While less than honourable parties have always tried to shelter their assets from tax, authorities, creditors, and courts, there has been a noticeable and observed uptick in frequency of “sham trusts”. Within the last decade or so, there has been a trend of bankrupts and judgement debtors entering various forms of property ownership arrangements with the aim of concealing the ownership of their assets.

In response to the increased prevalence of sham trusts, three main approaches have emerged, the international, national, and trust industry have all proposed new regulations and/or measures aimed to preventing further abuse of trust law.  Together, these efforts reflect a coordinated response aimed at curbing misuse while preserving the legitimate role of trusts.

1. International and Global Organizations

International organizations and NGOs have focused on promoting transparency and developing cross-border standards to address the global nature of the issue.

In terms of international agencies leading the charge and calling for increased trust transparency, The Financial Action Task Force (FATF), an intergovernmental body that sets global standards for anti-money laundering and courter-terrorist financing, recently held public consultations regarding trust regulation.[1] The full report details twenty-five recommendations aimed at increasing transparency of multi-national trusts.[2]

Some of the most notable recommendations are as follows:

• Competent authorities should have access to all trust information;
• Assets connected to the trust should be registered;
• Beneficial owners of all parties to the trust should be identified including settlors, trustees, protectors, and beneficiaries; and
• Trustees should retain client records for a minimum of 5 years, but ideally 25 years to facilitate investigations.

2. National Level Reforms

At the national level, regulators have responded by tightening laws, enhancing reporting obligations, and strengthening enforcement mechanisms to prevent abusive trust practices.

In 2021, Canada introduced enhanced trust reporting requirements designed to increase transparency and address the misuse of trusts, including sham arrangements.[3] The reforms were subsequently followed up in August 2022 with draft legislative proposals intended to refine the rules, particularly by clarifying the treatment of bare trusts.[4]

In 2024, Switzerland advanced its commitment to financial transparency by introducing the Federal Act on the Transparency of Legal Entities and the Identification of Beneficial Owners (TJPG). This legislation mandates Swiss legal entities, including companies, certain foreign entities, and trusts administered within Switzerland, to disclose the ultimate beneficial owners to a centralized, non-public register managed by the Federal Office of Justice. The TJPG aims to enhance the authorities’ ability to combat money laundering, organized crime, and terrorist financing by providing rapid access to accurate and up-to-date ownership information.[5]

In 2024, New Zealand introduced significant amendments to the Anti-Money Laundering and Counter Financing of Terrorism Act, 2009 (AML/CFT Act) through the Anti-Money Laundering and Countering Financing of Terrorism Amendment Bill. These changes aim to enhance the effectiveness and efficiency of the AML/CFT regime, aligning it with international standards and addressing emerging risks. Key provisions included refining the definition of “beneficial owner,” clarifying the obligations of trust and company service providers, and implementing a more risk-based approach to customer due diligence.[6]

3. The Trust Industry Itself

Meanwhile, the trust industry has taken steps to protect the integrity of legitimate trusts by implementing robust compliance frameworks and adopting best practices standards.

In response to the increasing regulatory focus on trust transparency, practitioners and professional associations have taken proactive steps to enhance compliance and uphold the integrity of trust arrangements. The Society of Trust and Estate Practitioners (STEP) has been at the forefront of these efforts. In 2024, STEP responded to a UK government consultation aimed at improving transparency of land ownership involving trusts. The consultation sought views on widening access to trust information held on the Register of Overseas Entities (ROE) and making all trust information public by default. STEP’s response emphasized the importance of balancing transparency with privacy concerns and the need for practical implementation of any proposed changes.[7]

Furthermore, STEP has engaged with international bodies to influence global standards. In December 2023, STEP responded to the Financial Action Task Force’s (FATF) consultation on a risk-based approach to beneficial ownership and transparency of legal arrangements. STEP argued that trusts are ubiquitous and diverse in nature, often used for vulnerable clients, and therefore advocated for the disclosure of information about trustees who financially benefit from a trust rather than those who are merely objects of a power.

Final Remarks

In summary, the rising prevalence of sham trusts has prompted a multi-layered response from international bodies, national regulators, and the trust industry itself, each seeking to enhance transparency while preserving the legitimate use of trusts. Notably, industry practitioners have emphasized the need to strike a careful balance between improving transparency and respecting ownership rights and privacy. While these measures mark meaningful progress, the evolving nature of abusive practices ensures that continued vigilance, coordination, and reform will remain essential.

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[1]Transparency International, Paving the Way for Enhanced Trust Transparency: Response to FATF’s proposals to revise Recommendation 25 (December 2021), online (pdf): Transparency International

[2] Transparency International Canada, “Enhancing Trust Transparency: Transparency International’s Revisions to Recommendation 25” (8 August 2022), online: Transparency International Canada <https://transparencycanada.ca/news/enhancing-trust-transparency-transparency-internationals-revisions-to-recommendation-25>

[3] Canada Revenue Agency, Enhanced Reporting Rules for Trusts and Bare Trusts: Frequently Asked Questions (updated 14 March 2025), online: Canada.ca <https://www.canada.ca/en/revenue-agency/services/tax/trust-administrators/t3-return/enhanced-reporting-rules-trusts-bare-trusts-faq.html>

[4] Department of Finance Canada, Legislative Proposals Relating to the Income Tax Act and Other Legislation (August 2022), online: Government of Canada <https://fin.canada.ca/drleg-apl/2022/ita-lir-0822-eng.html>

Mathias Müller, Transparency Register of Beneficial Owners and Further Developments in the Fight Against Money Laundering (12 June 2024), online: Grant Thornton Switzerland/Liechtenstein <https://www.grantthornton.ch/en/insights/transparency-register-developments-aml/>

[6] Simon Papa, Significant Changes to AML/CFT Law Coming into Force Between 2023 and 2025 (23 July 2025), online: Cygnus Law <https://cygnuslaw.nz/significant-changes-to-aml-cft-law-coming-into-force-between-2023-and-2025/>

[7] STEP, STEP Responds to UK Consultation About Transparency of Land Ownership Involving Trusts (22 February 2024), online: STEP <https://blog.step.org/2024/02/22/step-responds-to-uk-consultation-about-transparency-of-land-ownership-involving-trusts/>

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SEE US AT THE STEP CAYMAN CONFERENCE, January 22-23, 2026, where Kimberly Whaley joins: Andrew Miller TEP, Bedell Cristin (moderator), Cayman Islands; Shân Warnock-Smith KC TEP, ICT Chambers, Cayman Islands; Toby Graham TEP, Farrer & Co, U.K. on a panel discussing “THE SHAM SHOWDOWN: IS DISHONESTY THE WRONG TEST?”

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