Disclosure and registration of trusts
A common approach to regulate trusts by both trust law and non-trust law jurisdictions is to require their disclosure and registration. Unlike a company, trusts do not have a separate legal personality, which means that the assets held by a trust are legally owned by the trustee(s). Typically, a trust cannot conduct transactions or hold property in its own right like a legal person can, but must do so through the trustees – there are exceptions to this rule in a small number of jurisdictions.
Companies will not legally come into existence, exercising their separate legal personality, unless they have a certificate of incorporation. This is not the case for trusts. Unlike companies, which in almost all jurisdictions are required to be properly incorporated and registered with the relevant government authority, in the majority of jurisdictions, there is no registration requirement for a trust to come into existence – they are viewed as private arrangements and their existence is not a matter of public record. However, for tax purposes, in jurisdictions where the trusts have a tax liability, they are required to be registered with the tax authorities. Yet, even in that case, the disclosure of all the relevant parties to the trust might not be required; for instance, in the Cook Islands, South Africa, and South Korea.
With the recent developments at international level to ensure BOT, there has been a growing trend in jurisdictions to register and gather information on all parties to a trust. For instance, establishing a centralised BO register of trusts is one of the requirements under the EU anti-money laundering (AML) standards for EU member states, as set out by the AMLD5, and such registers have been established, for instance, in Austria, Belgium, Bulgaria, France, and the UK. A similar approach to register trusts and gather information on all relevant parties to a trust has also been followed in a few jurisdictions outside the EU, such as Argentina, Bahrain, Costa Rica, Peru, and San Marino.
Whilst jurisdictions can broadly be categorised into trust law and non-trust law jurisdictions, trust regimes can be very complex and vary significantly from jurisdiction to jurisdiction. Some of the most important aspects on these trust regimes, as identified from the FATF Mutual Evaluation Reports and other available literature, are summarised as below:
- It appears that many trust law jurisdictions (such as Antigua and Barbuda, Bahamas, Samoa, Uganda, and Vanuatu) do not require the registration of either domestic law trusts or foreign law trusts. Even among the non-trust law jurisdictions, the majority (such as Albania, Angola, Armenia, Denmark, Iceland, Indonesia, Italy, Mongolia, Morocco, Serbia, Slovenia, Spain, and Switzerland) do not require the registration of foreign law trusts, except a few (such as Belgium, Finland, Monaco, Montenegro, Norway, Portugal, and Thailand) which require foreign law trusts to be registered.
- In trust law jurisdictions where domestic law trusts are required to be registered, the registration is often with tax authorities and is only triggered when a trust has some tax consequences. But, even in that case, the disclosure of all the relevant parties of the trust to the tax authorities is not required (except the trustee), making it difficult for the authorities to identify the parties or beneficial owners of trusts and/or to exchange such information with foreign counterparts during any investigations.
- In the majority of jurisdictions (both trust law and non-trust law) where foreign law trusts are required to be registered, registration is only triggered when a trustee of a foreign law trust is a resident in the respective jurisdiction. In very few jurisdictions the registration of a foreign law trust is required if another party to a trust, such as a settlor or beneficiary, is a resident in the jurisdiction, or if a trust has assets or a bank account in the respective jurisdiction. In Argentina and France, for instance, registration of foreign law trusts is triggered if the settlor or beneficiary is located in the jurisdiction.
Box 7: The deterrence effect of trusts registration in New Zealand
Revelations in the Panama Papers exposed the misuse of trusts in New Zealand, a trust law country that allows the creation of trusts under their domestic law as well as recognising and allowing the administration by trustees of foreign trusts within its jurisdiction. Foreign trusts were being set up by trust and company service providers as an additional layer in international ownership structures to make it more difficult for authorities to trace BO and financial flows, whilst using New Zealand’s international reputation as a well-regulated jurisdiction.
Following these revelations, the New Zealand government strengthened the disclosure rules for foreign trusts. Rules were introduced requiring foreign trusts settled by non-residents to be registered with the tax authority, including full details of settlors, trustees, beneficiaries, or other persons exercising control over trusts or trustees. Additionally, trust deeds and other supporting documentation need to be submitted upon registration. Full details of settlements on the trust are required to be submitted to the tax authority, along with annual disclosures.
The information is collated in a central register maintained by the tax authority, which can be shared with the Financial Intelligence Unit (FIU), as well as the government department which supervises trust and company service providers for AML purposes.
These new rules appear to have had a deterrent effect on the misuse of foreign trusts. Following implementation, there was a 75% decline in the number of foreign trusts being administered in New Zealand from 11,671 on 31 May 2016 to 2,965 on 31 May 2019.
Mandatory registration of trusts
As discussed above, there is no uniform approach to trusts among jurisdictions. Registration and disclosure requirements for trusts vary from jurisdiction to jurisdiction and are a source of debate. Considering the vulnerability of trusts to abuse for criminal purposes, especially money laundering, corruption, and tax evasion, a few civil society organisations are arguing for the mandatory registration of trusts. They argue that trusts, similar to companies, are created by the will of the parties, for the purpose of separating the legal ownership and BO of assets, and therefore there is no justification for them being given a special status, as everyone in a democracy has the right to know why a particular trust has been created and for whose benefit. Such arguments gain more weight when supported by the recent examples of illegitimate use of trusts for criminal purposes (see: Box 7).
On the other hand, there is strong opposition to the above approach. Opponents cite the many legitimate reasons why trusts exist, stating that trusts originated as private agreements between parties and are not contractual in nature. Whilst trust agreements may be private in nature, the examples above show they often do affect third parties, e.g. when they have a tax consequence. They also rely on courts for legal systems for their legitimacy, and therefore have a public aspect.
Whilst there is a strong case for compulsory registration of trusts, it would be difficult to expect countries worldwide to immediately impose such a requirement. However, it should certainly be the goal of countries to prevent the abuse of trusts for criminal purposes through registration. Some argue that imposing registration requirements on trusts would be unworkable, disproportionate, and burdensome, and that it would require fundamental reforms in the tax regimes of many jurisdictions. Developments in the EU suggest that a requirement of mandatory registration of trusts is appropriate and achievable. With the 4th EU Anti-Money Laundering Directive (AMLD4) coming into force, all EU member countries must establish a central register of BO of trusts – in addition to a centralised BO register for legal entities – obtaining and registering information on all the relevant parties to the trust and making these accessible to relevant authorities. These registration requirements have been further clarified and strengthened by the AMLD5, and have been analysed in detail in the OO policy briefing, Beneficial ownership transparency of trusts.
 For details, see: Andres Knobel and Markus Meinzer, “Drilling down to the real owners – Part 2”, Tax Justice Network, 28 June 2016, 7, https://www.taxjustice.net/wp-content/uploads/2016/06/TJN2016_BO-EUAMLD-FATF-Part2-Trusts.pdf. (In San Marino and Ghana, a trust is a separate taxable entity; in some banking institutions, a trust can hold accounts in its own name; even the OECD, Standard for Accounting Exchange of Information in Tax Matters (2nd edn, OECD Publishing, 2017), 200 provides that “if a trust is listed as the holder or owner of a Financial Account, it would be the trust that is the Account Holder, rather than its owners or beneficiaries.”)
 There is now, however, a requirement under Article 31 of the AMLD5 to register the beneficial owners of trusts (satisfying certain conditions) in a centralised BO register of trusts which is required to be established by the EU member states.
 Guidance on Transparency and Beneficial Ownership, FATF, (Paris: FATF, October 2014) 32-33.
 Article 31 of the AMLD5 (also clarifies which trusts which are required to be registered in a jurisdiction).
 See: Knobel, “‘Trusts: Weapons of Mass Injustice?’ A response to the critics”); Guidance on Transparency and Beneficial Ownership, 32-33; OECD and IDB, Beneficial Ownership Implementation Toolkit (Paris: OECD, March 2019) 12-19; Knobel and Meinzer, “Drilling down to the real owners – Part 2”; Moran Harari et al. Ownership registration of different type of legal structures from an international comparative perspective: State of play of beneficial ownership – Update 2020,Tax Justice Network, 1 June 2020, https://www.taxjustice.net/wp-content/uploads/2020/11/State-of-play-of-beneficial-ownership-Update-2020-Tax-Justice-Network.pdf.
 Some other jurisdictions, as highlighted in the Tax Justice Network’s Financial Secrecy Index (2020), include, for instance, Bangladesh, Bermuda, Bolivia, Botswana, Brunei, Cayman Islands, Colombia, Gambia, Ghana, Hong Kong, Isle of Man, Kenya, Lebanon, Liberia, Luxembourg, Malaysia, Malta, Mauritius, Mexico, Nigeria, Pakistan, Panama, Philippines, Rwanda, Sri Lanka, Taiwan, and Tanzania.
 For the purposes of this analysis, trusts are divided into: a) domestic law trusts, i.e. trusts which are created under, or governed by, the domestic law of the country; and b) foreign law trusts, i.e. trusts which are created, or governed by, the law of another jurisdiction but which might have some connection with the country of registration that triggers its registration; for instance, one of the parties of the trust (either settlor, trustee, or beneficiary) is a resident in the country of the registration, or a trust holds assets or a bank account in the country of registration.
 This information has been gathered from analysing the latest FATF mutual evaluation reports of the countries and the Financial Secrecy Index, 2020.
 See: Knobel and Meinzer, “Drilling down to the real owners – Part 2”, 18; Beneficial Ownership Implementation Toolkit, 13; Guidance on Transparency and Beneficial Ownership, 32-33.
 Knobel and Meinzer, “Drilling down to the real owners – Part 2”, 20.
 “Ending the Shell Game: Cracking down on the Professionals who enable Tax and White Collar Crimes”, OECD (Paris: OECD Publishing, 2021), 13, https://www.oecd.org/tax/crime/ending-the-shell-game-cracking-down-on-the-professionals-who-enable-tax-and-white-collar-crimes.pdf.
 See: Worthy, “Don’t take it on trust”; Knobel and Meinzer, “Drilling down to the real owners – Part 2”, 18; Knobel, “‘Trusts: Weapons of Mass Injustice?’ A response to the critics”.
 For arguments for and against the registration of trusts, see: Knobel, “‘Trusts: Weapons of Mass Injustice?’ A response to the critics”; Knobel and Meinzer, “Drilling down to the real owners – Part 2”.
 Knobel, “‘Trusts: Weapons of Mass Injustice?’ A response to the critics”. See also: John Riches, “Are transparency and the registration of trusts necessary?”, Trust & Trustees 19(4), 2013, 343; Filippo Noseda, “Caught in the crossfire between privacy and transparency”, Trust & Trustees 22(6), 2016, 599.
 Ibid. See also: Geoff Cook, “Review by Jersey Finance of Trusts: Weapons of Mass Injustice? Published by Tax Justice Network”, Trust & Trustees 23(7), 2017, 730; Filippo Noseda, “Trusts and privacy: A new battle front”, Trust & Trustees 23(3), 2017, 301.
 Article 31, “Directive (EU) 2015/849”.