News Letters

Fighting Corruption, Money Laundering And Terrorist Funding

Murky ownership details give crooks places to hide Companies profiled by Who Owns Whom researchers are allocated a transparency rating based on their willingness to disclose information about themselves, from 1 (opaque) to 10 (fully transparent). Of the 15,241 active companies on file, 32.76% scored above 6. While this is a material percentage, it indicates that we still have some way to go to convince our business community that transparency is more conducive to a functional society than secrecy. Needless to say, Who Owns Whom scores 10. The most transparent sectors are travel operators, forestry, electrical machinery manufacture, precision instruments manufacture, printing and publishing, education and heavy machinery rental. Our latest report on the banking sector highlights the challenges faced by South African banks with foreign operations or foreign corresponding bank relationships in complying with the laws of foreign jurisdictions which have strict obligations to ‘know your client’ in the international fight against corruption, money laundering and terrorist funding. In 2017, former president Jacob Zuma reluctantly signed the Financial Intelligence Centre Amendment Act (Fica) at the last moment, narrowly avoiding international banks severing their correspondent relationships with South African banks. Fica places international standard know your client obligations on South African banks. A key component is ownership, but while the intention of section 26 of the Companies Act is to give the public access to the share registers of private companies, delinquent companies wishing to hide ownership simply drag the right to access process out in the courts for years. Amabhungane, The Helen Suzman Foundation and Who Owns Whom have made a number of submissions to the Standard Committee on Company Law at the Department of Trade and Industry over the last three years to strengthen this clause in the Companies Amendment Act in order to oblige private companies to lodge ultimate beneficial ownership information with their annual returns at the Companies and Intellectual Property Commission (CIPC) and for the public to have access to ultimate beneficial ownership information, as they currently only have access to a list of directors. This proposal has been included in the latest draft which is currently with Nedlac. As the CIPC makes some annual return financial information publicly available and once the ultimate beneficial ownership disclosure legislation is gazetted, it is going to be considerably more difficult for crooks to get a stranglehold on our country again.

Know your client

The global fight against corruption, money laundering and terrorist funding activities has seen the obligation to ‘know your client’ become an inexorable international trend, which has been brought even closer to home with the Gupta, VBS, Steinhoff and Bosasa delinquencies. To bring South Africa in line with international efforts and to meet our commitments to the G20 in this regard, government promulgated The Financial Intelligence Centre Act (Fica) of 2001 (amended in 2017) to create the Financial Intelligence Centre, which has become one of the most effective institutions fighting corruption and crime in our society. Fica places the obligation on a wide range of professions and financial services companies to ‘know your client’, particularly with regard to who owns them. While section 26 of the Companies Act gives any member of the public the right to request the share register of a private company, the practicalities of accessing  this information tend to defeat the intention. In 2013 Moneyweb journalist Julius Cobbett requested the share register of Nova Property Group Holdings, which was involved in the Sharemax property syndication. Nova refused to provide it, and the matter went all way to the Constitutional Court which, in 2016, dismissed Nova’s appeal against the Supreme Court ruling against it, settling once and for all the principle that any person has an unqualified right to access the securities register of any company. However, while the right is there, the process to uplift this information is onerous. WOW, amaBhungane and the Helen Suzman Foundation have, for the last two years, been petitioning the Department of Trade and Industry to introduce legislation into the Companies Amendment Act which will obligate private companies to list beneficial shareholders on CIPC, as is currently the case with directors. We hope that we are being heard. Fica does state that outside sources may be used to verify data, and WOW has accumulated, over 39 years, ownership information on 180,000 companies. WOWEB users are increasingly using this information for know your client purposes.

Manufacturing leads growth

Dear WOW User The South African economy pulled itself out of its second recession since 1994 in the third quarter of 2018 with a quarter on quarter GDP growth of 2.2% with contributions from the following sectors; Manufacturing – 7.5% Agriculture  – 6.5% Transport  – 5.7% Trade – 3.2% Finance – 2.3% State – 1.5% Personal Services – 0.7%   Of the 12 industries research by Who Owns Whom in December 2018 and January 2019 six where in the high performing manufacturing sector; The Confectionery Industry South Africa has a sweet tooth with the chocolate market valued at approximately R6.4bn and sugar confectionery at between R12.5bn and R13.5bn. However, increasing health awareness is a threat to the industry and innovation and product differentiation will be important to remain competitive to ensure brands keep up with health trends. Technology plays a vital role for manufacturers to remain innovative and competitive and the focus is usually on launching new products but sometimes ‘old favourites’ are relaunched such as Tiger Consumer Brand’s Maynard’s Apricot Halves, Frutip’s fruit pastilles and Mister Sweet relaunched Frutus. While some consumers are reducing their consumption of chocolate confectionery many are also switching to premium chocolates and an opportunity exists to train young South Africans in the art of Belgian chocolate making. Western Cape chocolatiers such as Von Geusau in the rural town of Greyton and La Chocolaterie Rococo in the coastal town of Grootbrak have found trained Belgian artisans to teach their staff. The Manufacture of Clay and Concrete Bricks Against the tide of the declining and troubled construction industry since 2010 major brickmakers continue to report good results due to growth in smaller construction projects, affordable housing as well as retail and townhouse developments. More than 1.5 million RDP houses will be built between now and 2020 at a cost of R30bn per annum and Industry leader Corobrik, which produces approximately 28% of total industry output has announced significant investment in expansion. This is reinforced by the state announcement in the Medium-term Budget Policy Statement that investment in social and economic infrastructure will be a focus of economic recovery over the medium term with public sector infrastructure spend estimated at R855.2bn in this period. In this respect it is also useful that the industry takes social investment seriously and provides employment in rural communities and actively engages in community development programmes and is a significant supporter of SMMEs. It takes 26 man-hours to produce 1,000 bricks, providing four jobs per million bricks produced. Manufacture of General Purpose Machinery The DTI has targeted industrialisation as a key policy driver for a long time and in the latest medium-term expenditure framework a further R18.8bn is allocated for industrialisation and manufacturing incentives over the next three years. Another industry advantage is that it is a major exporter into Africa and stands to gain from the future infrastructure build on the continent. On the downside the sector is energy-intensive and sensitive to the instability of price and supply created by the problems at Eskom. The industry is also very critical of the upcoming Carbon Tax which it feels is simply a tax on production which will further decrease manufacturing competitiveness against imports.

Africa Beckons

South African-based companies have just under 5500 subsidiaries on the rest of the African continent, according to the Who Owns Whom (WOW) ownership file of 32 000 African companies. These are traditionally weighted towards SADC countries, but the last ten years has seen a surge of expansion into East and West Africa.