive director, or president of the legal entity.

Such an individual is the ultimate beneficial owner as he can exercise executive control over the daily or regular affairs of the company.

At the same time, in this situation, it is required to keep clear records of the actions taken explaining why it was decided to identify and record the identity of the senior managing official. In such a case, the CDD files (or the registration data) should clearly specify that this individual is only a senior manager and not a "real" beneficial owner.

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Example 10. Multi-Level Indirect Shareholding (Trust)


This is an example of multi-level indirect shareholding including a trust. One of the shareholders of Legal Entity 1 is a trust. It is important to note that the trust is not a legal person. A trust carries out its activities in accordance with the legislation of the country of formation.

In this example, Natural Person 1 (40 percent) is the ultimate beneficial owner of Legal Entity 1, since he indirectly through Legal Entity 2, owns a 40 percent ownership stake in Legal Entity 1.

It is important to emphasise that Natural Person 1 is not the intermediary, agent or nominal owner and there are no other persons who could have an indirect influence on the company's activities.

The trust owns 60 percent of Legal Entity 1. The settlor, the trustee(s), the protector (if any) and the beneficiaries of the trust, as well as any other natural person who exercise ultimate control over the trust by means of direct or indirect ownership or by other means are the beneficiary owners of the trust and beneficiary owners of the Legal Entity 1.

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Example 11. Multi-Level Indirect Shareholding (Investment Fund).


Natural Person 1 (40% of shareholding) is the beneficial owner the legal entity, provided that he is not the nominal owner and there are no other persons who could have an indirect influence on the company's activities.

Investors of the Fund (5% or more), UBOs of the Fund Manager, and all who control the assets of the Investment Fund and make investment decisions are also the ultimate beneficial owners of Legal entity 1.

We are in jurisdiction that uses 5% threshold.

This is an example of multi-level-indirect shareholding including an investment fund. One of the shareholders of Legal Entity 1 is an investment fund. It is important to note that an investment fund may or may not be a legal entity and carries out its activities in accordance with the legislation of the country of establishment.

In this example, Natural Person 1 (40 percent) is the ultimate beneficial owner of Legal Entity 1, since he indirectly, through Legal Entity 2, owns a 40 percent ownership stake in Legal Entity 1.

It is important to emphasise that Natural Person 1 is not the intermediary, agent or nominal owner and there are no other persons who could have an indirect influence on the company's activities.

The investment fund owns 60 percent of Legal Entity 1.

Investors of the fund who own five percent or more, beneficial owners of the fund manager and all who control the assets of the investment fund and make investment decisions are the beneficial owners of the investment fund and beneficial owners of Legal Entity 1.

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Example 12. Trust and Investment Fund


In this scenario, the trust and investment fund both indirectly equally own 50 percent of Legal Entity 1. Beneficial owners of the Legal Entity 1 will be:

For the trust:

- The founder/settlor (the one who established the trust and transferred the property to the trustee

- The trustee(s) (the one who got the property)

- The protector (if any) (the one who can direct or restrain the trustees)

- The beneficiaries (the ones who will receive all profit)

- Any other person who can exercise ultimate control over the trust by means of direct or indirect ownership or by other means.

For the investment fund:

- Investors of the fund (who invested five percent or more of fund assets)

- Beneficial owners of the fund manager

- All who control the assets of the investment fund and make investment decisions.

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Example 13. Trust (established by legal persons)


The protector (an individual) and the beneficiaries (individuals) of the Trust are the beneficiary owners of Legal entity 1.

The settlor and the trustee of a Trust are legal persons. For that reason it's necessary to identify beneficial owners of such legal persons.

Natural Person 1 and Natural Person 2 (beneficial owners of the Settlor) and Natural Person 3 (beneficial owner of the Trustee) are also the beneficial owners of the Legal entity 1.

We are in jurisdiction that uses 5% threshold.

If the legal person or the legal arrangement acts as a founder/settlor, trustee, protector or beneficiary of the trust etc, the beneficial owners of the trust will be individuals who are the beneficial owners of such legal persons or arrangements.

Ultimate beneficial owners of the Legal Entity 1 are:

- The protector and the beneficiaries of the trust as all of them are natural persons

- The founder/settlor and the trustee of a trust are legal persons. For that reason, it's necessary to identify beneficial owners of such legal persons

- Natural Person 1, Natural Person 2 and Natural Person 3 are also the beneficial owners of Legal Entity 1. As Natural Person 1 and Natural Person 2 are beneficial owners of the founder/Settlor and Natural Person 3 is the beneficial owner of the Trustee.

Example 14. Trust (Trustee is another Trust)


The settlor, the protector (if any), the beneficiaries of Trust1, and any other who can exercise ultimate control over the Trust1 by means of direct or indirect ownership or by other means are Beneficial owners of the Trust1.

Trust2 is the Trustee of a Trust1. For that reason it's necessary to identify beneficial owners of Trust 2.

The settlor, the trustee(s), the protector (if any), the beneficiaries of Trust2, and any other who can exercise ultimate control over the Trust2 by means of direct or indirect ownership or by other means are Beneficial owners of the Trust2 and are Beneficial owners of the Trust1.

We are in jurisdiction that uses 5% threshold.

In this scenario, the Trust 2 is the trustee for Trust 1. For that reason, it is necessary to identify beneficial owners of Trust 1 and Trust 2.

In this situation, the founder/settlor, the protector (if any), the beneficiaries of Trust 1, and any other person who can exercise ultimate control over the Trust 1 by means of direct or indirect ownership or by other means would be beneficial owners of the Trust 1.

The founder/settlor, the trustee(s), the protector (if any), the beneficiaries of Trust 2, and any other who can exercise ultimate control over the Trust 2 by means of direct or indirect ownership or by other means are beneficial owners of Trust 2 and are beneficial owners of Trust 1.

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Example 15. Investment Fund (owned by legal persons)


BOs of the Fund Manager, and all who control the assets of the Investment Fund and make investment decisions are the beneficial owners of Legal Entity 1.

Legal Entity 2 is the investor of the Investment Fund (owns 100% the fund assets).

Natural Person 1 and Natural Person 2 (beneficial owners of the Legal entity 2) are also the beneficial owners of the Fund and beneficial owners of the Legal entity1.

We are in jurisdiction that uses 5% threshold.

If the company (legal person or legal arrangement) acts as an investor of the investment fund with the stake of five percent or more, all beneficial owners of such a company will also be the beneficial owners of the investment fund.

In this scenario, beneficial owners of the fund manager, and all who control the assets of the investment fund and make investment decisions are the beneficial owners of the investment fund and beneficial owners of Legal Entity 1.

Legal Entity 2 is the investor of the investment fund that owns 100 percent of the fund's assets.

Natural Person 1 and Natural Person 2 (beneficial owners of Legal Entity 2) are also the beneficial owners of the fund and beneficial owners of Legal Entity 1.

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Example 16. Investment Fund (owned by another Investment Fund)


BOs of the Fund Manager, and all who control the assets of the Investment Fund 1 and make investment decisions are the beneficial owners of the Investment Fund 1.

Investment Fund 2 is the investor of the Investment Fund 1 (owns 100% of the fund assets).

Investors of the Investment Fund 2 (5% or more), BOs of the Fund Manager, and all who control the assets of the Investment Fund 2 and make investment decisions are the beneficial owners of the Investment Fund 2 and Investment Fund 1.

We are in jurisdiction that uses 5% threshold.

In this scenario, Investment Fund 2 is the investor of Investment Fund 1 (owns 100 percent the fund assets). For that reason, it is necessary to identify beneficial owners of Investment Fund 1 and Investment Fund 2.

In this situation, the beneficial owners of Fund Manager 1 and all who control the assets of Investment Fund 1 and make investment decisions are the beneficial owners of Investment Fund 1.

Investors of Investment Fund 2 (five percent or more), the beneficial owners of Fund Manager 2 and all who control the assets of the Investment Fund 2 and make investment decisions are the beneficial owners of Investment Fund 2 and beneficial owners of Investment Fund 1.

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ANNEXURE B

9. RISKS ASSOCIATED WITH THE BENEFICIAL OWNER

9.1. The requirements set out in section 21B of the FIC Act applies as a rule and are not based upon the risk rating of the client. Further, the determination of the ML, TF and PF risk of the client is dependent on the review of the beneficial ownership. Where the beneficial owners are high-risk persons, such a factor should be considered when determining the overall risk rating of the client.

9.2. Where the legal person presents a heightened ML, TF and PF risk, the accountable institution may seek to identify all the beneficial owner levels, thus not eliminating any level of beneficial owner (controlling owners, effective manager, directors etc.). For example, where the legal person is deemed to be high risk, the accountable institution may identify and take reasonable steps to verify even the ultimate owner who holds one percent ownership interest.

9.3. The risk level of the client must be considered to determine the appropriate level of verification.

9.4. The lack of adequate, accurate and timely beneficial ownership information may result in disguising known or suspected criminals, the true purposes of a business relationship or single transactions or the source of funds.

Indicators of ML, TF and PF risk

Various indicators point toward a heightened risk of ML, TF and PF. These include but are not limited to:

- Allegations of ML, TF and PF, and bribery, corruption or other predicate offences that involve beneficial owner(s).

- The beneficial owner(s) has a reputation of unethical conduct.

- The beneficial owner(s) is associated with persons who have been convicted of ML, TF and PF, bribery, corruption and/or any other predicate offence.

- The beneficial owner(s) has been previously charged with fraud, tax evasion, or serious crimes ML, TF and PF, corruption and/or any other predicate offence, and has not been acquitted and/or has been previously convicted thereof.

- The beneficial owner(s) controls public funds and/or controls public benefits, e.g. decisions on whether to award tenders, grants, procurements and licences etc.

- The beneficial owner(s) is a foreign or domestic politically exposed person or other high-risk person.

- Where a legal entity avoids providing beneficial ownership information

- The legal entities have been awarded large and/or numerous tenders from government or state owned companies.

- The legal entity's account activity does not align to the stated source of wealth and source of funds.

- The legal entity's assets acquired do not align with the legal entity's source of wealth and source of funds.

- Beneficial owners:

- Have family or professional associations with a person who is politically exposed

- Are under investigation or have known connections with criminals

- Have previously been prohibited from holding directorship roles in a company or operating a trust and company service provider

- Signatories for company accounts without sufficient explanation.

Legal persons or legal arrangements:

- Have demonstrated a long period of inactivity following incorporation, followed by a sudden and unexplained increase in financial activities

- Describe themselves as a commercial business but cannot be found on the internet or social business network platforms

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- Are registered under a name that indicates that the company performs activities or services that it does not provide

- Are registered under a name that appears to mimic the name of other companies, particularly high-profile multi-national corporations

- Use an e-mail address with an unusual domain

- Are registered at an address that does not match the profile of the company

- Are registered at an address that cannot be located on internet mapping services

- Are registered at an address that is also listed against numerous other companies or legal arrangements, indicating the use of a mailbox service

- Where the director or controlling shareholder(s) cannot be located or contacted

- Where the director or controlling shareholder(s) do not appear to have an active role in the company

- Where the director, controlling shareholder(s) and/or beneficial owner(s) are listed against the accounts of other legal persons or arrangements, indicating the use of professional nominees

- Have declared an unusually large number of beneficiaries and other controlling interests

- Have authorised numerous signatories without sufficient explanation or business justification

- Are incorporated or formed in a jurisdiction that is considered to pose a high money laundering or terrorism financing risk

- Are incorporated or formed in a low-tax jurisdiction, international trade or finance centre

- Regularly send money to low-tax jurisdictions, international trade or finance centre

- Conduct a large number of transactions with a small number of recipients

- Conduct a small number of high-value transactions with a small number of recipients

- Regularly conduct transactions with international companies without sufficient corporate or trade justification

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- Maintain relationships with foreign professional intermediaries in the absence of genuine business transactions in the professional's country of operation

- Receive large sums of capital funding quickly following incorporation or formation, which is spent or transferred elsewhere in a short period of time without commercial justification

- Maintain a bank balance of close to zero, despite frequent incoming and outgoing transactions

- Conduct financial activities and transactions inconsistent with their corporate profile

- Are incorporated or formed in a jurisdiction that does not require companies to report beneficial owners to a central registry

- Operate using accounts opened in countries other than the country in which the company is registered

- Involve multiple shareholders who each hold an ownership interest just below the threshold required to trigger enhanced due diligence measures

- Make frequent payments to foreign professional intermediaries

- Are using multiple bank accounts without good reason

- Are using bank accounts in multiple international jurisdictions without good reason

- Appear focused on aggressive tax minimisation strategies

- Are interested in foreign company formation, particularly in jurisdictions known to offer low-tax or secrecy incentives, without sufficient commercial explanation

- Demonstrate limited business acumen despite substantial interests in legal persons

- Ask for shortcuts or excessively quick transactions, even when it poses an unnecessary business risk or expense

- Appear uninterested in the structure of a company they are establishing

- Require introduction to financial institutions to help secure banking facilities

- Request the formation of complex company structures without sufficient business rationale

- Have not filed correct documents with the tax authority

- Provide falsified records or counterfeit documentation

- Are designated persons or groups on a targeted financial sanctions list

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- Appear to engage multiple professionals in the same country to facilitate the same (or closely related) aspects of a transaction without a clear reason for doing so.

- Examination of business records indicate:

- A discrepancy between purchase and sales invoices

- Double invoicing between jurisdictions

- Fabricated corporate ownership records

- False invoices created for services not carried out

- Falsified paper trail

- Inflated asset sales between entities controlled by the same beneficial owner

- Agreements for nominee directors and shareholders

- Family members with no role or involvement in the running of the business are listed as beneficial owners of legal persons or arrangements

- Employees of professional intermediary firms acting as nominee directors and shareholders

- The resignation and replacement of directors or key shareholders shortly after incorporation

- The location of the business changes frequently without an apparent business justification

- Officials or board members change frequently without an appropriate rationale.

- Complex corporate structures that do not appear to legitimately require that level of complexity or which do not make commercial sense

- Simple banking relationships are established using professional intermediaries.

- Indicators of shell companies

- Nominee owners and directors:

- Formal nominees (formal nominees may be "mass" nominees who are nominated agents for a large number of shell companies)

- Informal nominees, such as children, spouses, relatives or associates who do not appear to be involved in the running of the corporate enterprise.

- Address of mass registration (usually the address of a trust and company service provider that manages a number of shell companies on behalf of its customers)

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- Only a post box address (often used in the absence of professional a trust and company service provider and in conjunction with informal nominees)

- No real business activities undertaken

- Exclusively facilitates transit transactions and does not appear to generate wealth or income (transactions appear to flow through the company in a short period of time with little other perceived purpose)

- No personnel (or only a single person as a staff member)

- Pays no taxes, superannuation, retirement fund contributions or social benefits

- Does not have a physical presence.

- The legal person is a shell company (no business operation or no significant business operations, assets, or employees. Use of only post box address and no physical location), especially where beneficial owners are in various foreign geographic areas

- The legal person is a shelf company, with no clear beneficial ownership history

- Complex ownership structures with various layers of legal ownership

- Legal persons that issue bearer shares and warrants

- Legal persons are directors of the legal person

- Legal persons that have nominee directors or nominee shareholders

- Nominators, nominee directors or nominee shareholders are not disclosed

- Nominee directors or nominee shareholders are informal (e.g. immediate family members or known close associates)

- Complex ownership structure which includes trusts as legal owners

- Use of intermediaries to form legal persons

- The legal person operates a business with a turnover that does not make business sense (this could include a cash intensive business or other payment methods), may be an indication of a front company. Front companies integrate illegal source funds with legitimate business funds. False invoicing for the payment of phantom expenses.

- The legal person has registered in one geographic area, however, operates predominantly from another jurisdiction

- The legal person's transactions appear to be that of a Ponzi scheme

- The legal person's transactions are structured in a manner to avoid tax

- The name of the legal person is misleading, and may be mistaken with a more well-known legitimate entity in a seemingly purposeful manner

- False loans or invoices have been used by the legal person

- False or misleading information included in the annual report, or the legal person's prospectus

- The legal person has indicated numerous beneficiaries

- The legal person has replaced a recently liquidated legal person in its business operations, which might be an indicator that the liquidated legal person has avoided contractual obligations to its debtors, through the formation of a new legal person.

ANNEXURE C

Sources of South African securities exchanges*

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*Not a comprehensive list. Accountable institution to determine rules of listed companies regarding beneficial ownership and availability of beneficial ownership information