Page 587 - IOM Law Society Rules Book

Trusts are, however, sometimes used as an element in schemes to facilitate or hide
illicit activity, including money laundering. Given the private nature of trusts, in
some jurisdictions they may be formed with the intention of taking advantage of strict
privacy or secrecy rules in order to conceal the identity of the true owner or
beneficiary of the trust property. They are also sometimes used to hide assets from
legitimate creditors, protect property from seizure under judicial action, or to mask the
various links in the money flows associated with money laundering or tax evasion
schemes.

TYPOLOGIES

See typologies used under Non financial professions in money laundering (solicitors,
notaries and accountants) as follows:

Typology 1: Multi-jurisdictional structures of corporate entities and trusts
Typology 2: Specialised financial intermediaries / professionals
Typology 3: Nominees
Typology 4: Shell companies

It should be noted that many of the references to corporates can equally be applied to
trusts however there are two key differences which should be highlighted:

A trust is not the same as a company or other form of corporate entity. When a
company is established, it has its own “legal personality” that is separate and distinct
from the natural persons that serve as directors or shareholders. Property held by a
company is owned by the company as a legal person and not individually by the
company directors or shareholders. Property held in trust, on the other hand, is
legally owned by the trustee and no longer by the settler nor by the beneficiary.
Therefore, when dealing with certain trusts, issues may be further complicated by the
fact that the trustee may be a legal person (a trust company for example), and the
beneficiary or beneficiaries may also be trusts (or corporate entities). Establishing
whether there are real persons behind the legal arrangement and that the trust is a
sham is a difficult if not impossible task.

Furthermore, trusts differ from corporate entities in that they generally have no
registration requirement or central registry, and there is usually no authority
responsible for oversight of such legal arrangements.