Banking: Where the Assets Are Held

Where the assets are. A trust or entity owns assets; a bank or custodian holds them. The two locations may differ. A Cook Islands trust may hold its securities through a Swiss bank, its cash at a bank in Singapore and its digital assets with a custodian in Wyoming. Each holder is subject to the courts and regulators of its own jurisdiction and, through branches, affiliates and correspondent accounts, often to those of other jurisdictions as well. The protection that the trust's governing law provides is therefore only as strong as the willingness and ability of the holder to refuse an order from a court that the trust's law does not recognize. This chapter addresses the selection of banks and custodians, the control of accounts, the reach of United States process over foreign banks, account-opening due diligence, the insolvency of the holder, freezing orders served on banks and the holding of digital assets.

Two risks. The banking arrangement addresses two distinct risks. The first is legal reach: the risk that a court in the client's home country, or a court whose orders the holder will obey, will freeze or seize the assets or compel their transfer. The second is counterparty risk: the risk that the bank or custodian itself will fail, and that the trust's assets will be caught in its insolvency. A plan that addresses the first risk by choosing a small bank with no United States presence may increase the second, and a plan that addresses the second by choosing a global bank may increase the first. The planner must weigh both.

Organization of the chapter. Paragraph 3410 addresses the selection of the bank and the situs of deposits. Paragraph 3420 addresses the trustee's control of accounts and signing mandates. Paragraph 3430 addresses the reach of United States law over foreign banks. Paragraph 3440 addresses account-opening due diligence and de-risking. Paragraph 3450 addresses the distinction between deposits and custody assets, and the consequences of a bank's insolvency. Paragraph 3460 addresses freezing orders served on banks. Paragraph 3470 addresses digital assets. Paragraph 3480 sets out design principles, and ¶ 3490 places banking in the Threat Matrix.