Why identifying the ultimate beneficial owner matters

In the past, detecting funds from unlawful activities as they entered the financial system was relatively straightforward. However, with the dishonest among us increasingly making use of juristic or corporate entities to hide their true identities and introduce illicit proceeds into the system, it’s becoming more and more difficult for the relevant authorities to identify these funds. And it’s not only South African officials who find themselves in this position – the challenge cuts across international borders.

The ins and outs of subject to bond approval clauses

Several strategies have been developed and implemented over time to curb this growing problem and prevent the misuse of these entities. One of these strategies has been identifying the ultimate beneficial owner – the natural person who ultimately owns, controls, and/or benefits from a juristic entity and the income it generates. 

South Africa aimed to establish legislation to help combat money laundering activities, organised crime and terrorism through the Financial Intelligence Centre Act 38 of 2001 9 (FIC Act),

In the context of juristic entities, ownership and control must be distinguished from the notion of ultimate actual ownership and control. Section 21(B) of the FIC Act requires that the ownership and control structure be established for juristic entities. Reasonable steps also need to be taken to identify the beneficial owner/s:

  • The identity of each natural person who either independently or together has a controlling interest in the juristic entity must be determined.
  • Complex control structures must be examined until a ‘warm body’ is identified.
  • The accountable institution needs to take reasonable steps to satisfy itself that it has established the beneficial owner.
  • Accountable institutions should not rely on a customer’s ‘self-certification’ without also taking reasonable steps and measures to verify the identity of all parties involved in the juristic entities control structure.  
  • Accountable institutions must be in a position to identify the real customer they are dealing with and apply risk adjusted strategies accordingly.

While the above does complicate things when it comes to entering into transactions where a juristic entity is the seller or purchaser, one must be mindful of why certain documents are requested time and time again and remember that this process is a necessary step towards addressing issues around the misuse of juristic entities.

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Why identifying the ultimate beneficial owner matters

In the past, detecting funds from unlawful activities as they entered the financial system was relatively straightforward. However, with the dishonest among us increasingly making use of juristic or corporate entities to hide their true identities and introduce illicit proceeds into the system, it’s becoming more and more difficult for the relevant authorities to identify these funds. And it’s not only South African officials who find themselves in this position – the challenge cuts across international borders.

The ins and outs of subject to bond approval clauses

Several strategies have been developed and implemented over time to curb this growing problem and prevent the misuse of these entities. One of these strategies has been identifying the ultimate beneficial owner – the natural person who ultimately owns, controls, and/or benefits from a juristic entity and the income it generates. 

South Africa aimed to establish legislation to help combat money laundering activities, organised crime and terrorism through the Financial Intelligence Centre Act 38 of 2001 9 (FIC Act),

In the context of juristic entities, ownership and control must be distinguished from the notion of ultimate actual ownership and control. Section 21(B) of the FIC Act requires that the ownership and control structure be established for juristic entities. Reasonable steps also need to be taken to identify the beneficial owner/s:

  • The identity of each natural person who either independently or together has a controlling interest in the juristic entity must be determined.
  • Complex control structures must be examined until a ‘warm body’ is identified.
  • The accountable institution needs to take reasonable steps to satisfy itself that it has established the beneficial owner.
  • Accountable institutions should not rely on a customer’s ‘self-certification’ without also taking reasonable steps and measures to verify the identity of all parties involved in the juristic entities control structure.  
  • Accountable institutions must be in a position to identify the real customer they are dealing with and apply risk adjusted strategies accordingly.

While the above does complicate things when it comes to entering into transactions where a juristic entity is the seller or purchaser, one must be mindful of why certain documents are requested time and time again and remember that this process is a necessary step towards addressing issues around the misuse of juristic entities.

Follow Snymans on Facebook for more legal information, tips and news about property.