South Africa’s greylisting by the Financial Action Task Force (FATF) in February 2023 was a significant moment for the country, with immediate consequences for the financial sector. While the markets had anticipated and priced in much of the impact, the long-term economic consequences could still be severe if South Africa is not removed from the grey list by early 2025. As part of the nation’s efforts to achieve this, there is an undeniable focus on trusts and their compliance with newly imposed regulations.
Trusts in South Africa play a critical role in the fight against financial crimes, and the importance of their compliance in reversing the greylisting cannot be understated.
Understanding the greylisting
Greylisting by the FATF occurs when a country is seen to be insufficiently complying with anti-money laundering (AML) and countering the financing of terrorism (CFT) regulations. In South Africa’s case, a significant factor in the greylisting was the lack of access to accurate and up-to-date Beneficial Ownership (BO) information on legal persons and arrangements, such as trusts.
While the greylisting itself did not come as a surprise to financial markets, the urgency to be removed from this status is crucial to the country’s long-term economic stability. To meet the January 2025 deadline, South Africa must demonstrate that it is effectively combating financial crimes. Compliance by trusts, particularly in submitting accurate BO registers, is central to this effort.
The compliance gap
At the heart of South Africa’s challenge is the low compliance rate among trusts in submitting BO registers. Out of an estimated 650,000 inter vivos trusts, only around 66,000 have submitted these registers to the Master’s Office. While this figure includes trusts that have been deregistered or abandoned, the compliance rate still falls woefully short.
Trustees are responsible for ensuring that accurate BO information is submitted. Many are unaware that even dormant or inactive trusts must submit these registers, leaving them exposed to fines and, in severe cases, imprisonment for non-compliance.
The government’s commitment to addressing these issues is evident. A media statement from the National Treasury on 24 February 2023 highlighted the government’s promise to implement all FATF-recommended actions by January 2025. One of the most critical actions is improving the timely access to accurate BO information, a task that trustees must take seriously.
The impact on South Africa’s economy
If the country fails to meet its FATF commitments by early 2025, the economic impact could be severe. Long-term prospects, such as foreign investment, access to international financial systems, and the overall reputation of South Africa as a financial hub, are at stake. The greylisting places additional scrutiny on every financial transaction, increasing the cost of doing business and making the country less attractive to international investors.
Trustees, therefore, hold a significant responsibility in protecting not only their personal interests but the economic health of South Africa. By complying with the new regulations, submitting BO registers, and ensuring that their trusts are properly managed, trustees can directly contribute to reversing the greylisting and safeguarding the future of the country’s economy.
The path to compliance
While deregistering inactive or dormant trusts may seem like an immediate solution to the compliance gap, trustees must ensure that they follow the correct procedures when doing so. This includes submitting all necessary documentation to the Master’s Office and ensuring that the trust is in good standing with SARS.
SARS has also placed a spotlight on trusts, with plans to introduce penalties for late or non-submission of trust tax returns starting in April 2025. Trustees, therefore, face increasing pressure to comply with both SARS and the Master’s Office regulations. Failure to do so could result in harsh penalties, including fines and imprisonment.
Closing thoughts: Trusts hold the key to reversing the greylisting
Trustees in South Africa have an important role to play in the national effort to reverse the FATF greylisting. By complying with the new BO regulations, submitting accurate information, and properly managing their trusts, trustees can help the country meet its FATF obligations and avoid the long-term economic damage that could result from continued greylisting.
MMS Group’s Trust Services Division specializes in accounting and taxation services for trusts, including the administration of beneficial ownership information. Reach out to our team for help with your trust compliance.