What is Beneficial Ownership? 

Beneficial Ownership refers to the ownership structures of legal entities like companies and trusts. When establishing beneficial ownership, one is establishing exactly which individual benefits from the privileges associated with ownership of a legal entity (such as profits). 

Sometimes, the actual owner of a company is not the same individual under whose name the company’s title is listed on paper. In other words, although the title for Company X may be under the name of Mr Allen, Company X may actually belong to Mrs James. In this case, Mrs James is the Ultimate Beneficial Owner (UBO). 

Because Mrs James is the UBO, it means that she is the person who ultimately benefits every time the business initiates a transaction. 

Establishing the beneficial ownership of an entity can be challenging. Ownership structures may be designed to be highly convoluted and complex – either legally or illegally so – for several reasons. It should be noted that beneficial ownership structures are legal, so long as they are explicitly declared.

To gain a comprehensive understanding of beneficial ownership, read our breakdown here. 

What are the Global Standards for Beneficial Ownership Laws? 

Countries all around the world are grappling with how to best regulate Ultimate Beneficial Ownership (UBO). 

A recent survey by Comply Advantage discussed several global patterns related to Beneficial Ownership regulations. One notable finding was the extent to which companies believed that UBO was an issue worth regulating. 

“40% of the surveyed firms said that UBO was an area of AML regulation that could be tightened to combat financial crime in their countries effectively – the third-highest answer given” – Comply Advantage, The State of Financial Crime 2024.

This desire to tighten UBO legislation reflects the fact that, all around the world, UBO laws are highly varied and are often too lax. 

These issues have been recognized by the Financial Action Task Force (FATF). The FATF -- an international regulatory body responsible for establishing AML guidelines – announced in October 2023 that it is revising its guidelines for UBO legislation. 

The new guidelines will advise on the best recommendations for risk-based practices. The adoption of risk-based practices for beneficial ownership is in line with the FATF’s 2014 adoption of the Risk-Based Approach (RBA) for the structuring of Anti-Money Laundering (AML) regulations. 

The final draft of the FATF's new guidelines will help inform changes in jurisdictions like the European Union and the United States. Although precise details are yet to be finalised, the new UBO guidelines will certainly call for greater corporate transparency concerning beneficial ownership structures, as well as harsher penalties for infringements.

How Do South Africa’s New Beneficial Ownership Laws Compare?

South Africa has passed new beneficial ownership laws that change the way that businesses must register in South Africa. As of 2024, South African businesses must officially register their UBO structures with the Companies and Intellectual Properties Commission (CIPC). 

Some general compliance obligations for businesses in SA may include: 

• All companies must declare and formally register their beneficial ownership structures with the CIPC. 
• All individuals and/or entities that hold more than 5% beneficial ownership of a company or close corporation must submit a register of beneficial owners to CIPC.

To further understand how businesses are impacted by South Africa's new UBO laws, read our comprehensive overview here.

South Africa's new UBO follow the trend of South Africa increasingly aligning itself with American and European standards for corporate law. For Example, South Africa's Protection of Personal Information Act (POPIA), is aligned with the standards set by the EU’s GDPR.

South Africa's new UBO laws represent an important step in South Africa's efforts to align itself with global standards for UBO legislation, as well as get itself removed from the FATF's greylist. 

However, as noted by the report by Company Advantage, the global standards for UBO regulation are still being debated and tweaked.

The FATF, as well as the European Union, are both in the process of analysing and reforming their UBO legislation. What form the final drafts of this legislation take, as well as the impact this will have on due diligence and regulatory compliance obligations, remain to be seen. 

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