The Financial Action Task Force’s grey-listing of South Africa has had a severe knock-on effect on businesses in the country. According to the task force, money laundering is a significant risk factor in the South African economy, and tighter controls are needed to close any gaps.

In response, the South African Revenue Service and the Companies and Intellectual Property Commission (CIPC) are establishing a register that holds more detailed information about the control and beneficial properties of organisations.

Sars gathers this data through income tax returns, and the CIPC gathers it through the new declarations inherent to annual returns. This means that companies and trusts can’t maintain their compliance with these institutions without supplying their beneficial information.

If you own a company or several entities, you’re probably familiar with the CIPC deadline to disclose a beneficial ownership register. This deadline — which lapsed on 1 October 2023 — signals the start of greater corporate transparency in South Africa.

There are several challenges companies should be aware of, however. The first is the enormous administrative burden this task places on businesses, especially those that manage several legal entities. Even if they have the best of intentions, it’s possible that they may struggle to comply, which could result in costly fines.

Another key issue involves understanding who qualifies as a “beneficial owner”. A beneficial owner is an individual or entity that directly or indirectly holds a substantial interest in a company, essentially wielding significant control or influence over its operations. For large corporations with diverse portfolios, identifying these beneficial owners among large numbers of companies can feel like navigating a labyrinth.

Critical

This challenge goes beyond the initial identification — keeping this information updated is equally critical. The CIPC’s register is not a one-time obligation. Instead, it requires continuous monitoring and reporting. This becomes a herculean task for corporations that own multiple subsidiaries, each of which regularly experiences changes in ownership and control.

But there’s no doubting the value in this journey. Identifying beneficial owners isn’t just a compliance requirement but also an ethical responsibility and a matter of reputational risk. Investors, customers and stakeholders are increasingly concerned about companies’ ownership structures. They want to know who’s calling the shots and who bears ultimate responsibility. Failing to identify beneficial owners can damage trust, erode corporate reputation, and lead to potential legal consequences.

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To navigate this, corporations must adopt a proactive approach, starting with a thorough due diligence process to map out their corporate family tree and identify beneficial owners. Next, they must establish robust internal processes and systems to ensure ongoing compliance. Regular audits and checks are essential to maintain an accurate beneficial ownership register.

Another way of addressing these requirements is using software that holds the information and can proactively ensure the check occurs.

The October deadline presented an opportunity for corporations to take the lead in demonstrating responsible corporate governance. Failing to comply with Sars and CIPC requirements can result in penalties and tarnish a corporation’s image. The public is increasingly scrutinising corporate behaviour, and failing to demonstrate a commitment to transparency can be costly. In the end, being open about their corporate ownership structures is a challenge that corporations should willingly embrace.

The author, Philip Tillman, is CEO of Konsise, a tax software solution that combines the functionality of Excel, SharePoint, Outlook and Sars eFiling into a single platform