Accountability and transparency are high on the desirable list of individuals and institutions and that of government departments. However deeply entrenched in our society we find the many ways in which these are only empty words.
To avoid the economic ramifications of greylisting by Financial Action Task Force (FATF), South Africa has hastily prepared the General Laws (Anti-Money Laundering and Combating Terrorism Financing) Amendment Bill (the Bill).
The General Laws Amendment Bill amends are five pieces of legislation, namely:
- the Companies Act, 2008.
- financial Intelligence Centre (FIC) Act, 2001.
- financial Sector Regulation Act, 2017.
- the Non-Profit Organisations Act, 1997, and
- the Trust Property Control Act, 1988.
South Africa can avoid possible greylisting if it were to implement recommendations contained in the FATF mutual evaluation report.
SA Reserve Bank Governor Lesetja Kganyago has said the process to avoid greylisting is more than what the Prudential Authority (PA) is doing, and that it involves law enforcement and prosecuting authorities, among others.
In this article we look at the role of Trusts regarding grey areas in our system which is playing a role in the assessment of greylisting South Africa.
There were 180,159 trusts on the electronic register at the end of 2018.
The Master’s Office shares all information in its database with the SA Revenue Service (Sars) for tax assessment and investigation of tax crime purposes. The effectiveness can be questioned.
South Africa has a high volume and intensity of crime, and more than half of reported crimes fall into categories that generate proceeds. The main domestic proceeds-generating predicate crimes are tax crimes, corruption and bribery, fraud, then trafficking in illicit drugs, and environmental type crimes.
According to the recent Mutual Evaluation Report, insufficient Beneficial Ownership (BO) transparency is an acute vulnerability as companies and trusts are often misused for Money Laundering (ML) or to conduct predicate crimes, making attorneys and trust and company service providers inherently vulnerable to misuse. Corporate anonymity poses significant risks to domestic resource mobilisation in Africa.
Research by the UN Conference on Trade and Development (Unctad) suggests that African countries can retain an estimated $89 billion (R1.5 trillion) per year if illicit capital flight can be addressed.
Corruption, tax related crimes and fraud are understood as the main domestic ML threats by the key Anti Money Laundering (AML)/ Combating the Financing of Terrorism Compliance (CFT) authorities consistently, but their understanding of the relative scale of such threats as well as the vulnerabilities or channels exploited to launder the proceeds is less developed.
The registration of Trusts in South Africa falls under the Department of Justice and Constitutional Development (DOJ&CD) in the office of the Master of the High Court. Jurisdiction lies with the Master in whose, the greater or greatest portion of the trust property is situated. Furthermore, the Minister of Justice may make regulations regarding any matter which in terms of this Act is required or permitted to be prescribed.
There is no regulator for this sub-sector of the financial system. Neither the FSCA or the PA takes responsibility for the monitoring and or regulation of this sector. Little wonder that there is such a vast asset hiding place within our borders that is ensured of privacy and unaccountability.
As stated by Trusts-Unlimited, “In view of want for legal certainty, it may be the time now again for a review of the entire subject of the law of trusts by the South African Law Commission (see the Commission’s last report, published in June 1987: Project 9 Review of the law of trusts, which led to the promulgation of the Trust Property Control Act 57 of 1988), or, perhaps, any other law-making body.”
Trust and Company Service Providers (TCSPs) play a key role in the global economy as financial intermediaries, providing an important link between financial institutions and many of their customers. TCSPs play a key role as the gatekeepers for the financial sector.
While the majority of TCSPs appear to be established for legitimate purposes, it is clear from the research that some TCSPs are being used, unwittingly or otherwise, to help facilitate crimes.
A recent questionnaire relating to International Standards raised the following questions. “In your view, is there a need for the establishment of an international organisation (such as IAIS, IOSCO, Basel etc.) dedicated solely to TCSPs?”
It seems that many a horse has already bolted but nothing prevents a new regulator to investigate past digressions. The new Bill amendment will inter alia attempt to improve beneficial ownership data access to law enforcement agencies by mandating the creation of various registers such as a beneficial ownership register for trusts within the Master’s Office.
In South Africa there are several high-profile cases involving Trusts. To name a few: -
⦁Markus Jooste: The company that owns the seaside mansion in Hermanus where former Steinhoff CEO Markus Jooste has been living, secured a R75 million bond with a trust according to a Silver Oak Trust trustee.
⦁The Ngonyama Trust is the best example of the misuse of a Trust in South Africa. The Council for the Advancement of the South African Constitution has described a Pietermaritzburg High Court ruling as far-reaching, in which it set aside rental leases for communal land in KwaZulu-Natal. There are many more serious issues at stake.
⦁Then Public Protector Thuli Madonsela in her report into On-Point Engineering, questioning the circumstances under which a tender was awarded. The engineering company is owned by Guilder Investments, where former ANC Youth League Leader Julius Malema is the main shareholder. Madonsela resolved that the tender awarded to On-Point Engineering was improper. “The way the company conducted itself is in violation of the Prevention and Combating of Corrupt Activities Act. It is true that the Ratanang Family Trust benefited improperly.”
⦁In the case of the Amazon headquarters to be built in Cape Town, Judge Goliath noted that if construction was allowed to continue, there was a danger of the developers — Liesbeek Leisure Properties Trust in partnership with Zenprop — building themselves into an “impregnable position”. The development, is planned to accommodate, among others, the African headquarters for Amazon Web Services.
⦁ The Commissioner of the Broad-Based Black Economic Empowerment (BBBEE) Commission, Zodwa Ntuli stated that the “vast majority” of transactions involving such trusts were not compliant with the law and did not constitute genuine and effective black ownership.
⦁The latest court case relates to Richard Bay Minerals approaching the court to impose tighter controls over local Community Trusts. They state in court documents a “pattern of abuse” has developed and there is a “gross lack of governance”. An amount of R530m has been paid into four Community Trusts.
The last word on Trusts has not been spoken. Sars often talks about targeting Trusts for tax transgressions, but truly little action has been seen.
Corrie Kruger is an independent analyst.
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