How do organised criminals exploit trust and company service providers to launder the proceeds of their crimes and what can you do to prevent this happening in your business?

Introduction

Trust and Company Service Providers (TCSPs) play a crucial role in facilitating legitimate business activities by setting up companies, managing trusts, and providing financial administration services. However, their ability to establish and manage corporate structures, combined with privacy protections and international financial networks, makes them a prime target for organised criminals seeking to launder illicit funds.

Criminal networks exploit TCSPs to conceal beneficial ownership, move dirty money across borders, and obscure financial trails. To mitigate this risk, TCSPs must implement robust Anti-Money Laundering (AML) controls, conduct due diligence, and ensure compliance with international regulations.

This article explores how organised criminals misuse TCSPs to launder money and outlines key preventative measures businesses in the sector should adopt.

How do organised criminals exploit Trust and Company Service Providers?

Organised criminals can exploit trust and company service providers in various ways, including:

1. Creating Shell Companies to Obscure Illicit Funds

One of the most common money laundering techniques involves establishing shell companies—corporations that exist only on paper, with no legitimate business operations.

What methods are used?

• Registering Companies in Multiple Jurisdictions – Criminals exploit offshore financial centers with weak AML enforcement to hide assets

• Using Anonymous Owners – Employing nominee directors and shareholders to conceal the real owners

• Layering Transactions – Moving funds through multiple corporate accounts to create complexity and avoid detection

2. Manipulating Trusts and Foundations for Illicit Activities

Trusts and foundations provide asset protection and privacy, which criminals misuse to conceal ownership and launder illicit gains.

What methods are used?

• Establishing Discretionary Trusts – Criminals set up trusts where the beneficiaries are undisclosed or constantly changing to avoid scrutiny.

• Misusing Charitable Foundations – Fake nonprofits and charities are created to funnel illicit funds under the guise of philanthropy.

• Exploiting Trustee Arrangements – Criminals appoint complicit or uninformed trustees to control assets while keeping their identities hidden.

3. Facilitating Cross-Border Money Laundering

TCSPs help businesses expand internationally, but criminals misuse these services to move dirty money across jurisdictions.

What methods are used?

• Offshore Corporate Structures – Establishing companies in tax havens to move money between multiple accounts

• Use of Intermediaries – Routing transactions through multiple layers of companies to create distance between the money and its illicit source

• Fictitious Trade and Fake Invoicing – Creating fraudulent business activities to justify the movement of illicit funds.

4. Exploiting Professional Services to Gain Legitimacy

Criminals often use TCSPs to add legitimacy to their operations, making it harder for regulators and banks to flag suspicious transactions.

What methods are used?

• Registering as a “Legitimate” Business – Setting up fake consulting, real estate, or import/export businesses to launder proceeds from drug trafficking, fraud, or corruption

• Obtaining Business Bank Accounts – TCSPs assist clients in securing corporate banking services, which criminals exploit to integrate illicit funds into the financial system

• Appointing Complicit or Unaware Professionals – Hiring accountants, legal representatives, or financial advisors to create a false sense of legitimacy

5. Misusing Nominee Directors and Shareholders

Many TCSPs offer nominee director and shareholder services, which criminals exploit to disguise the true ownership of assets.

What methods are used?

• Using “Straw Men” to Act as Directors – Assigning individuals who have no real control over a company to mask the involvement of the true owners

• Frequent Changes in Ownership – Regularly switching company directors or shareholders to avoid long-term scrutiny.

• Setting Up Companies in High-Risk Jurisdictions – Establishing entities in countries with weak regulatory frameworks to evade law enforcement.

What You Should Be Doing to Prevent Money Laundering in the TCSP Sector

1. Implement Robust Customer Due Diligence (CDD) and Know Your Client (KYC) Procedures

TCSPs must thoroughly vet clients before providing services to ensure they are not facilitating illicit activities.

Best Practices:

• Verify Identities – Collect and authenticate government-issued IDs, tax registration numbers, and proof of address
• Identify Ultimate Beneficial Owners (UBOs) – Ensure that the real individuals controlling a company or trust are disclosed
• Assess the Source of Funds – Require documented proof that the funds used in transactions are from legitimate sources.
• Enhanced Due Diligence (EDD) for High-Risk Clients – Conduct deeper investigations for clients involved in:
• Offshore businesses
• Politically exposed persons (PEPs)
• High-risk industries (e.g., gambling, real estate, cryptocurrency)

2. Monitor and Report Suspicious Transactions

TCSPs must have mechanisms to detect, monitor, and report suspicious activity to the relevant financial authorities.

Red Flags to Watch For:

• Clients unwilling to disclose beneficial ownership information
• Frequent changes in company directors, shareholders, or beneficiaries
• Multiple companies registered under the same address with no clear business activities
• Large, unexplained international wire transfers
• Companies engaging in high-value transactions without an obvious business purpose.

3. Establish a Comprehensive AML Compliance Program

A strong AML compliance framework is critical to ensuring that TCSPs do not facilitate financial crime.

Key Compliance Measures:

• Appoint an AML Compliance Officer – A dedicated professional responsible for overseeing AML policies and reporting suspicious activities

• Regular Internal Audits and Risk Assessments – Periodically review client accounts, financial transactions, and company registrations for anomalies

• Maintain Detailed Transaction Records – Keep client records, financial statements, and corporate filings for at least seven years for regulatory review.

• Mandatory Staff Training – Educate employeeson:
  • AML laws and reporting obligations
  • Identifying red flags in financial transactions
  • Handling high-risk clients appropriately

4. Cooperate with Regulatory Authorities and Law Enforcement

TCSPs must actively engage with financial regulators, compliance bodies, and law enforcement agencies to enhance AML enforcement efforts.

How to Cooperate Effectively:

• File Suspicious Activity Reports (SARs) – Report potential money laundering cases to the relevant financial intelligence unit (FIU)

• Participate in Industry-Wide AML Initiatives – Engage with regulators to improve sector-wide AML standards

• Stay Updated on Evolving AML Regulations – Monitor changes in international AML laws

Closing Remarks

The Trust and Company Service Provider (TCSP) sector is a high-risk area for money laundering, as criminals exploit corporate structures, nominee services, and offshore accounts to hide illicit assets. Without proper oversight, TCSPs can unknowingly become facilitators of financial crime.

By implementing strong due diligence procedures, monitoring transactions, maintaining AML compliance, and cooperating with authorities, TCSPs can prevent their services from being misused by criminals.

As global regulatory scrutiny intensifies, AML compliance is no longer just a best practice—it is a legal and ethical necessity. Strengthening AML controls protects businesses, upholds financial integrity, and ensures that criminals cannot exploit the corporate services industry to launder their illicit gains.