¶ 4501
Overview
Scope of the chapter. This chapter addresses the anti-money-laundering and sanctions obligations of the persons through whom a protective structure is established and administered, chiefly the trustee, and their consequences for the client and the planner. It covers the customer due diligence a trustee must perform before accepting a settlement, the distinction between source of wealth and source of funds, the enhanced measures that apply to politically exposed persons and to structures regarded as higher risk, the sanctions regimes of the United States, the United Kingdom and the European Union as they apply to trusts, the reporting of suspicion and the prohibition on tipping off, the obligations of United States trust companies and investment advisers, the treatment of criminal proceeds placed in trust, and the preparation of the client's file before an approach is made to a trustee. It closes with an assessment of compliance in the Threat Matrix.
The trustee as gatekeeper. A professional trustee is a regulated business in every jurisdiction used for protective trusts. Before it accepts a settlement, it must identify the settlor, the beneficiaries and anyone else who controls the trust, verify their identities, establish the source of the property to be settled and the purpose of the arrangement, and screen every party against sanctions lists. It must refuse the business if it cannot do so and must report any suspicion that the property derives from crime. The trustee's obligations are imposed to protect the financial system. They serve creditors' interests indirectly. A trustee that has documented the settlor's solvency and the lawful origin of the settled property will be a credible witness for the trust if it is challenged, while a trustee that has accepted property without inquiry exposes itself to liability as a recipient and the trust to the inference that its purpose was improper.
Relation to asset protection. Anti-money-laundering law and asset protection law share a vocabulary. A fraudulent transfer may involve the proceeds of an offence. Some States criminalize the transfer of property with intent to defraud creditors (see supra ¶ 330), and in the United Kingdom any criminal conduct that generates a benefit, including fraud on creditors where it is an offence, makes that benefit criminal property (see infra ¶ 4550.01). The FATF itself recognizes asset protection as a legitimate purpose of a trust. Its guidance on legal arrangements lists among the purposes of trusts "[a]sset protection: Trusts are regularly used to preserve assets from perceived external risk, for example: Divorce actions. Claims by creditors or risk of bankruptcy. Forced heirship provisions. Concerns about political uncertainty," while noting that the list "is not exhaustive, and some might be considered illegal under domestic law." FATF, Guidance on Beneficial Ownership and Transparency of Legal Arrangements, annex A, at 47 (Mar. 2024). The same guidance describes the features of asset protection trusts and identifies some of them as risk indicators (see infra ¶ 4530.06). The trustee must therefore understand the client's reasons for the trust and satisfy itself that they are lawful.
Relation to other chapters. The professional responsibility of the planner, including the limits on assisting a client who intends to defraud creditors, is addressed in chapter 3 (see supra ch. 3). The solvency analysis that should precede every transfer is addressed in chapter 7 (see supra ch. 7). The banking relationship, including the bank's own due diligence, is addressed in chapter 34 (see supra ch. 34). The trustee's position when faced with foreign orders and inquiries is addressed in chapter 40 (see supra ch. 40). The reporting regimes through which information about the structure reaches tax authorities are addressed in chapter 44 (see supra ch. 44). Client intake procedures for the planner's own firm are addressed in chapter 52 (see infra ch. 52).