Category: Beneficial Ownership

Legal Arrangements

Also known as: Legal Arrangement, Trusts and similar arrangements

Simply put

A legal arrangement is a relationship, most commonly a trust, in which the ownership of assets is separated from the control and management of those assets. This means one party may hold assets legally while others benefit from or direct them. Because this separation can obscure who ultimately owns or controls value, legal arrangements are a focus of anti-money laundering attention.

Formal definition

In AML contexts, a legal arrangement generally refers to a trust or similar structure in which legal ownership of assets is separated from control and beneficial interest. The FATF standards treat legal arrangements as distinct from legal persons; the term typically encompasses express trusts and analogous arrangements found in various jurisdictions, such as the fiducie, Treuhand, and fideicomiso. Terminology and the specific structures captured vary by jurisdiction, for example, in the British Virgin Islands the category centers on trusts. The concept is relevant to AML/CFT because the separation of ownership from control can obscure beneficial ownership; note that the FATF Recommendations are standards rather than binding law, and the exact scope of what constitutes a legal arrangement should be confirmed against the applicable national framework. This AML/regulatory meaning is distinct from unrelated corporate-law uses of the word 'arrangement' (such as a court-sanctioned scheme or plan of arrangement).

Why it matters

Legal arrangements matter to AML/CFT because they separate the legal ownership of assets from the control over and benefit derived from those assets. When one party holds assets on paper while others direct their use or receive the value, it becomes harder to identify who ultimately owns or controls the underlying wealth. This separation is precisely what can obscure beneficial ownership, which is why the FATF standards treat legal arrangements as a distinct focus alongside legal persons.

The challenge is compounded by variation across jurisdictions. The category most commonly centers on express trusts, but analogous structures exist under different legal traditions and names, for example, the fiducie, the Treuhand, and the fideicomiso. What qualifies as a legal arrangement, and how it is regulated, depends on the applicable national framework; in the British Virgin Islands, for instance, the category centers on trusts. Because the FATF Recommendations are standards rather than binding law, obliged entities cannot assume a single global rule applies and should confirm the specific scope against the relevant regime.

For compliance professionals, the practical significance is that identifying a legal arrangement in a customer relationship or ownership chain is a signal to look through the structure to understand who settles, controls, and benefits from the assets. The presence of a legal arrangement is not itself evidence of wrongdoing; it is a structural feature that warrants careful due diligence so that beneficial ownership can be understood rather than obscured.

Who it's relevant to

Compliance Officers and CDD Teams

Those performing customer due diligence must recognize when a legal arrangement, such as a trust, sits within a customer relationship or ownership chain, and take steps to look through the structure to understand who settles, controls, and benefits from the assets. The specific requirements and the structures in scope should be confirmed against the applicable national framework.

Financial Intelligence Analysts and Investigators

Analysts assessing how value is held and moved need to understand that the separation of legal ownership from control and beneficial interest can obscure beneficial ownership. Identifying a legal arrangement is a structural signal to examine more closely, not proof of criminality, and analogous structures may appear under names such as fiducie, Treuhand, or fideicomiso.

Trust and Corporate Service Providers

Providers that administer trusts and similar arrangements are directly concerned with how these structures are treated under AML/CFT expectations, since the arrangements they manage are a recognized focus for beneficial ownership transparency. The precise obligations depend on the jurisdiction in which the arrangement is established and administered.

Legal and Risk Professionals

Legal and risk teams must distinguish the AML/regulatory meaning of a legal arrangement from unrelated corporate-law uses of 'arrangement,' such as a court-sanctioned scheme or plan of arrangement. They should also account for the fact that the FATF Recommendations are standards rather than binding law, and that the scope of what constitutes a legal arrangement varies by jurisdiction.

Inside Legal Arrangements

Express Trusts

Arrangements in which a settlor deliberately places assets under the control of a trustee for the benefit of one or more beneficiaries or for a specified purpose. The FATF Recommendations, particularly Recommendation 25, focus on express trusts and require jurisdictions to ensure adequate, accurate, and up-to-date beneficial ownership information is available. Note that trust concepts derive primarily from common-law systems and are treated differently in civil-law jurisdictions.

Trust-like Arrangements

Structures found in various jurisdictions that function similarly to trusts without necessarily being called trusts, such as fiducie, treuhand, or fideicomiso in civil-law systems. FATF standards generally extend to arrangements with a structure or function similar to express trusts, so obliged entities should assess substance over the label used.

Parties to the Arrangement

The key roles that typically must be identified for beneficial ownership purposes, generally including the settlor, the trustee(s), the protector (where one exists), the beneficiaries or class of beneficiaries, and any other natural person exercising ultimate effective control. The precise parties in scope may vary by jurisdiction and by the type of arrangement.

Distinction from Legal Persons

Legal arrangements such as trusts are conceptually separate from legal persons such as companies or foundations. FATF addresses legal persons under Recommendation 24 and legal arrangements under Recommendation 25. This distinction matters because the mechanisms for capturing beneficial ownership differ, and a trust does not typically have separate legal personality in the way a company does.

Beneficial Ownership Information Obligations

Requirements, in many jurisdictions, for trustees or equivalent persons to obtain and hold beneficial ownership information and to disclose their status when forming business relationships or conducting occasional transactions above applicable thresholds with obliged entities. Implementation, registration requirements, and access rules vary significantly between regimes such as the EU AML framework, the UK Money Laundering Regulations, and US arrangements.

Common questions

Answers to the questions practitioners most commonly ask about Legal Arrangements.

Is a trust the same thing as a legal entity like a company?

No. A legal arrangement such as an express trust is conceptually distinct from a legal entity (or legal person) such as a company. In many frameworks, including the FATF standards, legal persons and legal arrangements are addressed under separate recommendations because they have different structures. A trust is typically a relationship in which a trustee holds and administers assets for beneficiaries under the terms set by a settlor, rather than a body with its own legal personality. Terminology and the treatment of specific structures can vary by jurisdiction, so the applicable law should be confirmed.

Does identifying the trustee mean you have identified the beneficial owner of a trust?

Not necessarily. For legal arrangements, beneficial ownership is generally understood more broadly than a single controlling person. In many jurisdictions, the relevant parties can include the settlor, the trustee, the protector (where one exists), the beneficiaries or class of beneficiaries, and any other natural person exercising ultimate control. Identifying only the trustee typically does not satisfy the full requirement, and the exact parties to be identified should be confirmed against the applicable regulation, as approaches differ across regimes.

Which parties to a legal arrangement should an obliged entity typically identify and verify?

In many jurisdictions, obliged entities are generally expected to identify the relevant parties to a trust or similar arrangement, which may include the settlor, trustee, protector, beneficiaries or class of beneficiaries, and any other natural person exercising ultimate control. The specific parties and the required verification measures depend on the applicable regime and the assessed risk. The precise scope should be confirmed against the relevant regulation, as terminology and requirements diverge between frameworks.

How should beneficiaries be handled when they are defined as a class rather than named individuals?

Where beneficiaries are described by class or category rather than named, frameworks in some jurisdictions permit obtaining sufficient information about the class to establish the identity of a beneficiary at the time of payout or when the beneficiary seeks to exercise vested rights. Operationally, this generally means capturing the defining characteristics of the class rather than identifying every possible member up front. The exact treatment varies by regime and should be confirmed against the applicable rules.

What role does a trustee's disclosure of its status play in due diligence?

In several regimes, a person acting as a trustee may be expected to disclose that status to obliged entities when forming a business relationship or carrying out relevant transactions on behalf of the arrangement. This disclosure typically helps the obliged entity apply appropriate measures to identify the parties involved. Whether and how this obligation applies depends on the jurisdiction and the nature of the entity, and should be confirmed against the applicable regulation.

How do registration or disclosure requirements for legal arrangements differ from those for companies?

Approaches differ across jurisdictions. Some regimes maintain registers or disclosure mechanisms for beneficial ownership of certain trusts or similar arrangements, though the scope, access, and triggering conditions may differ from those applied to legal entities. Not all arrangements fall within registration scope, and requirements can turn on factors such as the type of arrangement, its connection to the jurisdiction, or the presence of an obliged entity relationship. The precise obligations should be confirmed against the applicable law.

Common misconceptions

Legal arrangements and legal persons are the same thing and subject to the same rules.

They are treated as distinct categories. Legal persons (for example, companies and foundations) are generally addressed under FATF Recommendation 24, while legal arrangements such as express trusts are addressed under Recommendation 25. The beneficial ownership mechanisms and disclosure obligations differ, and conflating them can lead to gaps in customer due diligence.

Only structures explicitly called 'trusts' are in scope.

FATF standards generally extend to trust-like arrangements that have a structure or function similar to express trusts, even where local terminology differs (for example, fiducie or fideicomiso). Obliged entities should assess the substance of an arrangement rather than relying on its name, while confirming how the specific arrangement is treated under the applicable regime.

The beneficial owner of a trust is a single, easily identified individual.

Legal arrangements typically involve multiple relevant parties, including the settlor, trustee(s), protector, and beneficiaries or a class of beneficiaries, as well as any other natural person exercising ultimate effective control. Identifying beneficial ownership may require assessing several roles rather than pointing to one owner, and the parties in scope can vary by jurisdiction.

Best practices

Identify the type of arrangement and all relevant parties, settlor, trustee(s), protector, beneficiaries or class of beneficiaries, and any other person exercising ultimate effective control, rather than assuming a single beneficial owner.

Assess substance over form by evaluating whether an arrangement is a trust-like structure in scope of FATF Recommendation 25, even where it uses non-trust terminology such as fiducie or fideicomiso.

Confirm the specific beneficial ownership, registration, and disclosure obligations against the applicable regime (for example, the EU AML framework, the UK Money Laundering Regulations, or US rules), since implementation and access rules diverge between jurisdictions.

Obtain evidence of a trustee's status and their disclosure of that status when they form a business relationship or conduct an occasional transaction as trustee, verifying applicable thresholds against the relevant regulation.

Treat the collection of beneficial ownership information as a measure to detect, deter, and mitigate misuse of arrangements, not as a guarantee against financial crime, and apply a risk-based approach to the depth of due diligence.

Document and periodically refresh beneficial ownership information to keep it adequate, accurate, and up to date, and record how any cross-jurisdictional or civil-law versus common-law differences were resolved.