Greylisting Is "Not That Bad"...

Greylisting is “not that bad” – But little consideration has been given to higher costs for business and an ever-increasing compliance burden.

Written By of Cowan-Harper-Madikizela Attorneys

THE COMMERCIAL IMPACT

President Cyril Ramaphosa recently stated that the greylisting of South Africa will not seriously impact the costs of doing business in South Africa, a sentiment apparently echoed by National Government as a whole. This view is incorrect and misleading.

In an attempt to prevent the greylisting, the General Laws Amendment Act was passed by Parliament which amended various pieces of legislation relating to companies, trusts and professional service providers.

An oftentimes overlooked result of the amendments to this legislation is what National Treasury describes as:

“ensure that competent authorities have timely access to accurate and up-to-date Beneficial Ownership (BO) information on legal persons and arrangements and applying sanctions for breaches of violation (sic) by legal persons to BO obligations”.

Prior to the amendments only certain companies were required to report on BO of shares, often only as a result of financing or other regulatory industry-specific requirements, and trusts were largely excluded from any such requirement. This has now changed. Ultimate beneficial ownership or control of any company or trust must now be reported to the Companies and Intellectual Property Commission (CIPC) or the Master of the High Court in the case of trusts. CIPC recently confirmed that its register for BO of shares will be operational on 1 April 2023. This implies that it is expected for all companies to disclose BO of their shares to CIPC as soon as possible.

How does this impact the cost of doing business? BO refers not only to direct ownership but also to indirect ultimate ownership. Various persons prefer to structure their share ownership through trusts, group companies or nominee shareholders for reasons of anonymity, preferential tax treatment, protecting minor beneficiaries’ interests, information and identities, or simply as a wish to not be publicly associated with a particular industry.

The offshore trust and company industry is used extensively for this purpose. A company and trust must now take steps to determine who the ultimate indirect BO of its shares or property are and report this to either CIPC or the Master. Larger companies will need to update their compliance and risk frameworks and a due diligence process will need to be undertaken on new shareholders, previously not required.

Additional “know your client” and reporting requirements have been imposed on professionals too. These costs must be passed on to their clients. These additional requirements will add a myriad of direct and indirect costs to transactions ranging from mergers and acquisitions to straightforward financing and leveraging. Likewise, for any South African business doing business on the international stage, international companies are now required to use a heightened level of scrutiny when conducting business with a South African business which will lead to increased assessments and due diligence, with increased costs and time – something some international companies may not be keen to do. Other countries compete against South Africa for investments.

So an additional compliance and risk management burden for South African companies and trusts to deal with, with sanctions for non-compliance to boot, which National Treasury and other regulatory institutions must enforce to try and get South Africa off the greylist. Companies and trusts should be aware of this and take steps to ensure that they are compliant, much sooner rather than later if National Treasury is as eager as it has stated it is to enforce compliance. A good time to approach your attorney to update your compliance and risk frameworks and perhaps reconsider those offshore trusts or companies and their structuring.

Henry Korsten

Henry Korsten
Head of Property, Conveyancing and Litigation

Dominic Steyn

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