Trusts and internet service providers should introduce compliance procedures to guard themselves against unwittingly playing host to money l...

Trusts and internet service providers should introduce compliance procedures to guard themselves against unwittingly playing host to money launderers, according to recommendations made by the Financial Action Task Force on money laundering. The task force unveiled the recommendations during the presentation of its annual report on money laundering typologies in Paris yesterday afternoon. “Despite their legitimate use and very long tradition in many jurisdictions, trusts, along with various forms of corporate entities, are increasingly perceived as an important element of large-scale money laundering schemes,” said the report.

The anonymity that a trust grants its true owner or beneficiary and the fact that documentation of trusts is not public information make the detection of money laundering activities near impossible. Blind or black hole trusts and asset protection trusts are more often abused than others, said the FATF.

The task force suggested in its report to establish a strict regulatory regime for trust formation agents to aid financial regulators.

Establish regulation and licensing of professionals involved in trust formation, requiring these professionals to apply the same anti-money laundering preventive measures as those employed by financial institutions (i.e., customer identification, record keeping, reporting of suspicious transactions) and would need to rely on appropriate inspection procedures to ensure compliance with such rules.

Regulate the form of trusts. Impose a standardised documentation requirement for trusts that could vary according to the types of trusts and might also include abolishing or banning certain types of particularly abusive forms of trust.

Impose a registration requirement for trusts.

Incidences of money laundering through the internet, such as online casinos for instance, are on the increase, noted the FATF. To make the internet less attractive for financial criminals the task force recommends guidelines for customer identification and documentation of transactions.

Require internet service providers to maintain reliable subscriber registers with appropriate identification information.

Require ISPs to establish log files with traffic data relating internet-protocol number to subscriber and to telephone number used in the connection.

Require that this information be maintained for a reasonable period (six months to a year).

Ensure that this information may be made available internationally in a timely manner when conducting criminal investigations.

Lawyers, notaries, accountants and other non-financial professionals often play a role, knowingly or not, in helping clients to set up money laundering schemes. “Through their specialised expertise they are able to create the corporate vehicles, trusts, and other legal arrangements that facilitate money laundering. Professional confidentiality, which has traditionally applied to the relationship between the lawyer and the client for advocacy purposes, now is often extended to other non-advocacy “gatekeeper” functions,” said the FATF. The task force wants to include these professions in the same anti-money laundering obligations as financial intermediaries when they are performing similar functions.