Trusts: A Guide to Conducting Customer Due Diligence

As part of its efforts to combat money laundering and terrorist financing, the Financial Action Task Force (FATF) has issued advisories that require financial institutions to conduct customer due diligence (CDD) on certain individuals and entities. In this article, we will explore how licensed undertakings can identify and verify the beneficiaries of trusts.

Identifying Beneficiaries

According to FATF guidelines, a trust is considered to be set up or operated for the benefit of one or more beneficiaries. These beneficiaries may include individuals with a specified interest, such as family members or charity organizations. The licensed undertaking must identify these beneficiaries and conduct CDD on them before making any distributions.

Specified Interest

A person has a specified interest if they have a vested interest in the trust property, either directly or indirectly. This can include individuals who are entitled to a share of the trust property, even if it is not yet distributed.

Class of Beneficiaries

In some cases, a trust may benefit multiple classes of beneficiaries, such as children and grandchildren. In these situations, the licensed undertaking must identify the class that is most likely to receive a benefit from the trust property in the foreseeable future.

Conducting CDD

Once the beneficiaries have been identified, the licensed undertaking must conduct full CDD on each individual beneficiary before making any distributions. This includes verifying their identity and obtaining sufficient information about them.

Examples of Beneficiaries

• Children and grandchildren
• Charity organizations
• Employees of a company
• Pension holders and dependents

Control of the Trust

Part 3 of the definition requires licensed undertakings to treat as customers anyone who exercises control over the trust. Control is defined as a power that can be exercised alone or jointly with another person.

Conclusion

Conducting CDD on beneficiaries of trusts is an important step in preventing money laundering and terrorist financing. By identifying and verifying the beneficiaries, licensed undertakings can ensure that they are in compliance with FATF guidelines and regulations.

Sources

• Financial Action Task Force (FATF)
• HM Treasury
• National Anti-Money Laundering Committee (NAMLC)
• Bermuda Monetary Authority Guidance Notes (AML/ATF) Sect. 5.163

Note: The information provided in this article is for general guidance only and does not constitute legal or financial advice. It is recommended that licensed undertakings consult with their own legal and financial advisors to ensure compliance with regulations and guidelines.