CASE STUDIES

MONEY LAUNDERING WITH TRUSTS AND

RELATED TRUSTEE SERVICES
THE SEPARATION OF LEGAL AND BENEFICIAL OWNERSHIP MAKE TRUSTS INVALUABLE FOR THOSE SEEKING TO DISTANCE AND
DISGUISE THEIR CONNECTION WITH PROPERTY USED FOR, OR GENERATED BY, CRIME.

OVERVIEW
Trusts are legal arrangements developed by common law jurisdictions in which the legal title and control of an asset are separated from the
equitable interests to that asset. A trust is not a legal person and assets held by a trust are legally owned by the “trustees”. A trust cannot conduct
transactions, or hold property, in its own right but must do so through the trustees.

In a typical trust, a “settlor” transfers the legal title of assets to a trustee who must hold those assets for the benefit of certain “beneficiaries” in
accordance with the declaration of trust.
T
US
TR
OF

Trustee
I ON
AT
AR
CL
DE

Settlor

Beneficiaries

Trust Assets

The separation of legal and beneficial ownership make trusts
invaluable for those seeking to distance and disguise their connection
with property used for, or generated by, crime. Further, in many
jurisdictions there is no registration requirement for a trust: they are
viewed as private arrangements and their existence is not a matter of
public record. Trusts are therefore well suited to be used as secrecy
vehicles by those wishing to launder money.
Professional trustees and administration services are often provided
by trust service providers (or “TSPs”). These companies often also
provide company, as well as trust, services and are hence also referred
to as “TCSPs”. The trustees provided by TCSPs can be individuals or
corporate entities, sometimes referred to as “trust companies”.

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 MONEY LAUNDERING WITH TRUSTS
CASE STUDIES
AND RELATED TRUSTEE SERVICES

SECRECY IN A COMPLEX CORPORATE STRUCTURE

IN ORDER FOR A SETTLOR TO RETAIN CONTROL OVER THE ASSETS LEGALLY DIVESTED FROM
HIS OWNERSHIP WHEN A TRUST IS SET-UP, COMPLIANT TCSPS CAN BE EXPLOITED WHERE
THE TRUSTEES WILL SIMPLY FOLLOW THE DIRECTIONS OF THE SETTLOR.

However, to give such an arrangement the cover of legitimacy the trust can be set-up in such
a way that the trustees receive “advice” from an “investment management company”
(ultimately under the control of the settlor) in relation to the management of the trust assets.

Trusts are often used as the last layer of secrecy in a complex corporate structure designed to
disguise a criminal’s connection to illicit funds. In order to aid this concealment, arrangements
often span multiple jurisdictions, with trust assets, TCSPs, and investment management
companies each located in a different country.

NT
ME
EST MENT
INV AGE NY
N A
MA OMP
C

Trustee

Settlor

Beneficiaries

Trust Assets

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 MONEY LAUNDERING WITH TRUSTS
CASE STUDIES
AND RELATED TRUSTEE SERVICES

SCENARIO
Let’s suppose a member of a ruling family is
paid a bribe by an arms manufacturer in order
to influence the awarding of a contract for the
supply of fighter planes.
Arms Manufacturer
The member of the ruling family will not
want to receive this money directly, they will
want to benefit from this money whilst
avoiding detection.
BVI CSP
”
CY NT
ES

CBSVPI
AN ME
FE
LT AY
SU E P
ON IB
“C BR

Y
P AN
M
CO X
HE AR %

Ruling Family
TR LD O ES
SH 100

US N

Member
T

CGSSYP
1 Instead of directly paying the member
of the ruling family, the arms manufacture
BE UER

pays Company X under the cover of a

NE NS
G

Guernsey CSP
FIC EY

“consultancy” contract.
IA TR
RI U
ES ST
OF

2 Company X is a BVI company,

managed and administered by a CSP
on behalf of the ruling family member.

3 The shares of Company X have

Wife and Child been settled into a Guernsey trust,
of ruling Family administered by a TCSP.
Member
4 The beneficiaries of the trust consist of
the wife and children of the ruling family
member and they will therefore be able
to indirectly enjoy the proceeds of the
bribe payment.

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This KYC360 infographic is licensed for your personal use only. It may not be used for any commercial purpose without the prior written permission of KYC360. © KYC360 2016. All rights reserved.