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Much of Corruption Watch’s (CW) work consists of advocating for transparency – in procurement, in leadership appointments, in allocating resources, in matters of governance. Corruption threatens the credibility and effectiveness of these measures and more, and therefore transparency is crucial to curbing, even abolishing the scourge.
Beneficial ownership transparency (BOT) is seen as an increasingly important element of any anti-corruption strategy, as it is fundamental in tackling illicit financial flows, cracking down on corporate anonymity, and tracing the perpetrators of kleptocracy, tax evasion, wildlife crime, and human, drug and arms trafficking. As part of its work in this regard, CW made a submission on the Companies Amendment Bill, which was published by the Department of Trade, Industry and Competition (DTIC) for public comment on 1 October 2021. Comments were due by 31 October.
“The amendments seek to update the Companies Act in light of developments in the field, address public concerns, and improve the ease of doing business,” said DTIC minister Ebrahim Patel at the public release of details of the bill.
The latest version is the second draft of the Companies Amendment Bill, originally published in September 2018. If the bill is passed, it will be the first set of substantive amendments to the Companies Act since its enactment on 1 May 2011.
The amendments proposed in the 2021 bill are aimed at achieving three main policy objectives:
- improving ease of doing business in respect of certain provisions of the Companies Act;
- providing for greater transparency on wage ratios at firm level; and
- addressing true or beneficial ownership of companies, to address money laundering challenges.
CW’s submission centred on enhancing transparency and accountability within the new provisions related to beneficial ownership (BO), in light of the ongoing global effort to address corruption, anti-money laundering and financing of terrorism, and also touched on appropriate triggers for disclosure and the content of the disclosure.
“Our main focus is the mining sector,” said Mashudu Masutha, legal researcher: extractives at CW. “We have been working on the BOT issue since we started the accountable mining programme where BO was identified as a key corruption vulnerability in mining licensing.”
Since then, Masutha added, CW has developed tools with Transparency International Australia on enhancing due diligence and integrity screening in mineral approvals, and engaged with the special advisors of the Department of Mineral Resources and Energy on how the department can improve its systems to ensure that the real owners of mineral rights are known.
An updated version of the tool was recently released.
Mining is not CW’s only area of interest when it comes to BOT. “Because we are big supporters of the Extractive Industry Transparency Initiative,” said Masutha, “and advocate for South African implementation of the standard which is inclusive of broader financial transparency, not just in extractives, we also engage on the benefits of BOT in other sectors such as health and government procurement policies.”
The reasons for South Africa’s delay in taking a tough stance on BO, said Masutha, are complex, despite a lengthy period during which the bill was hotly debated under the auspices of the National Economic Development and Labour Council. Government, labour, civil society and industry were all pulling in different directions, she explained, regarding the extent of public access to BO information, and whether the establishment of a central register was feasible and should be included in the act as law.
“Part of the problem was the definition of BO within the FIC Act, which is inadequate, and the institutional capacity for government to verify and have updated and auditable data. However, for the most part it is political will that causes the slow pace. The reality is that there are big disincentives for government to pass BO reforms, particularly in corrupt jurisdictions like South Africa.
“However, we are seeing an important shift in the interpretation of BOT, largely from the Financial Action Task Force, and greater international government co-operation, where there is an emphasis on money lost and how good, transparent BO laws can result in significant taxpayer money saved.”
Bill goes in the right direction, but not far enough
CW noted the new provisions on beneficial ownership in the Companies Amendment Bill, but was concerned that the proposed amendments do not go far enough to enable effective transparency.
The provisions, if implemented in the proposed form, will not lead to the design and implementation of an effective beneficial ownership reporting regime that would be in line with international best practice and anti-corruption aims. CW submitted that the bill fails to make sufficient provisions for the advancement of key parts of its objectives to tackle the following vulnerabilities of beneficial ownership opacity as an enabler to grand corruption:
- Ambiguous scope of beneficial owners/ship – CW was concerned primarily with provisions in the entirety of the bill, as well as the proposed amendments, which seem to only apply to shareholders, or define the beneficial owner as a natural person who exercises influence or control over shares. We submitted that this scope of beneficial ownership does not take into consideration other forms of direct and indirect ownership and control or other corporate structures. We particularly noted that the bill does not provide the definition or an identifying criterion for the BO of trusts, which is worrying as our research in the mining space illustrates the concerning growing trend in South Africa of mining right holders’ use of trusts to hide identities and ownership of assets, especially using trusts as a final step in a complex ownership chain of companies;
- Uncertainty regarding the central register – CW noted that the provisions do not clarify an obligation to set up a central register. We submitted that beneficial ownership registers or an alternative mechanism with equal efficiency are a standard requirement for any form of beneficial ownership transparency and the bill must explicitly state this position. We emphasised that a mandatory public central register allows quick and effective access to information, enables ease of financial crime and investigations as it manages the tip off risks and does not alert potential suspects, enables scrutiny of the information for suspicious patterns, addresses inaccuracies or discrepancies, and provides a public good that can contribute to lower due diligence and risk management costs for business; and
- Reporting regime and disclosure – with regard to the proposed amendment which places an obligation on companies to require from the registered share holder details of the identity of persons who hold beneficial interests, we submitted that companies must be obliged to identify all true owners with an effective interest greater than 5%. We advised the DTIC to enact implementing regulations and issue guidance on how to identify beneficial owners.
CW concluded by expressing a request to participate in the forthcoming parliamentary hearings and to make oral submissions before the Trade and Industry Portfolio Committee.
