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Towards the end of February, the Companies and Intellectual Property Commission (CIPC) met with the Portfolio Committee on Trade, Industry, and Competition to brief members on the status of its implementation of the Zondo commission recommendations pertaining to it, as well as progress on its actions to lift South Africa’s grey-listing.
The CIPC’s role in these two areas was to contribute to the recommended investigations into certain companies named in the Zondo reports, and to set up a beneficial ownership register which would boost transparency in corporate ownership.
In the case of the former, 13 private sector matters arising from the Zondo reports had been wrapped up, while several cases against other private companies were held up in the State Attorney’s office, with the CIPC still awaiting, after numerous follow-ups, the next steps in the prosecutions. In addition, a handful of state-owned entity matters were still in progress, involving Eskom, Denel, Alexkor, Transnet, and South African Airways.
In the latter case, said the CIPC, the establishment of a beneficial ownership register was one of the Financial Action Task Force’s (FATF) conditions for the lifting of South Africa’s grey-listing. Accordingly, legislation was hastily passed in the form of the General Laws (Anti-Money Laundering and Combating Terrorism Financing) Amendment Act of 2022 which amended, among others, the Companies Act in terms of the definition of ‘beneficial owner’ while providing for the compilation and maintenance of a beneficial ownership (BO) register. The CIPC is the regulatory entity which enforces the Companies Amendment Act.
Such a register will help to crack down on corruption by transparently showing who is the ultimate beneficiary of, for example, a lucrative government tender. In numerous cases the owners of companies scoring juicy tenders have been shown to be government officials themselves, using shell companies as a front to mask their involvement. In other cases, the true owners may be inexperienced or ineligible but will obscure these important details by hiding behind fake ownership. Such opacity helps the corrupt to conceal their business interests, take advantage of deals they do not qualify for, and benefit handsomely from such deals.
The register will also help journalists and civil society organisations to follow the money, tracking the ultimate beneficiaries of government contracts and exposing irregularities.
Beneficial ownership transparency
The CIPC told the committee that it had been working with the National Treasury (NT) to set up the BOT register, which was one of the deficiencies identified by the FATF during its 2021 mutual evaluation review. South Africa was given until October 2022 to rectify the various weaknesses but was not able to do so to the FATF’s satisfaction and in February 2023 the anti-money laundering watchdog placed the country on its grey list of jurisdictions under increased monitoring.
Immediate outcomes (IOs) 5-1 and 5-2 respectively required the establishment of a BO register which is publicly available, and action by the CIPC to pursue matters and apply remedial actions and/or dissuasive and proportionate sanctions for violations of the transparency obligations applicable to legal persons.
Both IOs have been largely addressed, CIPC commissioner Adv Rory Voller told committee members.
In terms of IO 5-1, the CIPC has received over 1.1-million BO declarations, which were entered into the register. Law enforcement agencies, banks, and other competent authorities have been granted access to the register to conduct searches and download documents for ongoing investigations, said Voller.
Meanwhile, the CIPC conducted education and awareness campaigns with targeted stakeholders and members of the public, to help people understand the concept of beneficial ownership.
In terms of IO 5-2, the CIPC has conducted investigations, issued compliance notices, referred matters to the National Prosecuting Authority, and pursued non-compliance for issuance of administrative fines through the courts (with the State Attorney’s assistance). This is all its powers allow it to do, as it is a regulatory body and not a law enforcement agency.
Such action can also happen retroactively. Although the Companies Second Amendment Act provides for a three-year deadline for proceedings against violators to commence, it also allows a court to extend that period after the deadline and regardless of whether the act happened before the promulgation of the act – as long as good cause is shown. This means that that directors can be held liable for acts and omissions that occurred before the act commenced.
“Our commitment to ensure consequence management for directors and auditors is supported by the provisions of Section 168 where the commission can initiate its own investigations proactively and not only conduct investigations after a complaint is filed. The continued collaboration with law enforcement agencies remains at the heart of persistent efforts to keep relevant directors, members, and entities accountable going forward.”
The CIPC launched the BO register on 1 April 2023. It provides a platform for all corporate vehicles registered with the organisation to file their beneficial ownership declarations. The CIPC can examine and review BO submissions and assist and advise corporate vehicles on the correctness and accuracy of such. Companies can refile any incorrect or incomplete information, thus ensuring compliance with the legislation.
“It remains the responsibility of each entity to ensure that they submit accurate, complete, and verified BO information to the commission,” said the CIPC. “Providing false and inaccurate beneficial ownership information is an offence in terms of the Companies Act, 71 of 2008 (as amended), and enforcement action coupled with appropriate sanctions will apply if such is found.”
Anyone with more than 5% beneficial ownership of a company or close corporation must submit the required information to the CIPC.
FATF pleased, but grey list still applies
After its February 2025 plenary meeting, during which it discussed South Africa’s progress, the FATF expressed its acknowledgement of the country’s efforts to resolve the weaknesses identified.
“South Africa has taken steps towards improving its anti-money laundering/counter-terrorist financing regime including by demonstrating that all supervisors apply effective, proportionate, and effective sanctions, ensuring competent authorities have timely access to accurate and up to date beneficial ownership information on legal persons and arrangements, and applying sanctions for breaches of violation by legal persons to beneficial ownership obligations.”
South Africa is now deemed to have addressed or largely addressed 20 of the 22 items in its action plan, said NT in a statement, meaning that there are just two items to be resolved in the next reporting period that runs from March 2025 to June 2025. “This would enable South Africa to be considered for delisting from the FATF grey list in October 2025.”
Because of those two outstanding items, however, the country remains on the grey list for the moment.
Neither will the items be easily resolved. South Africa must demonstrate a sustained increase in investigations and prosecutions of serious and complex money laundering, in particular involving professional money laundering networks or enablers and third-party money laundering in line with its risk profile. It must also demonstrate a sustained increase in the effective identification, investigation, and prosecution of the full range of terrorism financing activities, consistent with its terrorism financing risk profile.
The FATF will assess progress at its next plenary meeting.
