In the COVID-19 era, beneficial ownership could be one of the commercial triggers to reignite the South African economy.
Financial crime is a significant problem that we as a country, and indeed a global community, have to deal with almost continually. Hardly a week passes without hearing of a case involving fraud, corruption or looting of funds that did not land up in the hands to which they were originally intended.
This has the potential to devastate the economic balance – a case of the rich getting richer and the poor getting poorer. The reason is that it is often people lower down the earnings scale or the unemployed who end of suffering the most. An example of this could be funds allocated for the public interest, such as schools and healthcare, landing up being squandered by irregular tenders and delivery of substandard products at a significant multiple of the normal going rate.
The fight against this type of financial crime requires details of whom is ultimately benefiting from it. This requires a transparent record and disclosure of the ultimate beneficiaries or controller of the shares. This is known as ‘beneficial ownership’.
For financial institutions and other professional services providers such as accountants, tax advisers and auditors, access to timely and accurate beneficial ownership information provides a valuable resource for conducting initial and ongoing customer due diligence. There are numerous interpretations of what beneficial ownership specifically means, but for or practical purposes it can be defined as the natural person or people who effectively have control and ownership interests in a legal entity.
Accurate and transparent disclosure of beneficial ownership seems a logical path to follow in the efforts to curb and prosecute those found guilty of money laundering, tax evasion, and other financial crimes. However, there are challenges in mandating such disclosure, one of them being the costs involved. In order to provide reliable, accurate and up-to-date data would require systems on which this information can be stored as well as verification procedures by arms of state or lawyers and auditors to ensure the accuracy and validity of the information.
Internationally, there are various levels of beneficial ownership. An important aspect of a centralised registry is who has access to it and who governs it. Some countries have an independent agency that controls the registry, whereas in other countries one of the regulators do.
In a South African context, beneficial ownership is an important concept. In the context of state tenders, procurement policies and financial crime investigations by the likes of the Hawks, it is suggested that South Africa look towards an independent bureau, free from political bias and commercial control, to implement and maintain the much-needed information registry. Also, in a local context, some level of public access to this central registry should be encouraged via a secure web portal that could be administered by a recognised agency such as the CIPC (Companies and Intellectual Property Commission).
The faster South Africa moves towards a transparent and legally supported system of beneficial ownership, the more efficiently and transparently commercial transactions could be undertaken, monitored and perhaps − most importantly, in a South African context − investigated when allegations of mismanagement surface. South African companies, trusts and other vehicles of commercial operations should heed this call. This could go a long way towards restoring and improving trust in the South African commercial environment and attract further international trade partners.
AUTHOR | Milton Segal CA(SA), Senior Executive: Corporate Reporting at SAICA