AZOLA FUTSHANE: Companies ignore CIPC on beneficial ownership disclosures at their own peril

SA companies were recently statutorily mandated to declare their beneficial ownership information to the Companies and Intellectual Property Commission (CIPC).

This requirement to declare all the owners of registered companies is intended to enhance transparency and fraud-prevention about shareholding and align the country with international standards for anti-money-laundering — all important issues that are all the more pressing considering the country’s greylisting.

The CIPC aims to keep an updated register of all this information and said in May it would impose punitive measures against the noncompliant from July.

The purpose of the new requirement is to prevent companies from hiding who their real owners are through complex structures or offshore entities and minimise the risk of illicit activities such as money-laundering or fraud.

Entities are required to disclose their beneficial ownership information within 10 business days after incorporation (if such entities were established on or after May 24 last year) or in the event of a change in the relevant entity’s ownership structure (including if the entity forms part of a global group ownership structure).

Particular disclosure requirements differ depending on whether the entity in question constitutes an affected company in terms of the Companies Act of 2008 and the Companies Regulations, or whether the entity does not fit within the ambit of the definition of an affected company.

An affected company is a regulated company or a subsidiary. Regulated companies include any public companies, non-exempted state-owned companies and any private companies in relation to which 10% or more of such companies’ securities have been transferred in the 24-month period immediately preceding the relevant transaction, or that have a memorandum of incorporation that provides that the relevant company is bound by the takeover provisions of the Companies Act and Regulations.

The CIPC has warned that failure to comply with the requirements will lead to penalties, which may include the imposition of a court-ordered administrative fine and the prevention by the CIPC of noncompliant entities filing their annual returns, which will deem it to be “inactive”. The CIPC can then initiate the deregistration process to remove the entity from the registry.

Procedurally, the CIPC will be required to issue a compliance notice to noncompliant entities, granting them an opportunity to cure the infringing conduct or failure to act within a given period of time. If the company does not make use of this opportunity within the allotted period, the CIPC will act.

While the enforcement capacity of the CIPC is yet to be publicly tested, the statutory obligations are clear. Companies should not take these requirements lightly or take chances with non-disclosure.

Companies should:

• Urgently review their beneficial ownership status and complete the necessary declarations, before the CIPC gets in touch with them. This involves identifying the beneficial owners and submitting the required information to the CIPC. If a company cannot disclose any natural person in its ownership structure, it may be admissible to disclose senior managers instead of shareholders, however it is likely that such considerations will need to be made case by case.
• All CIPC-registered companies must ensure that the records of their shareholding remain accurate, up to date and transparent to the CIPC.
• Understand the implications for various ownership structures. For those with complex or non-standard ownership structures, understanding the manner in which the disclosure requirements apply in unique circumstances is crucial. Professional advice should be sought for practical guidance on complying in various instances, including, for example, if the beneficial owner of a company is a trust, a public company or a partnership managed fund.
• If the CIPC issues compliance notices, companies should respond within the required time frame, even if it entails raising issues about compliance challenges. Ignoring notices is not advisable as it could lead to the imposition of heavy punitive measures.

The disclosure requirements — tedious as they may seem — do align with global trends on enhanced corporate transparency and accountability. Just as most companies now need to enforce know-your customer obligations, so too will shareholding have to become fully transparent in this hyperdigitising and globalising world of business.

In the context of SA’s greylisting, these steps are critical for improving the country’s international standing and financial integrity.

While the immediate deadlines have passed, the ongoing obligations remain. It is advisable to comply — not only for the country’s sake, but also for the sake of the company’s reputation and trustworthiness.

Given the complexity and potential legal implications of this new rule, companies would be well advised to seek professional guidance. Legal experts and company secretarial service providers can help ensure compliance and navigate some of the trickier complexities. This is particularly important for foreign entities unfamiliar with SA’s regulatory environment.

Compliance delivers a more transparent and secure business environment and trade relations set-up for SA. We all need to err on the side of caution until more clarity can be gained on the grey areas about these rules.

• Futshane is an associate specialising in corporate matters, governance and M&A at law firm Allen & Overy Shearman.