These Q&As are intended to offer you some pointers for the examination that trust offices must perform into the purpose of the overall structure of which object companies are part.
Examination into the purpose of the structure
Why must trust offices examine the purpose of structures?
If the purpose of a structure is not completely clear, a trust office is unable to assess which integrity risks are involved. An unclear structure (i.e. a structure lacking a clear purpose) may be exposed to undesirable activities or abuse. It may be non-transparent, due to which certain money flows or the origin of assets remain invisible or obscure to the supervisory authorities. This may be motivated by tax evasion or money laundering, circumvention of trade barriers or economic sanctions, or protection of wealth for privacy or even safety reasons. Anonymity of individuals and money flows often is an indication that the services provided by the trust office are accompanied by integrity risks. This is why the legislator demands that each trust office understands the purpose of a structure, from the moment its starts offering services to its customers. Subsequently, it must be examined whether this purpose is being achieved by means of the intended structure, and of course whether the structure does not contravene with the letter or spirit of the law, or that the confidence in the trust office or the financial sector as a whole can be seriously harmed.
What should the examination entail?
It is all about a clear understanding of the reasons why a particular structure has been or is being established. This may sound obvious, but supervisors all too often encounter files of structures where account managers are unable to explain or fully explain these structures and the reason why they were constructed in that particular way. Questions that then need to be answered for instance include: are the reasons given by a customer or prospect logical and understandable; does the customer provide acceptable and sound arguments (i.e. not to evade tax in other countries or to keep certain activities from the authorities); is the entire structure clear so that the trust office understands the reason why a particular structure has been chosen?
How should the trust office organise the examination?
The customer acceptance files of each object company must include descriptions of the purpose of the services provided. The trust office should at least address the role of the object company within the structure and the reasons for using a legal entity having its registered offices in the Netherlands. So the file must not be limited to a description of the activities or intended activities of the object company, but also answer the question why the structure has been set up via the Netherlands, and explain the added value of the services provided by the trust office in question.
In short, the structure must be completely transparent and the reasons for structuring it in this particular way must be clear. This means probing further if customers fail to cooperate (as this may be an indication of abuse of services). It also means having the knowledge to understand whether structures make sense or not. The trust office must incorporate the information received in its risk analysis and must be able to demonstrate that it has done so.
Questions that a trust office should at least be able to answer are:
- What is the purpose of the structure? Tax, commercial, economic, or all three, and is this sufficiently clear (comprehensible) to every member of the trust office's staff working on this object company?
- Why a Dutch object company?
- How exactly does the object company contribute to the purpose?
- Does the structure serve a legitimate purpose?