Trust-worthy: Trustees, trust administrators, and accountants brace yourselves

Trust-worthy: Trustees, trust administrators, and accountants brace yourselves

Amendments to the Financial Intelligence Centre Act impact all trust service providers, whether you are an independent trustee, trust administrator, or accountant. Picture:

After the government promulgated onerous amendments to the Trust Property Control Act (TPCA) on December 22, 2022, and issued regulations for its implementation on March 31, 2023, the Department of Justice and Constitutional Development issued a media statement reminding (informing) the public that these new measures have come into effect from 1 April 2023 with the heading “Increased measures for Trusts to combat money-laundering and terrorism financing crimes”.

Although many believe that this is a government initiative, the media statement reminded us that South Africa is obliged, as a member of the Financial Action Task Force (FATF), to ensure that its regulatory environment is geared towards international standards in anti-money laundering and combating the financing of terrorism.

It also reminded us that a trustee convicted of any offence as a result of not acting in terms of the amended TPCA laws will be liable to a fine of up to R 10 million, or imprisonment for up to five years, or to both such fine and imprisonment.

Before introducing these amendments, the TPCA had no prescribed penalties for non-compliance. At the same time, amendments to the Financial Intelligence Centre Act (Fica) were promulgated, which impact all trust service providers providing these services as a “business”, whether you are an independent trustee, trust administrator, or accountant.

Non-compliance with this Fica can lead to hefty penalties, including a financial penalty of up to R 10m for a natural person or up to R 50m for a legal person, or imprisonment for a period not exceeding 15 years or a fine not exceeding R100m for more serious offences..

Are you impacted by the TPCA, the Fica or both?

There seems to be confusion about the extent to which independent trustees, trust administrators, and accountants are impacted by the legislation changes. The General Laws Amendment Act amended the TPCA, Fica, the Companies Act, Financial Sector Regulation Act, and the Nonprofit Organisations Act.

Although everyone focuses on the “beneficial owner” measures introduced into the TPCA, two of the new provisions introduced also expects trustees to have knowledge of who are “accountable institutions” in terms of the Fica and to act accordingly. They have to keep a record of this extensive list of “accountable institutions” they deal with in their capacities as trustees and keep paperwork of their interactions with them.

The list of “accountable institutions” includes many more than just the banks that traditionally “Fica” us, and now includes a wide range of designated non-financial businesses and professions that may facilitate money laundering such as those who sell any items to the value of R100 000 or more to anyone and payment is made in any form, certain credit providers, estate agents, etc.

When trustees deal with third parties, one of the first questions they now have to ask is whether the person or entity is an “accountable institution” so that they can meet the requirements in terms of the new provisions in the TPCA. This requires educating layperson trustees about the extensive list of “accountable institutions” as well as their new obligations.

New provisions of the Fica have been introduced. Independent trustees, trust administrators, and accountants are regarded as designated providers in Schedule 1, item 2 under Fica and have to register as “accountable institutions”, regardless of whether they are also registered under any other item on this Schedule.

The FIC (Financial Intelligence Centre) held a webinar this week titled “Registration, RBA & Fica Obligations For Accountants”, clearing up any misconceptions and making it clear that accountants are also included as trust and company service providers in terms of Schedule 1, item 2 of the Fica. They emphasised the registration process on their portal, item 2, a risk-based approach, and the regulatory obligations for accountants in terms of the Fica.

According to their media statement released late last year, supervisory bodies will conduct inspections and, where warranted, issue remedial administrative sanctions, based on a risk-based approach, to correct identified areas of non-compliance. “In respect of the new sectors, the FIC and supervisory bodies do not envisage issuing financial penalties for non-compliance with (Fica) during the transitional 18-month period,” it stated.

This, however, does not mean that impacted service providers do not have to start meeting the requirements in terms of this act. In fact, apart from the requirement to register as an “accountable institution”, affected service providers had to submit a risk and compliance return by the end of May this year, and also had to provide their assessment of compliance with obligations in terms of the Fica.

Getting off the grey list is a team effort of government and the industry (all South Africans)

Many affected service providers do not take the new measures seriously, relying on the government’s inability to police the new measures. Most service providers are also worried about the security of information uploaded onto the Master of the High Court’s portal, given that the Master’s temporary solution provided is Google docs, and advise their clients not to load the required information (or even unilaterally decide not to load it).

All trust service providers and their professional bodies should rather demand the Master to meet its requirements as envisaged in the regulations published earlier this year, the regulation that requires the Master to provide an electronic register that provides for “adequate security measures for the protection of the information contained in the register”. It does not appear if the current (temporary) solution provided by government meets these legal obligations imposed upon them by themselves.

Getting off the grey list is a team effort and requires full government and industry co-operation. The legislation changes did not impose a one-sided obligation, allowing the non-co-operating party to hold the stick.

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