Welcome to the first ngoLAW Brief of 2024

First the news that the latest iteration of the “Spy Bill” (which looks like being rushed through committees and Parliament in the dying days of 2023 in the same way that the FIC General Laws Amendment Act was in 2022) has dropped specific references to security vetting of all NGOs, but is still terribly vague on accountability and lacking in enforceable oversight of the security sector. See Heidi Swart’s article at https://intelwatch.org.za/2023/11/28/op-ed-new-spy-bill-will-businesses-be-next-to-face-state-security-vetting/ to follow and add support to the civil society stand against invasive overreaches of State power. Regarding the FIC provisions and Grey Listing the Financial Action Task Force, has recently issued amendments “to address the misapplication and misinterpretation of Recommendation 8, that had led countries to apply disproportionate measures on Non-Profit Organisations (NPOs)” for the full story: https://www.fatf-gafi.org/en/publications/Fatfrecommendations/protecting-non-profits-abuse-implementation-R8.html In the rest of this Brief we deal with some questions and issues often encountered in our work: How can we help boards do better? Why do the CIPC standard-form MOIs not contain the PBO clauses? What is the fuss about Objects clauses? Is it a conflict of interests or a breach of duty? We end with a note on changes coming for parental leave rights for employees, based upon our fabulous Bill of Rights. Long may she provide the impetus for South Africans to equally and fairly enjoy their rights. We hope that you find all of this information useful and,  as usual, please feel free to send this on to anyone who you think might benefit from it. If you have been sent this by someone else and would like to receive future newsletters, click this link to subscribe  If you would rather not be sent these, then unsubscribe at the end of the newsletter. Keep the questions coming and send us suggestions for future topics – visit our website, hit the ‘contact’ tab, and enter your question into the ‘Contact Form’ space provided. The end (of 2023) is nigh! Nicole, Bandile, Janice, Chelsea, Lisa, Dorothy and Alison TOP THREE THINGS TO HELP BOARDS DO BETTER In a recent training/refresh session with the profoundly passionate and highly qualified board of WESSA, https://wessa.org.za/ I was put on the spot with the question: “What three things should we do to make sure that new board members, who may come from a corporate context, are able to properly engage with the work of governing a non-profit?”     With WESSA’s permission, I share here my generally-applicable top three, in no particular order:  Enable proper understanding of NGO financial reports.  These reports should clearly show the difference between ‘deferred’ funds (held for donors and to be spent in particular way) and the funds available for running the organisation.  The language used to describe different sorts of income should be accurate and make sense to outsiders/new board members. Give the board an accurate picture of the extent of work and time which fundraising takes.  They cannot oversee the work of the CEO if they do not understand the demanding nature of raising funds and then reporting to donors; Let the board directly encounter the work being done: field trips to projects and bringing project-managers into the room to report will do so much more to inspire, inform and allow useful input than all of the lovely words and numbers that are sent to them. (I am still mulling on my recent visit to the new home ground of the Siyazisiza Trust and now have a real and ‘live’ connection to the amazing work being done there https://siyazisiza.co.za/ .) THE SARS CLAUSES AND STANDARD NPC MOIs When SARS grants PBO (and some other sorts of exempt) status, it usually includes in the exempting letter a requirement that the founding document of the organisation is amended within a period of time, in order to include the clauses which are legally required under the relevant section of the Income Tax Act. Those who have registered as a non-profit company (NPC) using one of the standard-form memoranda of incorporation (MOIs) available from CIPC are often surprised to find that these standard MOIs do not include the required SARS clauses. Because there are many varieties of tax exemption and also not all NPCs will be applying for the status, it is not possible for the CIPC standard documents (or any standard or precedent MOI)  to also do the SARS-end work. For those NPCs who are granted exempt status, the MOI will have to be amended by special resolution of the members (or directors, if it is a no-members NPC)  and the amended MOI registered with CIPC, and then sent to SARS. At ngoLAW, we see the drafting of these amended MOIs as a wonderful opportunity to create for the organisation a ruling, founding document which is appropriate, relevant and useful for their governance and protocols.  There are others who might (instead of drafting a unique MOI) lodge with CIPC an addendum to that standard form MOI with all of the SARS clauses slapped into it, but we do not take this approach as: We think that this adds confusion, as you then have two (unintelligible) documents to refer between and confusion and misunderstandings arise; Annexures which deal with things also dealt with in the main body will almost invariably introduce internal contradictions, which make thinking lawyers break out in hives; We think the standard form MOIs are not easy to follow and take every chance we get to replace them with documents more useful to governance.  The good news is amending the MOI need not be a rushed affair. Even if the deadline in the SARS letter has expired, they cannot remove exempt status from you without notice and an opportunity to correct matters. If you did receive a notice to comply, a response that the board is engaging with the process of crafting a special MOI which will be sent to SARS in due course is, all else being well, likely to be satisfactory. So the members or board may approach the matter in a considered way. But a start should be made. OBJECTS: WHAT ARE THEY GOOD FOR? We routinely come across organisations whose ‘objects clause’

Non-profits must be alert to a new threat to their freedom of association and ability to operate from a draft Intelligence Laws Amendment Bill. (This article was written by Nicole Copley, and appeared in the Daily Maverick on 03 Sep 2023)

Welcome to June!- the past couple of months have brought more regulatory changes to the sector, including the final versions of: the NPO Act Regulations (the draft version was dealt with in our previous Brief) and the new Companies Act Regulations (which we will deal with in our next Brief). For this Brief, though, the focus is on 18A and the new “third party return”– which is in the pipeline -but needs to be prepared for. This Brief will explain the general principles, and then the next issue will go into the finer details of preparations required. We also deal with the difference between ‘doer’ and ‘donor’ 18A status and why the details of this distinction are so important. We end with reflections arising from a recent online webinar hosted by Trialogue and the lively debate with two CSI Foundation Leaders- also a link to that webinar included. We hope that you find all of this information useful and, as usual, please feel free to send this on to anyone who you think might benefit from it. If you have been sent this by someone else and would like to receive future newsletters, click this link to subscribe If you would rather not be sent these, then unsubscribe at the end of the newsletter.Keep the questions coming and send us suggestions for future topics – visit our website, hit the ‘contact’ tab, and enter your question into the ‘Contact Form’ space provided. Hands to the plough and eyes on the horizon, as ever! Nicole, Bandile, Janice, Chelsea, Lisa, Dorothy and Alison NEW FROM SARS- “THIRD PARTY RETURNS”  BY 18A ORGANISATIONS In our previous Brief https://ngolawsa.co.za/first-quarter-2023-ngolaw-in-brief/ we explained the new details which have to be captured on the expanded version of the 18A receipt to be issued to SA taxpaying donors who request them. In the next step towards closing down 18A fraud, SARS has introduced a new tax filing requirement for organisations issuing 18A receipts (and for trusts which ‘vest’ an amount in a named beneficiary)- the filing of “third party returns”. What is a “third party return”?These are information returns (so reports filed with SARS in a specific format) and they are currently required to be filed by banks, medical schemes, and other entities as part of their tax compliance obligations. For example, banks and other financial institutions in South Africa are required to submit third party returns to SARS (the IT3(b) and IT3(c) returns) which give information about interest earned, dividends paid, and other investment income earned by their customers. Similarly, medical schemes are required to submit third party returns such as the IT3(m) return, which provides information about contributions received from and benefits paid to their members. These third party returns are used by SARS to verify the information provided by the bank customers and medical aid members when these taxpayers file their individual tax returns. The information reported in these returns helps SARS in its efforts to detect and prevent tax evasion, and to ensure that taxpayers are accurately reporting their income and deductions. So, a “third party return” is a sort of tax return which is not about your own tax affairs, but about the tax affairs of others (your customers, members and now donors) and helps SARS to connect the dots and check that people are not making false claims in their tax returns. SARS issued a draft Notice in April 2023, adding to the list of the organisations needing to file what are called third party returns. The new additions to the list of organisations which must, when the final Notice is issued, submit these returns is: Organisations which have 18A (donor deductibility) status and which have issued 18A receipts within the relevant period; and Trusts which are established or managed in South Africa and which ‘vested’ any amount in a beneficiary during the relevant period. The process of rolling these requirements out is in the testing phase and the first date by which submissions will be due is only end February 2024 (in respect of the period 31 Aug 2023 to end Feb 2024). SARS is, however, calling for early adopters to assist in testing their systems (and the organisation systems) and for voluntary submissions to be made. If the organisation you work with is likely to have innate complexities which will make this process difficult, or lack of technical expertise and support, we suggest that you do volunteer and make these returns before they are officially due, as the SARS systems will be refined and updated based upon the practical examples they process in their systems. Before getting into the details, it is good to know that the main aim of SARS in all of this is not to make the lives of NGOs more difficult, but to make giving and getting 18A deductions easier for donors, while clamping down on fraud. The end-game is that, when donors come to file their tax returns, the fields for 18A donations made will be pre-populated for them, based upon the information submitted by the recipient 18A organisations. Also, the likelihood of a need for an audit or for supporting documents to be filed by donors will be greatly reduced, as the system will independently verify the tax deductions claimed. Another important point to note is that SARS has not so far proposed any penalties for non-compliance with the requirement to file– they anticipate that there will be tweaks and accommodations to be made, and want to encourage participation so that they can make the necessary adaptations. Early adopters who make errors or who battle with the requirements need not fear that there will be SARS penalties for mistakes or technical issues. Will our tax-exempt organisation have to submit an 18A third-party return?Not all tax-exempt organisations and not even all tax exempt organisations which have 18A status will have to submit these new returns- SARS is only interested in the information of SA taxpayers (so, individuals and corporates) who have made a donation to an 18A organisation, and requested an 18A receipt to be issued to them.

https://youtu.be/YmwxQhQceNA This link is to a high-speed panel discussion, featuring Nicole and hosted by Trialogue, on Corporate “Foundations” Trialogue’s primary research shows that 43% of companies surveyed in 2022 managed some or all of their corporate social investment (CSI) through a separate legal entity, 28% through trusts and 15% through non-profit companies. This is an increase from 35% in 2021. On 30 March 2023, responsible business consultancy Trialogue hosted a webinar to explore the motivation behind setting up these separate entities, and to consider which may be best for corporate CSI. The panellists included Tshego Bokaba (Group CSI Manager, Momentum Metropolitan Holdings), Arthur Mukhuvhu (General Manager, MTN SA Foundation), and Nicole Copley (founder of ngoLAW). Three legal options for companies Nicole Copley indicated that there are three legal options available to companies that do not wish to manage their CSI function internally. These are: A voluntary association A charitable trust A non-profit company (NPC) None of these entities can be owned, although they retain strong ties with the company funding them, and they can be registered as non-profit organisations. “They all exist for a purpose, as against organisations that exist to make a profit,” Copley noted. It is recommended that organisations that want to raise funds externally should consider externalising the CSI function. A voluntary association can be established under common law with no registration necessary, says Copley. It is inherently democratic and is often a grassroots or community-based organisation, with new committee members voted in each year. Although it is a quick and affordable option, companies may get into trouble as they may not want members, but donors will be under the impression they have them. This is generally not a good structure for CSI, according to Copley. Charitable trusts have long been a favourite with companies. They are governed by a board of trustees and must have their own bank accounts. However, trust deeds must be physically registered with the Master of the High Court, and the Master must be notified in writing every time a trustee is changed. This is a time-2 consuming process, which is why trusts are becoming less popular. Copley notes that the Master will be introducing electronic systems in future, though this may not apply retroactively to existing trusts. Non-profit companies were previously known as Section 21 companies under the previous Companies Act and had to convert to NPCs when the new Companies Act came into being in May 2011. A Memorandum of Incorporation replaced the Memorandum and Articles of Association. “An NPC provides you with greater flexibility as you can set it up with or without members,” says Copley. It can also appoint a diverse board consisting of external board members. Another obvious advantage is that you can make any changes electronically and any information can be verified online – for example, whether directors have been filing their annual returns.” Although greater compliance is required, this confers greater credibility. The tax picture An in-house CSI department may claim expenses as tax deductions, which can be justified as marketing or stakeholder engagement expenses, for example. However, there is always the chance that an auditor may question whether expenses have been incurred in the production of income, and this may prompt a company to set up a separate legal structure for tax reasons. Companies can’t provide Section 18A certificates, while other legal structures can, says Copley. However, it is important to note that Section 18A certificates can’t be issued for anything other than authentic donations. “It can’t be a disguised payment for something that’s actually a marketing service,” she notes. “If you can satisfy the requirement of section 11A, which applies to pre-trade expenses incurred, then you can claim a normal tax deduction. However, if you can’t justify such a deduction inside the business – if it’s inherently misaligned and there’s no tangible benefit to the business – a Section 18A can be issued.” Momentum Metropolitan Foundation Tshego Bokaba explained that the Momentum Metropolitan Foundation was established in 2009 when the two companies merged. “We did this because the business was highly fragmented, with subsidiaries of companies within companies,” she pointed out. “This made it difficult to manage CSI initiatives, especially from an SED perspective – and it limits the impact of your CSI, because that is also fragmented. We had to set up a structure where all the business units could contribute their NPAT to the foundation.” Another challenge involved different business units wanting to report separately. “There needs to be alignment from both the SED and ESD perspective, or we could potentially return to a fragmented approach, which we don’t want,” Bokaba said. “The closer the foundation works with the business the better. We can’t operate in silos – both stakeholders have to work together for the benefit of business and society.” Copley remarked that there can be a lack of control where there are many business units, and bringing their work together under one umbrella makes sense, not least of all because it is easier to put across consistent brand messaging. “I don’t believe in having extra organisations you don’t need, and it’s a good thing if you can run your initiatives in-house. However, you often have placatory or piecemeal, reactionary giving, and a new entity can bring proper strategic focus,” she said. “You can consolidate funds and have big ambitions, as well as demonstrate real impact to donors.” 3 For the foundation, setting up a trust was never an option. “We felt all the requirements would make it too cumbersome,” Bokaba said. “Setting up an NPC is seamless, and it has the same benefits as a trust.” MTN Foundation Arthur Mukhuvhu says the MTN Foundation was registered in 2007. “Before this, our charitable initiative was a part of the business,” he says. There were a number of factors that persuaded the company that setting up an NPC would be the best vehicle for its CSI initiatives. “The funding model itself appealed to us as the business provides cash flow,

This year has begun with a bang, as the contents of this Brief will show- there are three major regulatory changes for the NGO sector to understand and respond to: A major expansion of the FICA Schedule of “accountable institutions’ and who it now applies to; New 18A receipt rules, effective 1 March 23 (so, last week already); and Draft Regulations for the NPO Act released for comment and submissions by 23 March. We will deal with the last one first, as it is crucially important that news about the draft Regulations is spread widely and that the sector engages with it by the deadline set. (Also, we know you will keep reading for the 18A bit, anyway!) We hope that you find all of this information useful and, as usual, please feel free to send this on to anyone who you think might benefit from it. If you have been sent this by someone else and would like to receive future Briefs from us, click this link to subscribe. If you would rather not be sent these any longer, then please unsubscribe at the end of the email. Keep the questions coming and send us suggestions for future topics – visit our website, hit the ‘contact’ tab, and enter your question into the ‘Contact Form’ space provided. Hands to the plough and eyes on the horizon, as ever! Nicole, Bandile, Janice, Chelsea, Lisa, Dorothy and Alison NPO ACT : DRAFT REGULATIONS Status update: Those who have been following (or who were involved in) the submissions made on the ‘Octopus Bill’ will be interested to know that: The ‘Octopus Act’ (General Laws (Anti Money-Laundering and Combatting Terrorism Financing) Amendment Act 2 of 2022) was gazetted and promulgated on 29 December 2022; and The promised regulations relevant to the NPO Act and the amendments made to it by the Octopus Act were released in draft form for comment on 21 February  2023, with a 30-day deadline for comments which we make to be by close of business on 23 March 2023 (the draft regulations may be accessed at PMG: https://pmg.org.za/call-for-comment/1251/ and comments and enquiries can be directed to the persons there listed. Parts of these draft regulations will affect all organisations which are already voluntarily registered as Non Profit Organisations (NPOs) as well as that group of organisations for whom NPO registration will become compulsory with effect from 1 April 2023; and then there are parts which will apply only to those who fit the definition of organisation for whom registration is now compulsory. Recap:  Organisations for whom registration as an NPO is now compulsory are those SA-based organisations which: make donations to individuals or organisations outside of South Africa; or provide humanitarian, charitable, religious, educational or cultural services outside of South Africa. (Those who have been following the saga will recall that the initial plan was to make registration compulsory for all organisations of a non-profit nature in South Africa.  As the proposed changes were intended to deal with the risks highlighted by the Financial Action Task Force, our legislators were persuaded to dial back the requirement and focus on organisations where the perceived risks were higher.  Bottom line:  your knitting club need only register as an NPO if the knitting is a cross-border project! For a bit more detail on the process so far see the opening part of our previous newsletter https://ngolawsa.co.za/last-quarter-2022-ngolaw-in-brief/ ) Initial note on the draft Regulations:Those who take the time to read the draft Regulations will soon detect that parts of them are in language not appropriate for regulations and seem to be informative, rather than enforceable. This is because those who laid the Regulations out included the explanatory notes within the main text of the Regulations.  This appears to have been done in error and we suggest that those submitting detailed comments merely reflect, for each of these portions, that they are not part of the Regulations. For those wanting a shortcut, our list of the probably purely explanatory parts is: the last five lines of the para 2(a) on page 3, the top part of which is intended as regulation 8A; on pages 4-5, the items numbered (3) to (8); at the foot of page 5, items (4) to (6); near the end of page the items (80-(10). The following summary of Regulations is only our snapshot of what each of them contains and then what we think they mean. We have tried to restrain ourselves from actual commentary, where possible, so as not to constrain the creative and independent engagement which will be so useful. For each of the draft regulations, think through the practical impact on the organisation you serve. In your commentary we advise that you give examples and illustrations of any negative or inacceptable practical impact and also, if possible, come up with alternative suggestions for the relevant part of the draft regulation. As we did in the comments on the Octopus Bill. We have provided an easy-to-use tabulated version of the proposed regulations, with a blank column for your own comments and alternate suggestions. Download this from our website  at https://ngolawsa.co.za/wp-content/uploads/2023/03/NPO-draft-Amended-Regulations-2023-A.docx. SUMMARY OF REGULATIONS 7A In December 2022 a new Section 25A was added to the main NPO Act and contains a list of sorts of status or behaviour which will bar people from service on governing bodies of NPOs.  This is the first time the NPO Act has had such a list.  This list includes  disqualifications/ineligibility standards already applicable to directors of NPCs and trustees of trusts, but adds convictions or sanctions for fraud, dishonesty, money laundering or terrorist financing (amongst others) to the list. This regulation 7A deals with the register of disqualified persons which the Directorate of NPOs must now maintain, the details required to be kept, and a right of public inspection of this list (limited to inspection of a physical list, kept in Pretoria and during office hours only – not terribly useful). Regulation 7A also seems to place the burden upon registered non-profit organisations to assemble and populate this public list.  It requires that a registered

NGO, NPO, NPC, PBO – all these acronyms lead to confusion as to where charitable organisations and other similar entities fit into the equation. This also speaks to the funding models and criteria for each of these organisations, interrogating the issue of governance, transparency, and accountability in the organisational operations. NGO stands for a Non-governmental Organisation and is an international term used to describe a voluntary group or institution with a social mission, which operates independently from the government. Although these terms are not necessarily interchangeable, an organisation similar to an NGO may also be called non-profit, charity, non-profit organisation (NPO) or a voluntary organisation. A Non-profit Organisation (NPO) is a trust, company or other association of persons established for a public purpose. The income and property of these organisations are not distributable to the members or office bearers except for reasonable compensation for services rendered to the organisation. NPOs are required to register with the Department of Social Development under the NPO Act and must register with SARS as taxpayers. NPOs may apply for approval as a tax-exempt institution (see PBO underneath) if they meet the relevant requirements. NPC is the acronym for a Non-profit Company and is defined as a company incorporated for a public benefit. Here again the income and property are not distributable to the incorporators, members, directors or any office bearers. NPCs are required to register with the Companies Intellectual Property Commission (CIPC) under the Companies Act, must register with SARS as taxpayers and may also apply for approval as tax exempt institutions (see PBO underneath) if they meet requirements vant require Source

Our last newsletter of 2022 begins with an update on (and some practical advice coming out of) the major legislative changes that we have been engaged with government over, in an effort to: avoid grey-listing of our country by the Financial Action Task Force (FATF); AND limit unnecessary, not useful and potentially harmful extra regulatory requirements which were being unilaterally imposed on the non profit sector. We also report back on some recent community trustee training and deal with some practical advice on these topics:  What is an ‘independent’ board member and why do we need some? Can government employees serve on the boards of non-profits? Can public benefit organisations purchase shares in (and receive dividends from) commercial companies? We end with links to other places you can see our work (and that of others) – the Independent Philanthropy Association South Africa (IPASA)’s 2022 Annual Review of South African Philanthropy and Book Dash- “Matthew is Up” (and other books). We hope that you find all of this information useful and, as usual, please feel free to send this on to anyone who you think might benefit from it. If you have been sent this by someone else and would like to receive future Briefs from us, click this link to subscribe. If you would rather not be sent these any longer, then please unsubscribe at the end of the email. Keep the questions coming and send us suggestions for future topics – visit our website, hit the ‘contact’ tab, and enter your question into the ‘Contact Form’ space provided. We wish you a proper rest and more gladness, less madness over the holiday season. Chelsea, Dorothy, Bandile, Nicole, Janice, Lisa and Alison THE OCTOPUS BILL UPDATE AND IMPACT The dust has all but settled on the submissions and responses on “A” (for Alarming 😊) and then the updated, “B” version of the General Laws (Anti-Money Laundering and Combating Terrorism Financing) Amendment Bill. We have taken to calling this Bill the ‘Octopus Bill’ because of its impact on multiple Acts, many of which affect the nonprofit sector.  For the background, see https://ng olawsa.co.za/urgent-call-for-submissions-on-the-anti-grey-listing-compulsory-npo-registration-bill/ . The most important result of our engagement has been the removal from the Bill of the proposed mandatory registration of all non-profits in South Africa. In the “B” version of the Octopus Bill (which we anticipate will be passed into law shortly) compulsory NPO registration has been limited to the ‘at risk’ category of non-profits, as per the proposed amendment to section 12 of the NPO Act: (b) A nonprofit organisation must be registered under this Act if it— (i) makes donations to individuals or organisations outside of the Republic’s borders; or (ii) provides humanitarian, charitable, religious, educational or cultural services outside of the Republic’s borders. TAKE-AWAYS FROM THE OCTOPUS BILL PROCESS FOR THE SECTOR AS A WHOLE Civil society, and all of it, needs to be able to speak to government and proposed changes with an informed, coherent and broad-based voice. We will not always agree on all aspects, but we should be more active in finding common ground and being able to show government departments and parliamentary committees the number and extent of organisations we speak for.  In the process just ending, a fabulous effort was made around this in the very short time available.  (When we complained that we had not had enough time for proper responses and were asked ‘but what would more time have allowed you to do better?’ our answer was – ‘consult more broadly, engage and inform more extensively, consolidate a joint response in a more considered fashion’.) Despite the short time given, when we apply ourselves to making practical, engaging and relevant responses, our voices are heard and even appreciated. Government is often disconnected from the reality of life and struggles in South Africa, and civil society is a very useful window to reality. The non-profit sector needs to have people who are dedicated to doing long-term, big-picture work on behalf of the entire sector on an ongoing basis. The Octopus Bill may have come at us suddenly, but there was, really, plenty of advance warning of the brewing FATF process.  But there was no-one on the look-out on behalf of the non-profit sector with the spare time and energy to galvanise an earlier response or pro-active actions. Imagine a world where, instead of Treasury driving the FATF response, a collaboration of non-profits had already undertaken a detailed risk analysis, survey and research and had proposed an action plan and even a private Bill, if we thought it necessary. In our view, this is the main lesson to be learnt here, that there are opportunities to be more pro-active and to lead the way, and we need to lift our heads up long enough to spot them, and then work together to get them done. Being more pro-active can start now.  We could: drive greater participation in the survey and risk analysis already undertaken by Treasury; commission and conduct our own research and analysis; come up with our independent recommendations on appropriate and implementable steps to meet the ongoing FATF requirements and standards; come up with our own set of risk factor ‘red-flags’ for organisations to watch out for and make sure that they do not fall prey; and develop materials and tools to allow non-profits to assess, evaluate and report on the identified risk factors and how, if they arose, they were dealt with. The NPO working group is already engaging independently with various international FATF meetings and reviews of their proposed approach to the non-profit sector worldwide and invites interested organisations to join the network, support, assist and stay informed.  Email suzanne@inyathelo.org.za  to get onto the mailing list and see the  history of the work done at Inyathelo | The South African Institute for Advancement – NPO Amendment Bill. TAKE- AWAYS FROM THE OCTOPUS BILL PROCESS FOR INDIVIDUAL ORGANISATIONS FATF has highlighted the risks of non-profit organisations being abused for money laundering, terrorist financing and other

https://www.dailymaverick.co.za/article/2022-10-08-mandatory-registration-requirement-in-money-laundering-and-terrorist-financing-bill-will-badly-hurt-sa-non-profits/ In an effort to prevent the severe economic consequences arising from the imminent threat of the “grey-listing” of South Africa, a General Laws Amendment Bill has been published that aims to avoid this grey-listing by demonstrating compliance  with the recommendations contained in South Africa’s Mutual Evaluation Report of the Financial Action Taskforce Force (FATF). The non-profit sector, which depends heavily on foreign donor funds, would be devastated by the grey-listing, which would block and/or slow the flow of funding to South Africa. It is of crucial importance that the Bill is passed but not in its current form as it contains sweeping provisions which are not useful, appropriate or achievable. With sensible and suitable adjustments made, the Bill could ward off the grey-listing and allow donor funding to continue to flow. But the sector needs to engage with and lodge comments on the Bill, for this to occur. The Bill was released for public comment on Tuesday 27 September 2022 :  General Laws (Anti-Money Laundering and Combating Terrorism Financing) Amendment Bill | PMG. with a deadline for submissions to be made by noon on Monday 10 October 2022. The actual Bill is available by copying and pasting the following link into your browser: https://static.pmg.org.za/B18-2022_General_Laws_Anti-Money_Laundering.pdf Please also see the background information as posted on the SARS website:  https://www.sars.gov.za/businesses-and-employers/tax-exempt-institutions/exempt-institutions-connect-issue-1-september-2022/ The pressure and impetus for this Bill comes from FATF’s recommendations, which are that a risk-based approach be adopted  to reducing the opportunities for legal structures in South Africa to be used to hide money laundering, terrorist financing and the promotion of terrorist activities. The Bill proposes to amend five Acts: The Financial Intelligence Centre Act, Trust Property Control Act, Companies Act, Nonprofit Organisations Act, and Financial Sector Regulation Act with the main aims of: exposing the ‘beneficial owners’ (people ultimately in control of) all companies and organisations; making it compulsory for all companies and organisations ‘operating’ in South Africa to be registered with a regulatory authority.  In the case of non-profits, it makes NPO registration compulsory, including for foreign non-profits ‘operating’ in South Africa; and adding a range of fraud-related offences to the lists of things which will make it impossible to hold a fiduciary office in a company or organisation, and requiring CIPC, the Master of the High Court and the NPO Directorate to keep a list of those who are so ineligible for office, and order their removal. [siteorigin_widget class=”SiteOrigin_Widget_Image_Widget”][/siteorigin_widget] In an effort to prevent the severe economic consequences arising from the imminent threat of the “grey-listing” of South Africa, a General Laws Amendment Bill has been published that aims to avoid this grey-listing by demonstrating compliance  with the recommendations contained in South Africa’s Mutual Evaluation Report of the Financial Action Taskforce Force (FATF). The non-profit sector, which depends heavily on foreign donor funds, would be devastated by the grey-listing, which would block and/or slow the flow of funding to South Africa. It is of crucial importance that the Bill is passed but not in its current form as it contains sweeping provisions which are not useful, appropriate or achievable. With sensible and suitable adjustments made, the Bill could ward off the grey-listing and allow donor funding to continue to flow. But the sector needs to engage with and lodge comments on the Bill, for this to occur. The Bill was released for public comment on Tuesday 27 September 2022 :  General Laws (Anti-Money Laundering and Combating Terrorism Financing) Amendment Bill | PMG. with a deadline for submissions to be made by noon on Monday 10 October 2022. The actual Bill is available by copying and pasting the following link into your browser: https://static.pmg.org.za/B18-2022_General_Laws_Anti-Money_Laundering.pdf Please also see the background information as posted on the SARS website:  https://www.sars.gov.za/businesses-and-employers/tax-exempt-institutions/exempt-institutions-connect-issue-1-september-2022/ The pressure and impetus for this Bill comes from FATF’s recommendations, which are that a risk-based approach be adopted  to reducing the opportunities for legal structures in South Africa to be used to hide money laundering, terrorist financing and the promotion of terrorist activities. The Bill proposes to amend five Acts: The Financial Intelligence Centre Act, Trust Property Control Act, Companies Act, Nonprofit Organisations Act, and Financial Sector Regulation Act with the main aims of: exposing the ‘beneficial owners’ (people ultimately in control of) all companies and organisations; making it compulsory for all companies and organisations ‘operating’ in South Africa to be registered with a regulatory authority.  In the case of non-profits, it makes NPO registration compulsory, including for foreign non-profits ‘operating’ in South Africa; and adding a range of fraud-related offences to the lists of things which will make it impossible to hold a fiduciary office in a company or organisation, and requiring CIPC, the Master of the High Court and the NPO Directorate to keep a list of those who are so ineligible for office, and order their removal. [siteorigin_widget class=”SiteOrigin_Widget_Button_Widget”][/siteorigin_widget]

NOTICE TO NON PROFIT COMPANIES (AND PTYS): THE CIPC CHECKLIST WHAT IS IT? The Companies and Intellectual Property Commission (CIPC) has introduced an additional compulsory reporting requirement for companies with effect from the 2020 year, to increase awareness of and compliance with the obligations and processes of the Companies Act 71 of 2008. This additional requirement takes the form of a checklist, and companies must each year indicate which of the listed sections of the Companies Act they have complied with. Please note that this compliance requirement is only applicable to companies which are registered with the CIPC. For those who are trusts or voluntary associations, you may ignore this notice.   ngoLAW CHEAT SHEET As the compliance checklist issued by CIPC refers just to the numbers of the sections of the Act,  ngoLAW has created  a user-friendly version of the checklist, which explains the sections and the factors to consider when answering the questions. The brief but precise explanations of each item in the ngoLAW CIPC checklist have been crafted specially for use by the non-profit clients of ngoLAW. They do not contain all of the words in the Act, just the parts we think most relevant. (We think that this approach is more likely to achieve accurate reporting and compliance.)   THE YEARS CIPC currently has two years available for filing the checklist- 2020 and 2021. Both of these are currently due. The process is being rolled out by CIPC and there is still leniency with deadlines, but the ongoing requirement will be that companies are required to submit their responses for the preceding calendar year (based on anniversary of incorporation date) within 30 business days of each anniversary of incorporation date.   IF WE ARE NOT HANDLING YOUR ANNUAL RETURNS TO CIPC please check with your accountant, bookkeeper or auditor whether they are handling the compliance checklist function. If they are, they may already have contacted you for the details they would need in order to do this. If they have not been in contact, and are not in a position to assist OR if their document or list of questions is difficult to understand, please contact us for our assistance on CIPCTeam@ngolawsa.co.za .     IF ngoLAW ALREADY HANDLES THE FILING OF YOUR ANNUAL RETURNS and you do not shortly receive an email from us, feel free to email CIPCTeam@ngolawsa.co.za.   HOW IT WORKS Our compliance checklist is made available in an online form and, once you have completed it, the answers to your questions are sent directly and securely  to ngoLAW, so that we can enter these into the CIPC reporting database on your behalf. We have also built in a step of checking the answers given and assisting you with answering accurately. A copy of the completed checklist would be sent to you for signature, and for filing with your records. (Alternatively, you or your accountants or auditors could use the completed checklist to file the responses).   THE COSTS For the 2020 and 2021 compliance checklists owed, we are offering the catch-up service or assistance with it for a discounted fee of R950 plus VAT for both years. For those who subscribe to our ngoComply annual service, the checklist will become part of that service for future years.   ANY QUESTIONS If you have any concerns about the checklist or about any compliance issues arising, please let us know and we can assist.  Please let us know if you would like this assistance by return email to CIPCTeam@ngolawsa.co.za .

Our winter newsletter has a little of something for everyone, and most of them come from questions our clients have asked us in the last couple of months – An introduction to a new CIPC annual compliance requirement; The question of the AGM- who needs to have one; For organisations which have a (dormant) trust lying around- can you just leave it in the back drawer in case it is needed in future, or should you terminate it? For NPCs- the process to remove an unwanted director; and Some ideas on agendas for and minutes of meetings- what job they do and how to make them work harder and better. We hope that you find all of this information useful and, as usual, please feel free to send this on to anyone who you think might benefit from it. If you have been sent this by someone else and would like to receive future Briefs from us, click this link to subscribe. If you would rather not be sent these any longer, then please unsubscribe at the end of the email. Keep the questions coming and send us suggestions for future topics – visit our website, hit the ‘contact’ tab, and enter your question into the ‘Contact Form’ space provided. Stay safe, keep calm and carry on- A Luta Continua! Nicole, Bandile, Janice, Lisa, Dorothy, Alison and Chelsea   CIPC COMPLIANCE UPDATE: THE ANNUAL CHECKLIST For NPCs and PTYs, CIPC is in the process of rolling out a new compulsory compliance process which involves submitting a report to CIPC on which sections of the Companies Act the NPC or PTY has (or has not) complied with. Because the language in the sections of the Act can be hard to navigate, particularly for non profits, ngoLAW has created an NGO-friendly checklist, and an online form which is easy to complete. For those of our clients where we are already filing your annual returns, you should shortly receive a link to our online form and instructions to follow. We guide you in your answers where needed compile a final version and lodge the required reports with CIPC. If your accountants or auditors are filing your annual returns, they should also be completing and filing this report. If they send to you a set of questions which you need assistance with navigating, please contact us for access to our NGO-friendly version. If you find that your accountants or auditors have filed the report without consulting the board or management for the details required, please note that there are penalties and fines for inaccurate responses and that the board should ensure that the proper process is followed and that answers are accurate. The CIPC compliance checklist is a useful tool for the board and should be used to improve governance and as part of the annual compliance routine. For support and enquiries, please contact our compliance team at bandile@ngolawsa.co.za WHO NEEDS TO HAVE AN AGM? An annual general meeting (AGM) is a meeting of members or shareholders, and its usual function is to elect the board, hear the reports on the activities and plans of the organisation, and view the annual financial statements (AFS). For a non-profit which has members, the AGM is a fundamental part of the governance routine allowing the members a regular opportunity to receive information, and to exercise their basic function of holding the board to account and electing board members. For a non-profit which has no members (a trust or a no-members non-profit company (NPC)), an AGM is not required, as the board has no-one to report to. For no members NPCs and trusts, the annual functions of approving the AFS and selecting new board members to replace those whose terms of office have come to an end will take place at a board meeting. (When lodging NPO reports for these organisations, you can say ‘no AGM required as no members’). For a voluntary association, which has to have members in order to exist as a legal structure, an AGM is certainly required. For a with-members NPC, the provisions of new Companies Act are somewhat confusing as: Section 61(7) makes an AGM mandatory only for public companies, and NPCs are not public companies under the new Act. However, with-members NPCs are required, in terms of sections 30(1) and 30(3) of the Companies Act to present the AFS to an annual general meeting. Our view is that the requirement that the AFS be presented at an AGM effectively does make the AGM mandatory for all companies with members or shareholders. Also, for NPCs with members, the members should be gathered together (in a room or virtually) at least once a year to play their basic role of holding the directors to account. If this annual routine is not followed, then the board is in danger of forgetting who the members are, and the members themselves might think that their services are no longer required. If it is worth having members, then one needs to keep them up to date and engaged. We too often see organisations which have neglected to follow the membership routines and the members fall into disarray and cannot play their role when they are needed. CAN WE LEAVE OUR UNUSED TRUST DORMANT? The functioning of the various Masters of the High Court being what they are (and the comparative speed and ease of use of CIPC being markedly better) we are quite often asked by clients who have decided to no longer use a trust as their main operating entity, whether they could and should just leave a trust which is not currently in use “dormant”, or whether they should take the active step of notifying the Master that it is being terminated and close officially it down. Technically and in terms of the law as strictly applied, a trust does terminate as soon as it has no assets. However, the office of the Master does not seem to actively investigate or police this, and relies rather