Page 586 - IOM Law Society Rules Book

Non corporate vehicles (trusts)

Although already touched upon under Non financial professions in money laundering
(solicitors, notaries and accountants), it is worth identifying trusts as a specific
category as their particular characteristics lend themselves to money laundering and
terrorist financing. In essence, they represent one more mechanism for hiding the
true beneficiary or owner of assets or property derived from or associated with
criminal activity.

The trust as a concept originally developed in Europe as a lawful and legitimate
means of protecting property or assets so that they could be used for the benefit of
certain individuals or purposes. It has become a very flexible legal instrument that is
now often used to consolidate or administer inheritances, assist in the financial
management of companies, establish mutual investment funds, manage charitable
works, sponsor cultural events or institutions. In some cases, it is used to protect
assets from legitimate creditors although legal developments in recent years have
reduced the potential for this.

A trust can be defined generally as a legal relationship that is set up – either inter
vivos or on death – by a person (the settlor) when the assets have been placed under
the control of another person (the trustee) for the benefit of one or more persons (the
beneficiary) or for a specified purpose. There are several characteristics of a trust
that set it apart from other legal relationships:

• The trustee becomes the legal owner of the trust property;
• The assets held in trust are separate and do not constitute part of the trustee’s
own estate;
• The trustee has the authority and the obligation to manage, employ or dispose
of the assets held in trust in accordance with the terms of the trust and any
special duties imposed by law; and
• The beneficiary has equitable property rights with regard to the trust property
(depending on the jurisdiction and the nature of the trust).

Sometimes a trust may involve a fourth person (the trust protector), who is appointed
by the settlor to ensure that the trustee manages or disposes of the assets held in trust
according to the settlor’s intentions. In theory then, there are three elements which
must be present in order to have a valid trust.

(1) It must be possible to identify clearly the subject (the assets or property) of the
trust;
(2) It must be clearly stated by the settlor that his or her intention is to place these
assets or property in trust and not simply to give them as a gift. A trust deed
is usually prepared for this purpose; and
(3) It must be possible to identify who the intended beneficiaries are. The
beneficiaries will usually be indicated in the trust deed; however, in certain
instances they may only be indicated as a general category and not by name.
There is often then a letter of wishes prepared by the settlor setting out his
wishes as to who is to benefit from the trust and under what conditions.