Misuse of Legal Persons and Arrangements

Legal persons are entities that can own property and sign contracts, such as companies. Legal arrangements, such as trusts, hold assets for others without being a separate person. Criminals use them because forming one is fast and cheap in many places, and because names on a register need not be the real owners. Common techniques include shell companies with no activity, nominee directors and shareholders who front for the real owner, bearer shares, layered ownership across several countries, and trusts that separate the owner from the assets. Trust and company service providers and company formation agents can unwittingly or knowingly assist. Defences include beneficial ownership registers, rules on nominee disclosure, due diligence by banks and professionals, and checks by company registries. Without a register that names the real owner, a bank can only guess who stands behind a customer, which is why ownership transparency is a core control in anti-money laundering standards.

An insurer's underwriting team finds that a corporate policyholder is owned by a holding firm in one country, which is held by a trust in another, with a nominee director signing every document. Premiums arrive from unrelated companies and are refunded within days after cancellation. The insurer cannot identify the true owner, ends the relationship and reports its concerns.