Implement the G20 High Level Principles on Beneficial Ownership Transparency 2. Implement a Register of Legal Persons and Arrangements (ZA0023)

Status quo: Corporate vehicles (including companies, trusts, foundations, partnerships and other types of legal persons and arrangements) play an essential role in the global economy and conduct a wide variety of legitimate commercial and entrepreneurial activities. However, they are also misused by criminals for Illicit purposes, including money laundering, bribery and corruption, insider dealings, tax fraud, terrorist financing and other illegal activities.

Main objective: Take concrete actions to implement the G20 High Level Principles on Beneficial Ownership Transparency and to meet the Financial Action Task Force (FATF) standards regarding the beneficial ownership of companies and other legal arrangements such as trusts.

Brief description of commitment: The G20 High-Level Principles on Beneficial Ownership Transparency set out concrete measures G20 countries will take to prevent the misuse of and ensure transparency of legal persons and legal arrangements. The G20 Leaders encourage all countries to tackle the risks raised by the opacity of legal persons and legal arrangements.

South Africa commits to take concrete action and to share in writing by means of developing, publishing and reporting regular progress on a Country Implementation Plan regarding the various steps to be taken to implement these principles and improve the effectiveness of their legal, regulatory and institutional frameworks with respect to beneficial ownership transparency.

OGP challenge: Attempt by G20 countries to prevent the misuse of and ensure transparency of legal persons and legal arrangements. Improve the transparency of legal persons and arrangements in order to protect the integrity and transparency of the global financial system.

Relevance:
Access to information:
-This initiative will ensure that South African competent authorities (including law enforcement and prosecutorial authorities, supervisory authorities, the South African Revenue Service (SARS) and the Financial Intelligence Centre) have timely access to adequate, accurate and current information regarding the beneficial ownership of legal persons and legal arrangements.
Technology and innovation for openness and accountability:
-The initiative will also ensure that trustees of express trusts maintain adequate, accurate and current beneficial ownership information, including information of settlors, the protector (if any) trustees and beneficiaries.

8. Implement Action Plan on G20 High Level Principles on Beneficial Ownership

Commitment Text:

Corporate vehicles (including companies, trusts, foundations, partnerships and other types of legal persons and arrangements) play an essential role in the global economy and conduct a wide variety of legitimate commercial and entrepreneurial activities. However, they are also misused by criminals for Illicit purposes, including money laundering, bribery and corruption, insider dealings, tax fraud, terrorist financing and other illegal activities.

Take concrete actions to implement the G20 High Level Principles on Beneficial Ownership Transparency and to meet the Financial Action Task Force (FATF) standards regarding the beneficial ownership of companies and other legal arrangements such as trusts.

The G20 High-Level Principles on Beneficial Ownership Transparency set out concrete measures G20 countries will take to prevent the misuse of and ensure the transparency of legal persons and legal arrangements. The G20 leaders encourage all countries to tackle the risks raised by the opacity of legal persons and legal arrangements.

South Africa commits to take concrete action and to share in writing by means of developing, publishing and reporting regular progress on a Country Implementation Plan regarding the various steps to be taken to implement these principles and improve the effectiveness of their legal, regulatory and institutional frameworks with respect to beneficial ownership transparency.

Milestones: Establishment of an Inter-Departmental Committee responsible for developing, implementing and reporting on a Country Implementation/Action Plan. Development of the Country Implementation Plan

Responsible institution: Department of Public Service and Administration (DPSA)

Supporting institutions: Financial Intelligence Centre, South African Revenue Service, National Treasury, Department of Trade and Industry, Department of Justice and Constitutional Development, National Prosecuting Authority, Companies and Intellectual Property Commission

Start date: November 2015

End date: October 2016

Context and Objectives

In a 2015 report on national arrangements to implement G20 beneficial ownership commitments, Transparency International found that the ability of competent authorities in South Africa to assess beneficial ownership information was severely restricted. It highlighted that there was no definition of beneficial ownership in South African law, and no requirements for legal entities, financial institutions, or Designated Non-Financial Businesses and Professions (DNFBPs) to collect information on the natural persons who ultimately own legal companies.^{[Note232: Maira Martini & Maggie Murphy Just for Show? Reviewing G20 promises on beneficial ownership (Transparency International, 2015) 10. ]}

In an effort to address these issues, the South African Cabinet endorsed the G20 High-Level Principles on Beneficial Ownership Transparency in October 2015.^{[Note233: 'Statement on Cabinet meeting of 21 October 2015', Government Communication and Information System, http://www.gcis.gov.za/newsroom/media-releases/statement-cabinet-meeting-21-october-2015]} This commitment identifies the establishment of an Interdepartmental Committee, responsible for developing a Country Implementation Plan in line with the beneficial ownership principles. The establishment of the Interdepartmental Committee took place in October 2015 prior to the public launch of the third national action plan.^{[Note234: Cabinet of the Republic of South Africa, 'Terms of Reference of the Interdepartmental Committee: Transparency of Beneficial Ownership', section 2 ‘Mandate’. ]} Convened by the Department of Public Service and Administration (DPSA), the Committee meets quarterly and includes representation of 20 key state departments and private sector institutions, including the National Treasury, the Financial Intelligence Centre (FIC), the Department of Trade and Industry (DTI), the Companies and Intellectual Property Commission (CIPC), the Financial Services Board and the Johannesburg Stock Exchange, among others.^{[Note235: Cabinet of the Republic of South Africa, 'Terms of Reference of the Interdepartmental Committee: Transparency of Beneficial Ownership', section 4 ‘Composition’ and section 7 ‘Frequency of Meetings. The other institutions represented on the Committee are: the DPSA; the South African Revenue Service; the South African Police Service; the National Prosecuting Authority; the Department of Justice and Constitutional Development; the Department of Social Development; the Department of International Relations and Cooperation; the State Security Agency; the National Intelligence Coordinating Committee; the South African Reserve Bank; the Financial Services Board; the Johannesburg Stock Exchange; the Estate Agency Affairs Board; the Law Society of South Africa; the National Gambling Board; and the Independent Regulatory Board of Auditors. ]} Apart from private sector regulatory institutions such as the Estate Agency Affairs Board and the Law Society of South Africa, civil society are not represented on this Committee.^{[Note236: Cabinet of the Republic of South Africa, 'Terms of Reference of the Interdepartmental Committee: Transparency of Beneficial Ownership', section 4 ‘Composition’.]} The minutes of the Interdepartmental Committee are not published online or shared with civil society organizations. Only the South African Cabinet can make information regarding the work of the Committee public.^{[Note237: Mr Itumeleng Mongale, Ethics and Integrity Management and DPSA Point of Contact for Commitment 8, email communication with IRM researcher, 12 September 2017. Mr Mongale stated that as the Committee reports to Cabinet, only Cabinet can decide to make the workings of the Committee public. ]}

Although this commitment posits that the ambition of improving the transparency of legal persons and arrangements is relevant to the OGP values of access to information and technology and innovation for openness and accountability, in substance the commitment text and milestones fail to give effect to these values. The initiative is expected to generate adequate, accurate and current information regarding the beneficial ownership of legal persons and legal arrangements, but this information will only be made available to competent South African authorities. By failing to guarantee open access to information, it excludes an essential aspect of the OGP values. Further, while future laws and regulations will generate new datasets on beneficial ownership that are suited to innovative open data solutions,^{[Note238: Adi Eyal, Director, OpenUp, interview with IRM researcher, 22 September 2017. ]} the commitment text contains no reference to the promotion and use of technologies relating to this data, other than specifying that the commitment is relevant to this OGP value. That said, the publication of progress reports on the development of the Country Implementation Plan is relevant for public access to understanding how the work on the beneficial ownership transparency is proceeding and what steps are being taken to implement the principles.

If fully implemented, the potential impact of this commitment would be minor, as the substance of the commitment is essentially procedural. The objective and activities for this commitment reflect a compromise between civil society and government. Several civil society organizations initially campaigned for a commitment squarely centred upon the establishment of a public register on beneficial ownership, and not upon the procedural milestones of establishing an Interdepartmental Committee and a Country Implementation plan.^{[Note239: Mr Theophilous Chiviru, OGP Africa Government Support and Exchange Officer, interview with IRM researcher, 28 August 2017. Mr Chiviru was also a lead campaigner with the One Campaign at the time Commitment 8 was formulated. ]} In the opinion of these organizations, the Commitment as formulated was weak because it did not commit to a public register on beneficial ownership, and did not define the appropriate institutional home for such register.^{[Note240: Mr Theophilous Chiviru, OGP Africa Government Support and Exchange Officer, interview with IRM researcher, 28 August 2017. ]} Furthermore, the potential impact of the establishment of the Interdepartmental Committee is none as the action was completed prior to the launch of the action plan.

Completion

This commitment was completed. The Interdepartmental Committee has finalised the Country Implementation Plan on time.^{[Note241: A copy of the Country Implementation Plan is on file with the IRM researcher. ]} In what could be regarded as an important milestone for the Plan’s implementation, the President signed the FIC Amendment Act, 2017 into law on 26 April 2017.^{[Note242: National Treasury, 'Media Statement: Minister signs FIC Amendment Act into operation', 13 June 2017.]} The Amendment Act inserts a definition of ‘beneficial owner’ into the FIC Act,^{[Note243: The definition reads as follows: ‘'beneficial owner' in respect of a legal person, means a natural person who, independently or together with another person, directly or indirectly, (a) owns the legal person, or exercises effective control over the person', see s 1 FIC Act. ]} and contains provisions responding to the FATF recommendations on adequate customer due diligence and record-keeping measures. The Minister of Finance signed various provisions of the FIC Amendment Act into law on 13 June 2017.^{[Note244: See National Treasury, 'Commencement of Financial Intelligence Centre Amendment Act, 2017', Government Notice 563 Government Gazette 40916 of 13 June 2017. ]} There was a 30-day public consultation period.^{[Note245: National Treasury, 'Media Statement: Minister signs FIC Amendment Act into operation', 13 June 2017. The documents tabled for noting and public consultation are: a Draft Guidance, issued by the FIC, to assist accountable institutions to implement the FIC Amendment Act; a National Treasury high-level document A New Approach to Combat Money Laundering and Terrorist Financing, providing long-term vision, strategy and overview on implementation of the FIC Amendment Act; a Roadmap for supervisors and accountable institutions on the short-term implementation of the FIC Amendment Act; and a Government Notice on the withdrawal of exemptions and amendment or regulations. ]} The definition of beneficial owner in the FIC Amendment Act has not yet entered into effect. However, with a view to this happening, the documents released for noting and public consultation address beneficial ownership and transparency.^{[Note246: See for example, section 8 of National Treasury’s A New Approach to Combat Money Laundering and Terrorist Financing, 13 June 2017. ]}

The DPSA is further driving the Plan’s implementation by commissioning a national risk assessment of beneficial ownership, in line with Principle 2 of the G20 High-Level Principles, with an envisaged completion date of March 2018.^{[Note247: Mr Itumeleng Mongale, Director: Ethics and Integrity Management and DPSA Point of Contact for Commitment 8, interview with IRM researcher, 8 September 2017.]} There are no details given on what risks the assessment will evaluate. The lack of funding specifically dedicated to the work of the Interdepartmental Committee potentially delays giving effect to the Implementation Plan. The DPSA must either seek donor funding (e.g. for the national risk assessment), or rely on departmental budgets for specific action items, including holding public consultation.^{[Note248: Mr Itumeleng Mongale, Director: Ethics and Integrity Management and DPSA Point of Contact for Commitment 8, interview with IRM researcher, 8 September 2017.]}

Despite this progress, a lack of communication and engagement on the work of the Interdepartmental Committee has caused civil society organisations to believe that this commitment is at a ‘standstill’.^{[Note249: Leanne Govindsamy, Head: Legal & Investigations, interview with IRM researcher, 8 September 2017; Mr Theophilous Chiviru, OGP Africa Government Support and Exchange Officer, interview with IRM researcher, 28 August 2017. ]} As convener of the Interdepartmental Committee the DPSA has not published any reports regarding the Committee’s work and the Country Implementation Plan itself is not publicly available. At a civil society meeting convened by Making All Voices Count (MACV) South Africa in May 2016, the DPSA invited civil society to engage with the Interdepartmental Committee. However, one participant noted that as there had been no structured engagement with civil society on this Commitment to date the invitation to engage did not seem sincere.^{[Note250: Making All Voices Count, South Africa Community of Practice Report. Theme #P4 Partnership: Strengthening partnership in fostering OGP commitments 24 – 26 Macy 2016, 9–10]} The expectation in this regard centres on both regular correspondence and inclusion in the meetings on the Country Implementation Plan.^{[Note251: Leanne Govindsamy, Head: Legal & Investigations, interview with IRM researcher, 8 September 2017.]} Leanne Govindsamy, the head of legal and investigations at Corruption Watch, said that the MAVC workshop was the last civil society engagement on Commitment 8.^{[Note252: Leanne Govindsamy, Head: Legal & Investigations, interview with IRM researcher, 8 September 2017. ]}

The DPSA is of the opinion that it is not required to consult with or engage CSOs on the interdepartmental work being undertaken, because consultation occurs at a departmental level as departments address specific beneficial ownership transparency issues.^{[Note253: Mr Itumeleng Mongale, Director: Ethics and Integrity Management and DPSA Point of Contact for Commitment 8, interview with IRM researcher, 8 September 2017. ]}

Early Results

The commitment has been useful to the extent that South Africa’s commitments under the G20 High-Level Principles on Beneficial Ownership have been dovetailed with FATF compliance in the work of the Interdepartmental Committee. It has also provided civil society organisations with an additional ground of advocacy in their quest to secure a public register of beneficial ownership in South Africa. For example, in its submissions to the Standing Parliamentary Committee on Finance on the Draft FIC Amendment Bill, 2015, Corruption Watch noted that although the Bill needed to respond to FATF recommendations, South Africa had also made binding commitments on beneficial ownership under OGP.^{[Note254: Corruption Watch, 'Supplementary submissions by Corruption Watch: Draft Financial Intelligence Centre Amendment Bill, 2015' (12 February 2016), para 17. ]} Corruption Watch highlighted in particular that in order for South Africa to deliver on its OGP commitments, it was necessary to address interdepartmental coordination between the DTI and the FIC, as there were gaps in identifying beneficial owners under a CIPC public registry and the information obtained by the FIC from accountable and reporting institutions.^{[Note255: Corruption Watch, 'Supplementary submissions by Corruption Watch: Draft Financial Intelligence Centre Amendment Bill, 2015' (12 February 2016), para 18. ]} Corruption Watch found that the Parliamentary Committee was not aware of South Africa’s OGP commitments in this regard.^{[Note256: Leanne Govindsamy, Head: Legal & Investigations, interview with IRM researcher, 8 September 2017.]} Mr Mongale nevertheless affirmed that the DTI is going to embark on a process to amend the Companies Act, 2008, to address civil society concerns regarding the CIPC registry, which would incorporate civil society engagement.^{[Note257: Mr Itumeleng Mongale, Director: Ethics and Integrity Management and DPSA Point of Contact for Commitment 8, interview with IRM researcher, 8 September 2017.]}

Next Steps

The commitment is complete. The IRM researcher nevertheless recommends that during the remaining period of implementation of the action plan there could be greater access to information and civic participation in the work of the Interdepartmental Committee and the Country Implementation Plan. Pending Cabinet approval of the publication of the Country Implementation Plan, the DPSA could publish quarterly progress reports on the Plan’s implementation, and provide for public consultation in the national risk assessment of beneficial ownership.

The IRM researcher recommends that the actual establishment and operation of a central public register of beneficial ownership should be taken forward in the next action plan. In that regard, the Interdepartmental Committee can consider the learning achieved by the National Treasury in its implementation of an open data portal on budget information.

8. Implement Action Plan on G20 High Level Principles on Beneficial Ownership

Commitment Text:

Corporate vehicles (including companies, trusts, foundations, partnerships and other types of legal persons and arrangements) play an essential role in the global economy and conduct a wide variety of legitimate commercial and entrepreneurial activities. However, they are also misused by criminals for Illicit purposes, including money laundering, bribery and corruption, insider dealings, tax fraud, terrorist financing and other illegal activities.

Take concrete actions to implement the G20 High Level Principles on Beneficial Ownership Transparency and to meet the Financial Action Task Force (FATF) standards regarding the beneficial ownership of companies and other legal arrangements such as trusts.

The G20 High-Level Principles on Beneficial Ownership Transparency set out concrete measures G20 countries will take to prevent the misuse of and ensure the transparency of legal persons and legal arrangements. The G20 leaders encourage all countries to tackle the risks raised by the opacity of legal persons and legal arrangements.

South Africa commits to take concrete action and to share in writing by means of developing, publishing and reporting regular progress on a Country Implementation Plan regarding the various steps to be taken to implement these principles and improve the effectiveness of their legal, regulatory and institutional frameworks with respect to beneficial ownership transparency.

Milestones: Establishment of an Inter-Departmental Committee responsible for developing, implementing and reporting on a Country Implementation/Action Plan. Development of the Country Implementation Plan

Responsible Institution: Department of Public Service and Administration (DPSA)

Supporting Institutions: Financial Intelligence Centre, South African Revenue Service, National Treasury, Department of Trade and Industry, Department of Justice and Constitutional Development, National Prosecuting Authority, Companies and Intellectual Property Commission 

Start Date: November 2015 

End Date: October 2016

Commitment Aim

The commitment sought to consolidate South Africa’s action on beneficial ownership obligations under two key international regimes: endorsement of the G20 High-Level Principles on Beneficial Ownership Transparency,[86] and compliance with the guidance on Transparency and Beneficial Ownership issued by the Financial Action Task Force (FATF).[87] The deficiencies of South Africa’s legal framework in this regard had been raised in several FATF Mutual Evaluation Reports and discussed at meetings of the FATF.[88] The commitment aimed to give effect to South Africa’s beneficial ownership obligations through (i) the establishment of an Interdepartmental Committee; and (ii) the development of a Country Implementation Plan on beneficial ownership.

Status

Midterm: Complete

The Interdepartmental Committee, comprising representation from 20 key State departments and a few private sector regulatory institutions, was established in October 2015 – prior to the start of the third action plan.[89] The Interdepartmental Committee finalised the Country Implementation Plan on beneficial ownership by the time of the midterm review.[90] During the second year of implementation the Interdepartmental Committee met three times. In May 2018, it finalised an assessment of existing and emerging risks associated with different types of legal persons and arrangements in South Africa. The report is yet to be released.[91]

Although not expressly incorporated as part of the commitment, legislative reforms identified in the Country Implementation Plan were under way by the midterm review. Specifically, in April 2017, the President signed the Financial Intelligence Centre Amendment Bill, 2017 (FIC Amendment Act) into law. Regarding beneficial ownership, the FIC Amendment Act amended the Financial Intelligence Centre Act, 2001 (FIC Act) by:

· Inserting a definition of ‘beneficial owner’;[92]

· Imposing an obligation on ‘accountable institutions’[93] to undertake due diligence measures to establish the identity of the beneficial owner where the prospective client to a business relationship is a legal person, or a natural person acting on behalf of a partnership, trust or similar arrangement between natural persons;[94]

· Imposing an obligation on accountable institutions to undertake ongoing due diligence during the course of a business relationship, including for purposes of establishing and verifying beneficial ownership;[95]

· Imposing an obligation on accountable institutions to keep records of customer due diligence, which would include information on beneficial ownership.[96] Under the FIC Act, such records could be accessed by investigative authorities and supervisory bodies for purposes of investigating money laundering and terrorist financing.

Regarding the substantive legislative reforms that give effect (in part) to the Country Implementation Plan on Beneficial Ownership, apart from the definition of a beneficial owner (which entered into force on 2 October 2017), none of the other legislative amendments were in effect by the end of the action plan cycle.

Did It Open Government?

Access to Information: Did Not Change

The commitment did not change access to information on beneficial ownership in South Africa. At best, it could be construed as a procedural step towards remedying deficiencies in South Africa’s legal framework for the governance of beneficial ownership, for the purpose of combating money laundering and terrorist financing. In its design, the commitment did not respond to calls from civil society to open government by establishing a central, public registry of beneficial ownership.

The legal reforms that have been passed (though not yet brought into force) situate beneficial ownership identification and verification within a narrow range of social action (business transactions and relationships with accountable institutions), do not require the establishment of a central registry (information remains disaggregated with accountable institutions), and do not allow for public access to information (access being limited to investigate authorities and supervisory bodies). Issues regarding a register of beneficial ownership are nevertheless being addressed as part of the risk assessment process. The type of register, and the process to be followed in establishing such, will be determined based on the recommendations of this intra-governmental risk assessment process.[97]

Carried Forward?

At the time of writing this report (September 2018), South Africa had not finished developing its next action plan. The IRM researcher recommends carrying forward the establishment and operation of a central public register of beneficial ownership to the next action plan. Rather than the Department of Public Service and Administration, the responsible institutions in this regard should be the Companies and Intellectual Properties Commission and the Department of Trade and Industry.