The Court of Justice of the European Union (CJEU) delivered rulings in May that fundamentally change how you must assess trust structures under sanctions and AML frameworks. If you're still relying on formal trust documentation to determine whether assets fall within scope, you're using an outdated compliance model.
The "Italian cases", Case C-483/23, Joined Cases C-428/24 and C-476/24 on sanctions, plus Joined Cases C-684/24 and C-685/24 on beneficial ownership transparency, establish that practical control trumps legal formalities. The CJEU held that "belonging to" and "control" under Article 2 of Council Regulation (EU) No 269/2014 must be interpreted broadly, encompassing all forms of power or influence over assets, even where no formal legal link exists between the assets and a designated person.
Aligning with the CJEU's Substance-Over-Form Standard
This checklist helps you align your trust and fiduciary structure assessments with the CJEU's substance-over-form standard. It applies if you administer trusts, provide fiduciary services, or conduct sanctions screening for clients with trust structures that have any nexus to EU-regulated persons or activities. Each item reflects the factual indicators the CJEU identified as relevant to determining practical control.
Prerequisites
Before working through this checklist, confirm:
- You have access to the complete constitutional documents for each trust or fiduciary arrangement.
- You can identify all settlors, beneficiaries, protectors, and trustees.
- You maintain a current sanctions screening process covering designated persons under EU restrictive measures.
- Your AML framework includes procedures for beneficial ownership identification under the 4th Anti-Money Laundering Directive (4AMLD).
Sanctions Control Assessment Checklist
1. Map all relationships between designated persons and trust power-holders
Document every connection between any EU-designated person and the trustee, protector, investment advisor, or other decision-maker. Include family relationships, business partnerships, and shared directorships.
Good looks like: A relationship matrix showing each power-holder, their connection (if any) to designated persons, and the date you last verified the information. No relationship should be marked "unknown" or "not checked."
2. Identify who receives economic benefit from trust assets
Trace actual distributions, loan arrangements, expense payments, and use of trust property over the past 24 months. Don't rely on what the trust deed permits, document what actually happened.
Good looks like: A ledger showing every distribution or benefit, the recipient, the amount, and the business purpose. You can explain why each payment does not primarily benefit a designated person.
3. Assess the trustee's decision-making independence
Review minutes, correspondence, and transaction approvals to determine whether the trustee exercises genuine discretion or routinely defers to a settlor, beneficiary, or third party.
Good looks like: Evidence that the trustee independently evaluates decisions, documents their reasoning, and has declined requests from settlors or beneficiaries when inconsistent with trust terms or regulatory obligations.
4. Evaluate structural complexity against legitimate purpose
If the structure involves multiple layers, trusts holding companies holding other trusts, document the commercial or estate-planning rationale for each layer.
Good looks like: A written explanation for each entity in the structure, tied to specific tax, succession, or asset protection objectives. You can articulate why a simpler structure wouldn't achieve the same goals.
5. Review ownership of the trustee entity
If the trustee is a corporate service provider, identify all shareholders holding more than 10% equity. Check whether any settlor, beneficiary, or designated person holds a majority stake.
Good looks like: A current shareholder register with screening results showing no designated persons or their close associates hold equity in the trustee company.
6. Examine timing of structural changes
Identify any trust amendments, entity formations, or trustee changes within 12 months before sanctions were imposed on a related person. Investigate whether the changes reduced transparency or shifted control.
Good looks like: A timeline showing all structural changes, the stated business reason, and contemporaneous documentation supporting that reason. Changes made shortly before sanctions designations include a written risk assessment.
7. Verify director and officer independence
For any company held by or connected to the trust, confirm that directors don't have close personal or business relationships with designated persons.
Good looks like: Director declarations of interest, screening results, and verification that no director shares a home address, business address, or phone number with a designated person.
8. Document your factual control conclusion
Based on items 1-7, record whether a designated person retains the ability to use, benefit from, or influence decisions over trust assets, regardless of formal legal title.
Good looks like: A written assessment citing specific factual indicators, explaining your conclusion, and identifying any residual uncertainties. If you conclude assets should be frozen, you've escalated to your MLRO and suspended transactions.
AML Beneficial Ownership Checklist
9. Classify the arrangement under 4AMLD
Determine whether your structure qualifies as a trust or "other type of legal arrangement" with similar structure or functions, even if it doesn't involve a formal transfer of ownership (following the CJEU's reasoning on Italian mandati fiduciari).
Good looks like: A documented classification with reference to your member state's implementing legislation and the structure's actual operation, not just its legal label.
10. Maintain current beneficial ownership records
Update your beneficial ownership register to reflect anyone who exercises control through ownership, voting rights, or other means, including through indirect or de facto control.
Good looks like: Records updated within 14 days of any change, with supporting evidence for each identified beneficial owner and a clear audit trail showing when and why determinations were made.
11. Establish disclosure protocols compliant with member state law
Confirm your process for responding to legitimate interest requests from members of the public, including how you assess exemption applications and provide access to interim judicial protection.
Good looks like: A written procedure referencing your member state's implementing rules, documented training for staff handling requests, and evidence that beneficial owners are informed of their right to seek judicial review if exemptions are denied.
Common Mistakes
Relying on trust deed language alone. The CJEU explicitly rejected formalism. A clause stating "no designated person may benefit" doesn't shield you if that person exercises practical influence.
Treating screening as a one-time event. The indicators of control are dynamic. Relationships change, directors move, shareholders shift. Your assessment must be ongoing.
Assuming corporate trustees provide insulation. If a designated person holds a majority stake in your corporate trustee, you haven't created distance, you've created a control mechanism that regulators will look through.
Overlooking non-financial benefits. Use of a trust-owned property, employment of family members by trust-held companies, and payment of personal expenses all constitute economic benefit, even if no cash distribution occurs.
Next Steps
Complete this checklist for every trust or fiduciary arrangement with any EU nexus within 90 days. Prioritize structures where:
- Any party has been designated under EU sanctions within the past five years.
- The settlor or primary beneficiary is a politically exposed person.
- The structure involves three or more jurisdictions.
- You identified any "yes" answers in items 2, 5, or 6 above.
If your assessment reveals that a designated person retains practical control, freeze the assets immediately and escalate to your MLRO. Don't wait for formal guidance, the CJEU's reasoning, consistent with the English Court of Appeal's July 2025 Eurochem judgment, makes clear that effects-based enforcement is the standard across jurisdictions.
The shift from formal ownership to practical control isn't coming. It's here.
