Know Your Customer and Trading Trusts

In AML land, specifically around the Customer Identification / Know Your Customer we spend a lot of time talking about trusts and their inner workings. The more I deal with clients' trust KYC identification issues the more I realised that we in AML land know, and understand, next to nothing about trusts and trust law.

To upskill myself I read Peter Agardy's "Trading Trusts Explained". Trading trusts are those trusts which reporting entities will most likely provide designated services to. Unfortunately trading trusts (including unit trusts) are the most complicated of trust structures as "the business of the trust is operated by the corporate trustee." (page ix).

When Mr Agardy states that "the use of trading trusts by the business community in Australia has given rise to many thorny issues" (page ix) he alludes to the intersection of trust law, taxation law, corporations law, and insolvency law. He could as easily have been referring to AML Law and Rules. He goes on to describe the mixing of corporations law and trust law as "oil and water" (page 112). Again, this could easily refer to trading trusts and AML laws. Finally, he states that "Professor Ford was right to call trading trusts 'commercial monstrosities'" (page 113). I would hazard to suggest that most AML professionals would agree with both Mr Agardy and Professor Ford.

What can we as AML professionals learn?

1. Gain a basic understanding of trust law;

2. Obtain a diagram of the structure from the client (or more likely their accountant);

3. Consider obtaining information "about" the client from their accountant rather than "from" the client directly;

4. Read the trust deed very carefully, then read it again;

5. Don't assume that the client knows or understands their trading structure;

6. Expect the unexpected;

7. A trust is not a legal entity rather it is a device or arrangement by which one person holds property for the benefit of another person ;

8. Be careful and methodical when performing KYC on trust entities;

9. The appointer is to be considered the beneficial owner, not the beneficiaries or the trustee. Beneficiaries are not the beneficial owner as defined by the AML Rules (pity that the terms sound the same and look similar);

10. Ask if the company is carrying on business in its own right or in its capacity as the trustee of a trust.

If only I had paid more attention in the my university Law of Trusts course all those years ago.

 

Paddy Oliver, Managing Director, AML Experts

Lawyer, AML Consultant, AUSTRAC Authorised Auditor

03 9636 3632

0431 174 124

poliver@amlexperts.com.au

www.amlexperts.com.au

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