Trustee reporting obligations effective hours after being published
Trustees have been warned that they are potentially exposed to fines of R10 million or five years in prison if they do not comply with new reporting regulations pertaining to the beneficial ownership of trusts.
The regulations were published after business hours on Friday 31 March and became effective a few hours later, at midnight on 1 April.
Read: SA to get beneficial ownership database to fight financial crime [Mar 2023]
Even if trustees were able to supply the information needed in terms of the amended Trust Property Control Act (TPCA), the electronic register the Master of the High Court was supposed to establish was not available for four days after the regulations became effective.
Beneficial ownership
Comprehensive personal details of the beneficial owners must be uploaded on the electronic register. The master must ensure that there are adequate measures against loss of information.
The TPCA was amended last year as part of government’s efforts to comply with the requirements of the Financial Action Task Force (FATF) to combat money laundering and terrorism financing.
The Fiduciary Institute of Southern Africa (Fisa) said in a statement it “deplores the fact” that regulations dealing with the concept of beneficial ownership and the reporting duties of trustees were published “at the eleventh hour” on Friday.
The regulations require the master to keep an electronic register in such a manner that trustees can lodge the information of each beneficial owner they keep on file.
This was not available on the day the regulations became effective.
The regulations also required the master to provide an interim electronic medium if the electronic register had not been established. This also did not happen, says Fisa CEO Louis van Vuren.
The only option available for trustees was to go to the masters’ offices with stacks of paper. “This is not something I would have recommended to any fiduciary practitioner because there is no guarantee as to what may happen to the paperwork,” Van Vuren says.
When the Department of Justice published the notice on its website on Wednesday (5 April) the link was incorrect. It opened a page related to the administration of trusts and not the master’s register for beneficial ownership.
Here is the page that appeared:
“We expected a phasing in period to allow trustees time to give effect to it,” says Van Vuren.
“This means that many trustees are non-compliant and are potentially exposed to a fine of up to R10 million or imprisonment.”
Fisa commented on the draft regulations that were published in January, but it appears these were not considered.
Read: Solutions to improve trust oversight may still be challenged [Jan 2023]
Van Vuren says there are some practical issues that will make it almost impossible for trustees to be fully compliant.
In terms of the regulations a trustee must keep a record of the full name, birthdate, nationality, residential address and “other means of contact” of each beneficial owner of a trust.
The beneficial owner includes the trustees, the founder and all named beneficiaries.
Practical problems
Van Vuren gives the example of a recent request by the Financial Intelligence Centre for a trustee to supply Fica (Financial Intelligence Centre Act) documents of the founder of a specific trust.
The trust was founded in 1991 and the trustee only became a trustee in 2015. Nobody knows who the founder is.
In the early 1990s it was accepted practise that even the legal secretary of the attorney who drafted the trust deed could be named the founder of the trust.
Many trusts have neglected proper record keeping. Knowing all the details required by the amended legislation will be a challenge, particularly if a trustee was only appointed years after the trust was founded.
“We have no problem with the fact that SA has to prevent the abuse of trusts for money laundering, terrorism financing or tax evasion,” says Van Vuren.
“However, the legislative amendments were rushed through without proper thinking.”
To make matters worse the drafting is not only sloppy, but lazy.
Translations from the original text of the act have not been checked to ensure the terminology is correct. The practical implications have not been given proper thought.
Van Vuren says it is unreasonable to expect trustees to have all the information required for compliance just hours after the regulations became effective.
But he expressed the hope that “sanity will prevail” and that there will be some leniency while trustees gather the information required to meet their recordkeeping obligations.
Source: moneyweb.co.za
