The Financial Action Task Force (FATF) recognizes the misuse of trusts for money laundering as a global problem. I will provide an overview of trust activities that evince vulnerabilities for money laundering crimes. My answer is perforce somewhat cursory because of the intricate legal and regulatory compliance risks associated with this aspect of AML compliance.
The FATF has identified characteristic AML and Counter Terrorist Financing (usually referred to with the acronym “CFT”) vulnerabilities of trusts that include
(1) problematic relationships among the settlor, trustee, and beneficiary of a trust;
(2) use of specific trust provisions to obscure relevant facts; and
(3) use of trusts to take advantage of jurisdictional differences.
In the United States, a trust is a legal arrangement created and governed under state law (whether statutory or common law) of the jurisdiction in which it was formed. A trust is generally a relationship created by an arrangement between the grantor and the trustee, under which the trustee assumes fiduciary obligations to the trust’s beneficiaries.