What is Beneficial Ownership? 

Beneficial Ownership refers to the ownership structures of legal entities, such as companies or trusts. By identifying beneficial ownership structures, one is establishing exactly which individuals benefit from the privileges associated with ownership of a legal entity – benefits may include profits and/or leadership authority. 

Sometimes, the actual owner of a company is not the same individual under whose name the company’s title is listed on paper. In other words, although the title for Company X may be under the name of Mr Allen, Company X may actually belong to Mrs James. In this case, Mrs James is the beneficial owner. 

Establishing the beneficial ownership of an entity can be challenging. Ownership structures may be designed to be highly convoluted and complex – either legally or illegally so – for several reasons. It should be noted that beneficial ownership structures are legal, so long as they are explicitly declared. 

When beneficial ownership structures are illegally constructed, they are most often done so for money laundering and tax evasion. The potential for beneficial ownership structures to facilitate illegal activity means that it is important for countries to regulate how beneficial ownership structures may legally be used, so as to reduce the chance that they are used to fund criminal activity. 

Are Beneficial Ownership Laws the Same Across the World? 

Across the world, Beneficial Ownership has become a foundational concept in any economy based on legitimacy and transparency. Across North America, the European Union, Southeast Asia and an increasing portion of the developing world, Beneficial Ownership laws have become a staple of national economies. 

Most countries have their own beneficial ownership laws that are tailored to fit seamlessly within their broader legislative framework, so there is no single beneficial ownership law. However, there do exist universal guidelines for good practice when designing, implementing and maintaining beneficial ownership laws. 

The Organisation for Economic Co-operation and Development (OECD) – a leading intergovernmental organization for promoting economic growth and trade – identifies Beneficial Ownership laws as central components of any strong and safe economy. 

Similarly, the World Bank advocates for Beneficial Ownership laws as an effective way to increase transparency in entrepreneurship and trade, both for Small and Medium Enterprises (SMEs) and large multinational corporations.  

Both the OECD and the World Bank clearly identify that a strong AML/CFT regulatory framework must include mandatory Beneficial Ownership lists, wherein companies are legally obligated to explicitly declare beneficial ownership structures to national regulatory authorities. 

Given that Beneficial Ownership laws are so supported and have become a foundational component of many of the world’s largest economies, why are they only being implemented in South Africa now? 

Why Have South Africa’s New Beneficial Ownership Laws Been Implemented? 

For years, South Africa's judicial system suffered from a weak AML/CFT regulatory framework and systematic corruption – the years of pervasive State Capture that began under the administration of Jacob Zuma fundamentally weakened South Africa’s capacity to combat severe financial crime. 

South Africa’s critical and pervasive legislative shortcomings have for years generated concern from finance and corruption watchdogs, with alarm bells repeatedly being sounded in the last three years. The FATF conducted its two-year Mutual Evaluation Report (MER) on South Africa between 2019 and 2021, which evaluated the capacities of South Africa’s AML/CFT legislative framework. 

The findings of the MER were dire. The FATF’s report found widespread critical deficiencies in South Africa’s AML/CFT legislative framework and in October 2021, South Africa was given one year to correct these deficiencies or the country would face the risk of being placed on the FATF’s greylist – a status that undermines the extent to which companies and other countries can conduct financial transactions to and from South Africa. 

In its one-year grace period, South Africa failed to address the FATF’s concerns. On the 24th of February 2023, South Africa was greylisted by the Financial Action Task Force (FATF) – a decision taken by the watchdog after South Africa failed to demonstrate that it was actively addressing critical issues in its AML/CFT legal framework. To understand more about what exactly being greylisted has meant for South Africa, read our analysis here.  

Since being greylisted, South Africa has made a concerted effort to fix the critical issues that have been highlighted by the FATF, one of which is South Africa’s lack of comprehensive Beneficial Ownership laws. 

The most recent legal changes introduced by the Companies and Intellectual Property Commission (CIPC) are therefore South Africa attempting to fix critical legal shortcomings and get itself removed off the FATF’s greylist. 

The new Beneficial Ownership laws will strengthen South Africa’s broader AML/CFT framework and make it harder for criminals to conduct illicit transactions and launder money. This will be achieved by legally obligating many businesses in South Africa to officially register their beneficial ownership structures with the CIPC, thereby promoting transparency by clearly establishing accountability. 

To read more about how this impacts your business, read our informative summary here. 

Politically Exposed Persons Checks and Sanctions Checks for South Africa 

As South Africa’s leading provider of identity verification, due diligence and risk management solutions, ThisIsMe provides world-class AML/CFT solutions that can help your business secure its transactions and verify whom it does business with. To experience our full suite of solutions and find out how we can empower your business with class-leading tools, contact our team here.