New Amendments to South Africa’s Companies Act Aim to Enhance AML/CFT Regulations

On 1 April 2023, certain sections of the General Laws (Anti-Money Laundering and Combating Terrorism Financing) Amendment Act No 22 of 2022 (GLAA) came into effect in South Africa. As a result, amendments have been made to the Companies Act, No 71 of 2008 (“the Companies Act”), which came into effect on 1 April 2023, and the Companies Regulations 2011 (“the Regulations”), which came into effect on 24 May 2023 (collectively, “the Amendments”).

The Amendments impose enhanced reporting obligations on all companies registered and incorporated in South Africa in an attempt to align the Companies Act with the purpose of the GLAA – namely, to enhance the regulations around AML and CFT. The Amendments require South African companies to file certain information with the Companies and Intellectual Property Commission (CIPC) in respect of those persons (juristic and natural) who hold a beneficial interest in or have effective control over the company. Failure to provide the required information will constitute non-compliance with the Companies Act and the Regulations.

The reporting obligations in the Amendments distinguish between affected and non-affected companies. An affected company is a company that is either a public company, a state-owned entity, or a private company that would fall within the definition of a “regulated company” in terms of the Companies Act – as well as subsidiaries of each of the aforementioned companies. A non-affected company includes all other companies (ie, any private company that is not considered a “regulated company”).

Under the terms of the Amendments (specifically, the amendments to Sections 33(1) and 50 of the Companies Act), all companies are now required to file their securities register – along with their annual financial statements (where applicable) – when filing their annual return with the CIPC. Further, all affected companies are required to file a beneficial interest register with the CIPC – although the CIPC has deliberately exempted listed companies from having to file such information where the relevant exchange already requires this to be maintained and filed. This is a register of all persons (both natural and juristic) who own a “beneficial interest” in the company.

The Companies Act defines a “beneficial interest” as “the right or entitlement of a person, through ownership, agreement, relationship or otherwise, alone or together with another person to:

When determining whether a person holds a beneficial interest in a company, the aforementioned definition must be read together with the Companies Act (including Section 56).

Non-affected companies are required to include in their securities register the details of any beneficial interest holders (to the extent applicable) – as well as information regarding their beneficial owners, which must also be submitted to the CIPC in the prescribed form. A beneficial owner is defined in the GLAA as an individual (a natural person) who “directly or indirectly, ultimately owns the company or exercises effective control of the company”. Under the GLAA, a natural person may be seen to exercise effective control of the company if they:

This list is not exhaustive. If it can be demonstrated – by reading the legislation purposefully – that an individual has effective control over the company, then the details of such individual must be included in the company’s securities register.

When determining the information required to be submitted to the CIPC and contained in the securities register of a company, the following questions must be asked.

The first question is a factual enquiry that should be easily answered. As regards the second and third questions, there may be various arguments that could be made as to why certain indirect shareholder information need not be submitted. This will require a case-by-case analysis and a measured view that considers the purpose of the Amendments.

While the Amendments are well intended and much needed (owing to the lack of transparency and reportability previously imposed on South African private companies), there is – in the authors’ view – still a gap in the legislation. In terms of the Amendments, public unlisted companies are not required to submit information concerning their beneficial owners to any regulatory body. Also, where there is no agreement to directly flow distributions up the chain, it is unlikely their shareholders will fall within the definition of “beneficial interest” holder.

Therefore, a simple way of avoiding the need to provide beneficial owner information – albeit one that would not exempt the provision of beneficial interest holder information – is for the company to be incorporated as a public unlisted company rather than a private company. Although operating a public company under South African law requires compliance with additional Companies Act requirements, these are not overly burdensome.

Ultimately, the Amendments are in line with requirements in other jurisdictions. Requesting information in respect of beneficial owners is not uncommon. However, the threshold – which has been set at 5% by the CIPC – seems relatively low when compared with other jurisdictions.