Has the non-commercial trust relationship for the most part managed to avoid the cross hairs of the Financial Crimes Enforcement Network (FinCEN)?

Charles E. Rounds, Jr.

FinCEN issued (05/11/2016) final rules under the Bank Secrecy Act “to clarify and strengthen customer due diligence requirements” for: Banks; brokers or dealers in securities; mutual funds; and futures commission merchants and introducing brokers in commodities. The rules contain explicit customer due diligence requirements and include a new requirement “to identify and verify the identity of beneficial owners of legal entity customers,” subject to certain exclusions and exemptions. One such identification exemption is a beneficial interest under a trust other than a “statutory trust created by a filing with a Secretary of State or similar office.” Why? The rationale may be found in the Rule’s preliminary section-by-section analysis: “…[B]cause, unlike the legal entities that are subject to the final rule, a trust is a contractual arrangement between the person who provides the funds or other assets and specifies the terms (i.e., the grantor or settlor) and the person with control over the assets (i.e., the trustee), for the benefit of those named in the trust deed (i.e., the beneficiaries).” While I have no quarrel whatsoever with the exemption, I find the expression of its rationale to be, shall we say, wanting, both grammatically and substantively. As to the latter, see Loring and Rounds: A Trustee’s Handbook §9.9.1 [pages 1525-1529 of the 2016 Edition] (trusts are not contracts), which section is reproduced in its entirety below.

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Charles E. Rounds, Jr.

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