RESPONSE TO LETTER FROM CIPC

This is a letter I received from the chief legal officer of the the CIPC. My response to the letter received is Red. I never received a response.

Mark Silberman
Accfin Software
Companies and Intellectual
Property Commission
E-mail: mark@accfin.co.za

Dear Sir

RE: BENEFICIAL OWNERSHIP
a member of the dtic group
There is the question of what needs to be uploaded – registers and documents and how to deal
with the data. If the CIPC obtains the data properly every BO link in RSA other than affected
companies will be established. It is my belief that the CIPC has the best chance of getting this
right.
So why would they not do it correctly

DIGITISATION
Digital transformation is a necessity. Not a good-to-have, not a nice-to-have, but an imperative
if you are going to keep up and win against the criminals.
T. Raja Kumar, FATF President (2022-2024) at the FATF Conference on Digitalisation, June 2022.

We refer to the abovementioned matter and in particular, your e-mail correspondence dated
11 July 2023 with attached “draft article”, the content of which was noted.
The CIPC felt it necessary to respond due to factual inaccuracies within the document provided
and to clarify any ambiguities that may exist. The General Laws Amendment Act, 2 of 2022
amended four key pieces of legislation, namely:-
• Trust Property Control Act, 1988;
• Non-profit Organisations Act, 1997;
• Financial Intelligence Centre Act, 2001; and
• Companies Act, 2008.

Each of these pieces of legislation was amended to provide for beneficial ownership
registers to be created and the requisite information submitted in terms of these registers
applicable to the type of legal persons. The Regulatory bodies in terms of each of these legislationswere also provided with a mandate to collect beneficial ownership information (applicable to
each Regulator) and to enforce compliance with the requirements. It is inconceivable and
impractical to expect one Regulator to collect all beneficial ownership information in terms of
juristic persons not administered by that Regulator in terms of their main legislation. The preamble of
GLAA, 22 of 2022 explains it very clearly in each instance.

I am familiar with each of these pieces of legislations, however the purpose of my response
is to deal with the CIPC as they have the best chance of succeeding.

Certain requirements for beneficial ownership transparency, were set down by the
Financial Action Task Force (FATF) in their Mutual Evaluation Report of South Africa, and
the beneficial ownership register of each respective Regulator in the area that they are
responsible for, was developed and continues to be enhanced to conform to the FATF
requirements.

Agreed.

The Department of Trade, Industry and Competition as well as the CIPC is committed to comply
with the requirements in terms of beneficial ownership, in line with the mandate provided for in
the legislation to establish and maintain a beneficial ownership register in terms of corporate
entities regulated by the CIPC.

I agree with this and that’s what my concerns are about as my document deals only with
corporate entities.
My draft document deals with the situation at the CIPC only as I am most concerned with the situation
there.

First of all if you say there are factual inaccuracies, however you neglect to say what they are.
Please state what the factual inaccuracies are.
My document was based on what I heard at your webinar for the first time contrary to what has been
said before and contrary to the messaging we have heard. Based on this there is a problem with the
CIPC messaging! Nowhere in your documentation prior to the webinar have we heard of the two items I
mention below that you mentioned in the webinar presented. I have now seen the new guidance note
on the situation where the BO register and data do not need to be filed where it is not required. There is
still no official guidance on where it is not necessary to file a BO register and data other than an
affected company. To say that the data is contained in the Securities register and is known info defeats
the whole purpose of what FATF are trying to do.
At this stage I am only concerned as to what should be filed at the CIPC and not other regulators. If the
CIPC does this properly then it will have a huge impact on the grey listing requirements of the FATF.
There are 2 aspects that must be addressed as follows which you have not addressed;-

1. Loading data which in our view is essential for the CIPC to provide data to regulators which is
meaningful and to be cognizant of the links between Beneficial Owners and all other interests of the
beneficial owner. An individual BO in one small company may very well be the missing link across all
his or her BO interests which will not be seen if the data is not filed in an electronic format. By not
doing this the CIPC is missing the most important opportunity. After sending this document I will give
an example of what is missing if the data is not loaded in all other non-affected cases.

2. Loading Registers - we see this as two separate registers. The normal securities register which will also
include those shareholders who have a beneficial interest in shares and a 2nd register which will
include beneficial owners only to be used by regulators only.
Registers without building the data wont be helpful at all.

We are cognisant of the fact that beneficial ownership declaration structures may be very
complex and cross-cutting over various data platforms (CIPC, DOJ, FIC, SARS, etc.) and steps
have already been taken to put data-sharing agreements in place.

I agree with this, however my issue raised was with trusts and the fact that you did not answer
the question which I will restate here. So if one drills down from a company and one of the
shareholders is a trust, how do we indicate the beneficial owner. Do we insert the trust name or
do we leave it blank so that there is no trail to the actual real BOs. Please answer this.

In your “draft article” mention was made of simple company structures and reference
during the webinars presented made of “known information”. Known information refers to
legal ownership information (shareholders, registered owners of property, etc.) and this is
information which can be obtained, is available – in other words known. The whole purpose
of beneficial ownership transparency is to assist law enforcement agencies to be able to access information, which up to now in many areas, has not been
transparent and available. To clarify further, the legislation and subsequent amended Companies Act
Regulations, clearly indicate that companies (that do not fall within the definition of an “affected
company”) must include in its securities register “a record of each beneficial owner of the company” and
further lists the minimum information of the beneficial owners required.

I accept this principle, but you certainly cannot put BOs in the securities register as this is not for public
consumption as the CIPC has stated. However, sometimes the true beneficial owners are far removed from
what is contained in the securities register and in this case a 2nd BO register only must be uploaded (as I
have already mentioned above) and if one looks at the two registers there could be no comparisonbetween them and the only way to get from the Securities register to the BO register is by organogram and
this you have to do by drilling down through the entities and trusts.

Corporate entities are invited to provide as much information on beneficial owners as possible, but at the
same time practicality and best practice must be taken into account. Right now its to early to get to a best
practice. Its companies like us and secretarial practices that eventually create the best practice and this is
why there needs to be engagement because it is the stakeholders that have to comply. There is no question
that stakeholders want to do the right thing and want to know that what they are doing has an effect.
In terms of simple beneficial ownership structures, it may be simple to provide data on each beneficial
owner through submission on the CIPC BO-Register, whilst such companies are still required to submit a
securities register (with the BO information contained therein).

The highlighted part above is clearly wrong and contrary to what has been said in the CIPC messaging.
However the BO details should be entered into the self-contained BO database, surely? We have been told
that the BO data is not to be made available to the public only the regulators so what you are proposing
defeats the object of the exercise. Your webinar dealt with Known Information and the fact that you did not
have to enter the shareholders in the BO database because they were on the securities register which is
uploaded as a PDF file, is totally wrong and does not make sense!

With more complicated ownership structures it may not be practical to submit beneficial ownership
information on the Register and it makes more sense to source the information / data from the mandatory
securities registers and beneficial interest registers, that must be uploaded.

I agree this may be the case and to insert the BO information on the securities register which the CIPC will
allow the public to look at is wrong and that is why there should be a separate BO register. Nevertheless a
BO register without entering the data is in fact useless as how will it be used by other regulators. I do not see
the way through converting all the information from a PDF file.
I do not agree with the fact that its too complicated as there are principles involved and one can set rules
to get to the end result!

Another area of concern mentioned was the distribution of percentage of beneficial ownership and the
difficulty to indicate same, specifically in terms of Trusts. Again, the legislation is very clear that beneficial
ownership does not only include percentage requirements, such as in terms of shareholding, voting
interests, etc. but that the exercise of control and/or ability to materially influence the management of a
company, is also considered beneficial ownership. As mentioned earlier in this correspondence the system
is being continuously enhanced to provide for every possible contingency, including beneficial ownership
types which are not measurable in percentages.

I agree with some of this, nevertheless trusts who complete the BO registers should have a good idea about
percentage interests as they should be cognisant of what is in the trust instrument and agreements and
who controls who. Simply by missing this step the CIPC is missing out on what all this is about, because we
are told over and over again that the issues are with trusts. Accounting officers and trustees must determine
the percentage factor as who else is going to do that. When it comes to voting only the percentage interest
counts. The triangulation with the masters data or anyone else’s for that matter is not going to work. The level
of faith that stakeholders will have in triangulation is nil.

What we are proposing is a starting point for query or audit if the need arises and establishes the link in order
to get to the warm bodies. If we don’t do this calculation how will we ever get to the warm body. Its best to
put in a percentage even if the percentage is even among beneficiaries so that links can be establish and
we reach a warm body.

There are many instances in secretarial practice which are not legislated and every one knows what the
practice is. This would be a simple matter for the CIPC or the minister to issue a regulation or guidance note.

For clarity, we also suggest you have a look at the definition of beneficial owner, indicated in each piece
of legislation amended by the GLAA, because the definition differs, depending on which juristic person
type it applies to.

I have done this and my views have not changed as in the case here I am dealing with the CIPC
We, reiterate that the CIPC is continuously enhancing the established CIPC Beneficial Ownership Register to
simplify filing of beneficial ownership information for corporate entities, as much as possible. Webinars,
guidance notices, user guidelines and articles on the subject of beneficial ownership, are all tools used by the
CIPC to assist corporate entities in meeting their compliance objectives in terms of beneficial ownership.
The webinar that I attended indicated a totally different view of what we should be doing and I don’t accept
that it provides clarity.
We trust the above provides some clarity.
Definitely not! If the CIPCs views have not changed then I expect a full engagement with all the role-
players.
Yours’ sincerely
Lucinda Steenkamp
Senior Legal Advisor: CIPCDeputy Information Officer: PAIA and POPIA
14/07/2023