12.4 Issues and recommendations
12.4.1 Introduction
Trust legislation in Bermuda is similar to the trust
legislation in a number of other jurisdictions, including England.
In general, we do not consider that there are any particular features
of the TA that are likely to lead to trust structures in Bermuda
being any more or less attractive to criminals or money launderers
than trusts in other jurisdictions.
In respect of asset or creditor protection trusts
and purpose trusts, we consider that Bermuda exceeds good practice
standards set out in the Guidance Notes by comparison with other
offshore jurisdictions.
12.4.2 Preventing the abuse of trusts
As indicated in the Introduction to this section,
we consider that the most practical and effective way to prevent
the abuse of trusts is through the regulation of trust service
providers. We consider that all persons providing trust services
should be regulated. Our recommendations concerning this are set
out in the next section. We do not consider that any changes to
the TA are required to support this.
We are concerned, however, that the use of purpose
trusts may be open to abuse. Purpose trusts have no beneficiaries
to take action against trustees who are in breach of their duties
and there is therefore, a possibility of abuse by the trustees.
The TSPA provides, however that:
- all purpose trusts must have an enforcer;
- at least one of the trustees of a purpose trust
must be a designated person (ie a professional);
- the designated person must keep certain trust
documents in Bermuda.
We consider that the protections contained in the
TSPA exceed good practice standards and that they will substantially
reduce the risk of the abuse of purpose trusts.
12.4.3 Establishing the true owner of trust
assets
In general, the beneficial ownership of assets held
in an express trust may be clear and ascertainable. However, this
may not necessarily be the case for a discretionary or purpose
trust or where the trustees may exercise discretionary powers
of appointment.
We consider that, in the case of trusts administered
by a professional trust service provider, law enforcement and
regulatory authorities must, in appropriate circumstances, be
able to identify the settlor, trustees, beneficiaries, protector
and custodian and have access to the trust instrument and other
relevant documentation concerning the trust.
This requires that the relevant documentation and
information is kept within the jurisdiction. In respect of trust
service providers, this is covered in the next section. This is
not a general trust issue and we do not, therefore, consider that
the TA requires any amendment in this respect.
12.4.4 Transparency of financial arrangements
The Guidance Notes indicate:
- that basic financial information relevant to
the activities of trusts should be available to law enforcement
and regulatory authorities; and
- that trustees should, ideally, be held accountable
to beneficiaries by preparing regular accounts, where appropriate,
which might also be available to the settlor and protector, where
applicable.
We are further asked to consider in what circumstances
it would be appropriate for accounts to be produced, whether accounts
should be made public, in which circumstances abbreviated accounts
might be acceptable and in which circumstances the requirement
to produce accounts should not be applied.
We consider that professional trust service providers
should be required to maintain proper financial records and that
these should be available for inspection by the protector and
beneficiaries (where appropriate). We also consider that these
records should be available to law enforcement authorities where
required in a criminal investigation. Our recommendations concerning
this are contained in the next section of this Report.
However, we consider that requiring the preparation
of accounts and their subsequent audit may be regarded by some
clients as an unnecessary cost burden. In our view, it should
be for the client to determine whether he wishes accounts to be
prepared and audited. It is not the role of legislation to impose
it. Nevertheless, we believe that the preparation and where appropriate,
auditing of trust accounts, is of benefit as it reduces the risk
of mis-appropriation of trust assets.
12.4.5 Removal of impediments to asset tracing
and seizure
This is considered further in the section on Money
Laundering.
There is nothing in the legislation to prevent a
"flee" clause being included in a trust deed, the effect
of which may be to frustrate the seizure of assets emanating from
a criminal source.
We therefore recommend that as flee clauses are an
issue of general application, trust legislation should be amended
to restrict their use.
12.4.6 Asset or creditor protection trusts
The Guidance Notes also require us to consider whether
the claims of creditors in the OTs can be defeated through trust
structures. The relevant legislation in Bermuda is the CAA which
enables the establishment of asset protection trusts.
We consider that in comparison with equivalent legislation
in other offshore jurisdictions, the CAA is conservative and exceeds
good practice standards.
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