South Africa’s greylisting due to deficiencies in its corporate legal framework on illicit financial flows: is there a need for measures enhancing transparency in relation to beneficial ownership?

Abstract

On 24 February 2023, the Financial Action Task Force’s decision to ‘grey list’ South Africa sent shockwaves through the Republic, placing it under increased monitoring by the intergovernmental body. The economic consequences thereof are dire: loss of investor confidence, increased difficulty in obtaining donor funding from abroad, among many others. The greylisting is a consequence of South Africa’s failure to address the deficiencies in many aspects of its anti-money laundering and counter-terrorist financing regime, including those relating to the obscure beneficial ownership framework designed for companies that operate within its territory. Motivated by the pressure of being greylisted, the South African government is in the process of establishing a new beneficial ownership regime that is much more transparent and aims to prevent the use of companies by their beneficial owners to facilitate illicit financial flows. However, the obscurity of the “old” beneficial ownership regime was rooted in the need to protect beneficial owners’ privacy and safety. It is on this basis that this paper investigates whether there is truly a need for a new beneficial ownership regime and, if there is, whether the regime being established by the South African government will be effective in preventing and deterring beneficial owners from using companies as vehicles through which they can engage in illicit financial flows in and out of the Republic.