The Fiduciary Institute of Southern Africa (FISA) is lobbying the Parliamentary Standing Committee on Finance (SCOF) regarding various issues, including inappropriate use of the term “beneficial owner,” in proposed amendments to the Trust Property Control Act.
A parliamentary bill, the General Laws (Anti-Money Laundering and Combating Terrorism Financing) Bill is proposing changes to the Trust Property Control Act (the Act) and is being fast-tracked (due to the threatened grey-listing) without due consultation with the fiduciary industry.
An urgent submission by FISA, the only body solely focused on representing fiduciary practitioners in South Africa with some 800 members, seeks to provide clarity on various provisions of the Bill, including the inclusion of trustees in the definition of “beneficial owner” of a trust.
Louis van Vuren, CEO of FISA, says this is in conflict with the role of a trustee as envisaged by the existing definition of “trust” in the Act. The Bill does not propose to amend the definition of “trust”. A trustee, in South African law, does not hold trust property for own benefit, but for the benefit of another person(s). Therefore, a trustee can never be the “beneficial owner” of the trust property.
“Broadly, South Africa is under pressure to tighten its laws relating to Anti-Money Laundering and Combating Terrorism Financing. In certain jurisdictions, regulations require “beneficial owners” of a legal entity to be identified.
We have no problem with the apparent aim of increased oversight over trust assets under certain conditions, but it would appear that the drafters of the Bill have simply lifted the term from foreign legislation without regard for the existing trust law in South Africa.
The proposed changes fly in the face of existing trust law; the definition has ambiguities, and is phrased in such a way as to create confusion and potentially make criminals out of those simply fulfilling their fiduciary duty.
In particular, we are disappointed that FISA has not been consulted, as we have discussed the matter with the Financial Intelligence Centre (FIC) over several years. Interested parties were given merely a few days in which to make a submission, the deadline for which has now been extended to 25 October 2022”, says Mr van Vuren.
The effect of the proposed changes may open the door for premature vesting of certain rights of trust beneficiaries; will encroach on the discretion afforded to trustees; and severely limit the existing rights of trustees and the founder of a trust.
Among other anomalies, the FISA submission points out that trusts do not have legal personality in SA law, while certain of the proposed amendments seem to work from the assumption that they do.
The FISA submission outlines the vital role played by trusts in SA and suggests an alternative to achieving the desired aim.
The role of trusts in SA
Trusts are used to hold and manage a variety of assets for the benefit of a variety of beneficiaries:
· Minors under the age of 18 years
· Mentally or legally incapacitated persons
· Victims of road accidents and medical negligence
· Children from a previous marriage whose rights should be protected from the whims of a current or future spouse who is not their parent, or a future spouse of such a spouse
· Family members who are deemed unsuitable to be entrusted with substantial wealth under their direct control
· And many more.
FISA does not aim to deny that trusts are sometimes abused and that this may include money laundering and the financing of terrorism but says there is another way of achieving the apparently desired oversight without jeopardising the legal position and fiduciary duty of trustees. This could be by amending the Trust Property Control Act to:
· exclude a trustee from the “beneficial ownership” definition as he/she is not a beneficial owner of a trust and should not be included in the definition.
· place on the trustee reasonable duties of oversight over who the individuals involved in the trust happen to be by perhaps amplifying the definition of “trustee” and placing those duties on trustees by just including “trustee” next to “beneficial owner” in the relevant sections where appropriate.
As the professional industry body on fiduciary matters, FISA strongly recommends that it be consulted on the way forward, to avoid the proposed amendments to the Trust Property Control Act as they currently stand leading to unintended consequences and leading to confusion due to the contradictory nature of the proposed provisions.