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Private banking services incorporate the use of a wide range of separate products and services, including:
companies and their administration
trusts and their administration
investment management services
deposit and current accounts
credit cards, and
property management.
Corporate services providers
The provision of corporate services is usually undertaken by lawyers, accountants or more commonly by specialist corporate service provider businesses often referred to as CSPs or management companies. Generally, corporate services include:
company incorporations – setting up new companies
the provision of company directors – in some sites local legislation requires there to be at least one locally based/resident director
the provision of a company secretary – often a legal requirement
the provision of company administration services – including annual fee
payments and filing of information.
the provision of nominee shareholders – shareholders in name only who
generally have no real connection with the company and act as directed by the beneficial owner (the person who ultimately controls and benefits from the company and its assets) or the other directors (say, those provided by the service provider)
Trading companies
Trading companies are an integral part of the international trade in goods and services Non-existent international trade that is supported by false paperwork issued between criminal enterprises and then relied upon to justify international fund movements often features in money laundering schemes. The following is a simple example.
bearer shares
UK legislation introduced in 2015 prohibits UK companies from issuing any further bearer shares and all existing bearer shares must be surrendered, becoming registered shares.
In Switzerland, the holders of bearer shares must now to report the acquisition as well as the name and address of the acquirer to the company and companies that have issued bearer shares must keep a register of their holders.
Trustee services
A significant percentage of the offshore financial services industry centres on professional trustee services where businesses often referred to as ‘trust companies’ or ‘fiduciary businesses’ agree to assist in the formation of trusts and to act as trustees of them.
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‘For the purposes of this Convention, the term “trust” refers to the legal relationship created –inter vivos or on death – by a person, the settlor, when assets have been placed under the control of a trustee for the benefit of a beneficiary or for a specified purpose. A trust has the following characteristics:
a. the assets constitute a separate fund and are not part of the trustee’s own estate;
b. title to the trust assets stands in the name of the trustee;
c. the trustee has the power and duty, in respect of which he is accountable, to
manage, employ or dispose of the assets in accordance with the terms of the trust and the special duties imposed upon him by law’
Trusts are a development of the unique feature of common law systems, which distinguish between:
the legal ownership of a property and
the beneficial ownership of such property.
The following money laundering advantages are offered by trusts.
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They allow launderers to divest themselves of the legal ownership of assets, so giving them distance from the assets.
They can allow laundering settlors who are also beneficiaries to continue to benefit from the assets without owning the assets or being seen to be connected with the assets in any way – concealment.
In most jurisdictions there is no requirement for the existence of trusts
to be registered or recorded – this is a distinct advantage not offered by companies and again adds to the anonymity and difficulty law enforcement agencies encounter in following the money trail.
In certain jurisdictions professional trustees are not subject to regulation and are not supervised for anti money laundering purposes, meaning that they are often less careful in their CDD and let launderers slip through the net into the wider financial services environment.
There are a number of non-commercial reasons (such as personal preference or wishes to see that money goes to a person other than immediate family, for example) that can justify a settlor’s need for a trust, meaning that the normal protection of a requirement for a relationship to be supported by a commercial rationale is irrelevant.
In many cases it is possible for a settlor to continue to ‘direct’ trustees either by means of a letter of wishes or, in the case of ‘settlor-directed trusts‘, by simply issuing instructions, allowing a laundering settlor to effectively manage and control the trust assets without owning them – allowing control without ownership.
Because of the increase in the number of claims brought by beneficiaries
for breach of fiduciary duty, there have been examples of some trustees ‘backing off’ from asking probing CDD questions during the existence of the trust, for fear that they may be sued for breach of trust. Again, this means that launderers can slip through the CDD safeguards.
Discretionary trusts
A discretionary trust is so called because:the beneficiaries have no fixed beneficial entitlement to the trust property.
Discretionary beneficiaries may not be named individually but may be defined as members of a class of beneficiaries such as ‘all grandchildren living and yet to be born’ or it can be left to the trustee to decide who should benefit.
This means that it is possible for a beneficiary to be named or changed at any time, making it possible to conceal a beneficiary’s identity until the point in time when the ownership of the trust property is passed to them.
Blind trusts
A blind trust is a form of trust that attempts to disguise the identity of the individuals it is actually designed to benefit, either by not naming any beneficiaries at all or more usually by naming charitable beneficiaries. Trustees then rely on their power to add beneficiaries in order to make distributions to the intended beneficiaries. There have in fact been cases where the trustees have not even exercised the power to add beneficiaries, but have simply made distributions that have benefited individuals who are not named.
Dummy settlors
A dummy settlor is a person who agrees to settle property into trust on behalf of the person who owns the underlying assets for the purpose of concealing the identity of the original party.
Life insurance
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Life insurance policies such as second-hand endowments are also used
by money launderers. They purchase these policies with laundered funds
in what is known as the secondary market. These second-hand policies provide the purchaser with a benefit upon the death of the life assured, someone who is totally unconnected with them and their activities. On the death of the life assured the benefits are paid to the owner of the policy, i.e. the money launderer, who receives the money in the form of an insurance company cheque.
Over payment of premiums on insurance policies, with the expectation that the insurance company will refund the overpayment by cheque, is another way that money launderers use insurance products.
Assignment of claims – a money launderer may arrange with groups of legitimate individuals, such as owners of businesses, to assign any legitimate claims on their policies to be paid to the money launderer. The launderer promises to pay these individuals the face value of the claim amount in cash, money orders or traveller’s cheques plus an additional percentage for the ‘facility’.
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