Photo: Gallo Images / Sydney Seshibedi) | Magifying glass with money. (Istock) | (By Daniella Lee Ming Yesca)Why South Africa was grey listed
The FATF Mutual Evaluation Report of October 2021 identified significant weaknesses in South Africa's anti-money laundering and counter-terrorist financing (“AML/CFT") framework. The FATF found that South Africa's laws were generally adequate in many respects, but implementation, transparency of ownership structures and enforcement effectiveness were weak.
The FATF criticised inadequate beneficial ownership transparency, the abuse of trusts, companies and non-profit organisations (“NPOs”) to conceal illicit funds, weak supervision of accountable institutions, insufficient money laundering investigations and prosecutions and limited ability to obtain timely, accurate ownership information. In February 2023, South Africa was placed on the grey list and given an eight-point action plan.
The major legislative response
The centrepiece of reform was the General Laws (Anti-Money Laundering and Combating Terrorism Financing) Amendment Act 22 of 2022, which amended five key statutes and introduced a new beneficial ownership transparency framework.
The Trust Property Control Act now includes a statutory definition of “beneficial owner.” Trustees must keep beneficial ownership records and disclose them to the Master of the High Court. The Master has greater supervisory powers and additional grounds to disqualify trustees. Law enforcement can now “look through” trusts.
Changes to the Companies Act were arguably the most significant. Companies must maintain beneficial ownership records and file them with the Companies and Intellectual Property Commission (“CIPC”), which operates a central register. Previously, authorities could identify directors but not the ultimate natural persons who owned or controlled a company. The reform enables identification of ultimate controllers, easier tracing of corruption and money laundering proceeds and improved cross-border information sharing - one of the FATF’s biggest concerns.
The Financial Intelligence Centre Act (“FICA”) expanded its list of accountable institutions to include dealers in high-value goods, certain crypto-asset service providers, credit providers, company service providers and other designated non-financial businesses - bringing thousands more entities under its net. Accountable institutions must identify and verify beneficial owners, maintain risk management and compliance programmes (“RMCPs”), conduct enhanced due diligence on higher-risk clients and monitor suspicious transactions. The shift is from box-ticking to risk-based compliance.
The NPO Act introduced enhanced registration, reporting, disclosure of office bearers and controllers, and powers to investigate and deregister - preventing NPOs from being used for terrorist financing or concealing beneficial ownership.
Finally, amendments to the Financial Sector Regulation Act improved coordination between the Prudential Authority, the Financial Sector Conduct Authority, the Financial Intelligence Centre and the South African Reserve Bank.
Beneficial ownership and property transparency
The single biggest theme is beneficial ownership transparency - establishing who truly owns a company, controls a trust or benefits from a legal arrangement. Nominees, layered shareholdings and opaque trust structures were a major concern. The programme is built on identifying the “warm body” behind every structure. Property ownership transparency has also been targeted, linking real estate to beneficial owners so that property can no longer conceal illicit wealth.
Impact on companies
For businesses, the practical consequences are substantial: boards must oversee AML/CFT frameworks with documented governance structures; customer due diligence requires identifying ultimate beneficial owners; companies must maintain beneficial ownership registers, risk assessments and transaction records; screening and suspicious transaction reporting are mandatory; and third-party risk management - covering suppliers, agents and intermediaries - must be embedded in compliance programmes.
The Zondo Commission and section 34A of PRECCA
The State Capture Commission provided the anti-corruption counterpart to these AML reforms. Chief Justice Zondo observed that corruption schemes were often carried out through agents, consultants, contractors and suppliers, while the company itself claimed not to have authorised the conduct. Recommendation 8 called for a corporate failure to prevent corruption offence.
The Judicial Matters Amendment Act, which received Presidential assent on 3 April 2024, inserted a new section 34A into the Prevention and Combating of Corrupt Activities Act (“PRECCA”) - distinct from the existing section 34. Under section 34A, a company or incorporated state-owned entity commits a criminal offence if a person associated with it - employees, agents, contractors, intermediaries, consultants or suppliers - gives, agrees or offers to give any prohibited gratification intending to obtain or retain business or a business advantage for the company. Modelled on section 7 of the UK Bribery Act, its purpose is to encourage good corporate citizenship by preventing corruption in the first place.
The ‘adequate procedures’ defence
Section 34A provides a defence: no offence is committed where the company “had in place adequate procedures designed to prevent persons associated with [it] from giving, agreeing or offering to give any gratification prohibited in terms of Chapter 2.”
There is no mandatory guidance under section 34A, but the UK Bribery Act guidance and CIPC’s Guidance 1 on Corporate Compliance Programs (November 2018) serve as benchmarks. Both point to six principles: proportionate procedures matched to the organisation’s risk profile, considering size, industry, jurisdiction, use of third parties and organisational structure; periodic, informed and documented risk assessments; top-level commitment through board oversight and visible tone from the top; risk-based due diligence on suppliers, agents, third parties and employees; communication and training - general for all staff, targeted for high-risk roles, including whistleblowing awareness; and monitoring and review, including internal audits, event-triggered reviews and external assurance such as ISO 37001 certification.
The board and Social and Ethics Committee bear statutory responsibility for monitoring the compliance programme. A paper programme will not suffice.
Executive takeaways
Beneficial ownership transparency is the dominant theme: companies, trusts and NPOs can no longer operate as opaque vehicles. The pool of accountable institutions has expanded dramatically, and the regulatory philosophy has shifted from rules-based to risk-based.
Simultaneously, the State Capture Commission has directly shaped section 34A: businesses face criminal liability for associated persons’ corruption unless they demonstrate adequate procedures. With the grey listing history, the Zondo recommendations and pressure on the National Prosecuting Authority to make examples, adequate procedures are essential, not optional.
The convergence is unmistakable. FICA compliance, beneficial ownership reforms and section 34A are no longer separate workstreams. They form a single governance, risk and compliance framework and every board in South Africa must treat them as such. DM
Authors: Steven Powell, Head of Department, Forensics; Adrian Roux, Executive, Forensics