When share transfers are intentionally backdated, the true date of the transaction is manipulated. Several legislative provisions prohibit backdating shares.
The Financial Intelligence Centre Act, 38 of 2001 (“FICA”), provides that accountable institutions are required to maintain records, identify and validate clients, and report suspicious or unusual transactions to combat money laundering, terrorist financing, and the disguise of illegal funds. FICA, under section 22, places emphasis on the importance of proper record-keeping by accountable institutions. Section 29(1) of FICA further requires companies to report, amongst other things, if the business has received or is about to receive the proceeds of unlawful activities or property which is connected to an offence relating to the financing of terrorist and related activities or if a transaction or series of transactions are intended to evade the provisions of FICA or has no apparent business or lawful purpose. Non- compliance with FICA, such as failure to report a suspicious transaction, has grave consequences, including the company’s reputational damage, and the penalty is imprisonment not exceeding 15 years or a fine not more than R100 million.
Companies must be aware of backdated share transactions if they are used to cover up the proceeds of money laundering activities, which should be reported to the Financial Intelligence Centre (“FIC”). These disclosures enable the identification of instances of ownership record concealment or falsification in the corporate and financial sectors, including through backdated share issuances.
The Companies Act, 71 of 2008 (“Companies Act”) has also emphasised the significance of transparency in share transactions. The Act requires transparency in regulated transactions affecting control. Section 50(1) of the Companies Act requires companies to maintain an accurate securities register that reflects share ownership and issue dates. More significantly, under section 214(1)(b) of the Companies Act, it is an offence for a person to knowingly submit false or misleading information in any circumstances in which this Act requires the person to provide information or give notice to another person, which may include business records or resolutions. As a result, backdating resolutions or share certificates does not only contravene the transparency and corporate governance rules envisaged by the Companies Act but may also lead to an offence subject to a fine and/or imprisonment.
The Prevention of Organised Crime Act, 121 of 1998 (“POCA”), makes it illegal to acquire, use, or possess money obtained through unlawful activities. Any transaction that hides or disguises the nature, source, location, disposition or movement or ownership of property derived from unlawful activity is illegal under section 4 of POCA. Backdated shares may then be prohibited in terms of POCA and may result in money laundering charges if they are used to legitimise illegal funds or alter ownership structures.
In conclusion, backdating shares serves as a possible warning sign for financial crime rather than a harmless administrative practice. Therefore, companies must ensure all share issuances and transfers are accurately and promptly documented, supported by legitimate resolutions and confirmed funding sources. Maintaining transparency in share transactions strengthens South Africa’s reputation for compliance while also protecting the integrity of corporate governance. You are welcome to approach our Compliance Team for assistance in identifying suspicious money-laundering transactions through backdated shares.
Disclaimer: This article is the personal opinion/view of the author(s) and does not necessarily present the views of the firm. The content is provided for information only and should not be seen as an exact or complete exposition of the law. Accordingly, no reliance should be placed on the content for any reason whatsoever, and no action should be taken on the basis thereof unless its application and accuracy have been confirmed by a legal advisor. The firm and author(s) cannot be held liable for any prejudice or damage resulting from action taken based on this content without further written confirmation by the author(s).
