16.5 DRILLING DOWN THROUGH A TRUST TO FIND THE BENEFICIAL OWNERS
I will try to explain if the beneficiaries in a South African Trust can be the beneficial
owners in a trust in terms of the FATF rules.
The FATF defines a beneficial owner as "the natural person(s) who ultimately owns or controls a legal entity or arrangement, such as a company, trust, foundation, or partnership". The FATF requires countries to take measures to prevent the misuse of legal entities and arrangements for money laundering or terrorist financing and to ensure that there is adequate, accurate and up-to-date information on the beneficial ownership and control of legal entities and arrangements that can be obtained or accessed in a timely manner by competent authorities.
To identify the beneficial owner of a legal arrangement, such as a trust, there are four possible methods:
• The trustee approach: This method involves identifying the trustee(s) of a trust as the beneficial owner(s). This method may be sufficient for some types of trusts where the trustee(s) has full discretion over the assets and beneficiaries of the trust. However, if there are other parties involved in the trust who have significant influence or control over it, then the next method should be applied.
• The identity approach: This method involves identifying all the natural person(s) who are entitled to benefit from a trust (the beneficiaries), either directly or indirectly. This may include identifying all potential beneficiaries if they are not named in the trust deed or if they are part of a class of beneficiaries. If no natural person(s) can be identified using this method, then the next method should be applied.
• The control approach: This method involves identifying all the natural person(s) who have power to appoint or remove trustees, protectors, enforcers, beneficiaries or assets of a trust (the settlor), or who have similar powers over a legal arrangement. If no natural person(s) can be identified using this method, then the next method should be applied.
• The senior managing official approach: This method involves identifying the natural person(s) who holds the position of senior managing official in a legal arrangement, such as the protector, enforcer, manager, etc. This method should only be used as a last resort when no natural person(s) can be identified using the previous methods.
Based on these methods, it is possible that beneficiaries can be the beneficial owners in a trust if they are identified by the identity approach or the control approach. However, this may depend on the specific characteristics and circumstances of each trust and its beneficiaries. For example, some beneficiaries may have a fixed or vested interest in the trust assets, while others may have a contingent or discretionary interest that depends on the trustee’s decision. Some beneficiaries may have influence or control over the trustee’s actions, while others may not. Some beneficiaries may be natural persons, while others may be legal persons or arrangements themselves.
According to South African law, there are two types of living trusts: vested trusts and discretionary trusts. A vested trust is one where the beneficiaries have a fixed right to either the income or capital (or both) of the trust from inception. A discretionary trust is one where the trustees have full discretion regarding how much income or capital (or both) each beneficiary is entitled to.
Therefore, to determine if beneficiaries can be the beneficial owners in a South African Trust in terms of the FATF, it is necessary to apply the relevant methods and criteria to each case and to consider all relevant information available on the identity and role of the beneficiaries in relation to the trust.
I hope this helps you understand if beneficiaries can be the beneficial owners in a South African Trust in terms of the FATF.