What are Trust or Company Service Providers (TCSPs)?

Trust or Company Service Providers (TCSPs) play a significant role in regulating global business operations. They offer effective administrative and fiduciary services to companies, trusts, and individuals, thereby shaping the financial flow globally. Because they are a key part of the financial world, they are also vulnerable to risks in relation to money laundering and illicit finance. This blog delves into the exploration of regulatory expectations and explores how advanced anti-money laundering (AML) tools can help better their protection against financial crime.

What Is the Definition of TCSPs

Trust or Company Service Providers (TCSPs) are businesses or individuals who provide services that relate to entities or companies.TCSPs are regulated in many jurisdictions in order to prevent money laundering and other financial crimes. They primarily focus on setting up and managing cross-border business structures. Hence, they play a pivotal role in the global financial world.

What is The Legal Definition?

According to the Financial Action Task Force (FATF), Trust and Company Service Providers (TCSPs) are individuals or organizations who establish and administer companies, serving as trustees, and supplying directors. They operate within strict regulatory environments, and TCSPs are usually engaged with legal entities, financial institutions, and oversight bodies.

What services are offered by TCSPs?

TCSPs offer a broad scope of corporate and fiduciary solutions. Their offerings usually encompass:

• Establishing and Administering Entities: Assisting clients by setting up companies, making sure they comply with legal requirements, as well as managing official corporate records.
• Trust Administration: Helping as fiduciary roles to oversee trusts according with legal obligations and the trustʼs terms.
• Arrangements of Nominee: To protect client anonymity and uphold the privacy of business ownership structures, they appoint nominee directors and shareholders.
• Provision of Business Addresses: To fulfill obligations in specific jurisdictions, they supply official registered office locations.

Why TCSPs Are High-Risk for Money Laundering

TCSPs offer important tools for business operations. However, the same tools that are used can be misused to commit illicit financial crime. Because of their involvement in setting up legal entities, they can be exposed to money laundering.

Enabling Shell Entities

TCSPs, most of the time, establish shell companies, legal entities that do not have an active business or substantial assets. These companies hide their actions of illicit funds, making it harder for financial actions to be tracked.

Anonymity Through Fonts

Nominee shareholders and directors are a major concern. Financial criminals usually cover their identity and hide their ownership.

Use in Money Laundering

During the process of money laundering, TCSPs are mostly used by entities to become useful in the “layeringˮ and “integrationˮ stages. These stages manipulate funds with legitimate ones. Trusts and shell companies are often part of this laundering channel.

In recent years, there have been reports where investigations have revealed how TCSPs were manipulated in global laundering operations. These reports emphasize the call for stronger oversight of compliance controls.

What is the global regulatory framework for TCSPs?

Addressing the financial crime risk associated with TCSPs, regulatory bodies around the world have established a stricter framework that strengthens international guidelines and national legislation. This framework develops quickly, promoting transparency, accountability, and stronger oversight.

FATF Recommendations

The FATF has a significant role in setting global standards. FATFʼs Recommendations 22 and 21 are particularly important to TCSPs. They are guidelines that set requirements for service providers in order to promote stronger customer due diligence (CDD) measures. This ensures an accurate record of the actual beneficial ownership and can report suspicious activities when appropriate.

The European Union: 5AMLD and 6AMLD

The Fifth and Sixth AML Directives (5AMLD and 6AMLD) within the EU are responsible for regulatory expectations for TCSPs even stronger. The directives require service providers to follow CDD, improve access to beneficial ownership identification, and impose stricter penalties for non-compliance.

U.S. FinCEN Initiatives

In the United States, the Financial Crimes Enforcement Network (FinCEN) has introduced regulatory measures that increase the transparency of companies.

A notable example:

The Corporate Transparency Act requires specific entities, including entities that are formed through TCSPs, to disclose their ultimate beneficial owners to a centralized database. This process ensures the prevention of anonymous illicit funds.

Jurisdictional Examples 

• The Isle of Man has revised its Corporate Service Provider Act, which aligns with FATF standards
• Singapore enforces a stricter Know Your Customer (KYC) requirement through the Accounting and Corporate Regulatory Authority (ACRA). This enables the accuracy of service providers through client verification
• Transparency in the company is promoted in the United Kingdom. The Persons with Significant Control (PSC) Register publicly discloses people who have influence or control over legal entities.

AML Compliance Requirements for TCSPs

TCSPs are required to follow AML compliance requirements. Because of their high exposure in financial crime misuse, they are required to follow the rules of AML obligations in order to enhance their transparency.

Customer Due Diligence (CDD)

TCSPs are required to collect everything about the client and their information, even information about who the ultimate beneficial ownership is, the source of their funds, and the motive for their business relationship. In higher-risk cases, measures of enhanced due diligence should be followed to further ensure that illicit activity is prevented.

Ongoing Monitoring

Consistently monitoring the clientʼs behavior and transactions allows TCSPs to see if there are irregular or abnormal patterns that suggest suspicious activity quickly. This process is important for maintaining AML compliance and upholding the integrity of their financial system.

Suspicious Transaction Reporting (STRS)

If there is an out-of-the-ordinary transaction, even the smallest behavior, TCSPs are legally obligated to submit an STR because it could be linked to a criminal activity. By submitting an STR, these reports help the AML framework to be stronger, allowing the detection of illicit financial activities.

Internal Controls and Staff Training

Having strong internal policies, rules, and regulations, and staff training are key factors in having an effective AML program and being up-to-date. These rules not only help organizations to follow AML compliance, but they also promote a culture in which accountability is promoted, resulting in decreased risks

Sanction Scanner Solutions for TCSPs

In this day and age, technology holds great value in helping TCSPs meet advanced regulatory expectations. At Sanction Scanner, we provide tailored end-to-end compliance tools in order to support TCSPs in preventing money laundering and AML obligations efficiently.

Sanction Scanners offers real-time name screening in which we detect high-risk individuals, PEPs, and entities listed on global sanction lists. Our tool, the beneficial ownership identification feature, significantly helps to clarify the complexity of ownership structures. On top of that, our adverse media screening supports the evaluation of reputational risk. Hence, at Sanction Scanner, we are able to monitor screening continuously, allowing firms to be updated at all times and alerted to increasing threats and regulatory changes. We assure you that we have a proactive and reliable compliance program.