Malawi moves to close money laundering loopholes with new trusts law

Malawi is embarking on a significant legislative reform to modernize its trusts law, with the government convening stakeholder consultations on a Draft Trusts Bill. This overdue legislation primarily aims to close critical money laundering and terrorist financing loopholes that have persisted due to the fragmented and outdated existing framework. The proposed Bill seeks to introduce a comprehensive regime for the registration of settlement trusts, enhance beneficial ownership transparency, and strengthen regulatory oversight, aligning Malawi with international anti-money laundering (AML) and counter-terrorist financing (CFT) standards. For legal practitioners, this development signals a fundamental shift towards a more transparent and compliant environment for trust creation and administration, necessitating a thorough review of current practices and client advisory services.

Malawi is poised for a significant overhaul of its legal framework governing trusts, a move heralded by the government as crucial for enhancing financial transparency and combating illicit financial flows. The Solicitor General and Secretary for Justice and Constitutional Affairs, Gertrude Lynn Hiwa SC, recently convened a stakeholder consultation in Lilongwe to gather input on a Draft Trusts Bill, acknowledging that the existing legislation is long overdue for modernization. This legislative initiative is a direct response to the identified vulnerabilities within the current system, which has been susceptible to exploitation for money laundering and terrorist financing activities.

The impetus behind this reform is multi-faceted, driven by both domestic concerns regarding financial integrity and international obligations to comply with global anti-money laundering (AML) and counter-terrorist financing (CFT) standards, particularly those set by the Financial Action Task Force (FATF). The absence of a robust regulatory regime for trusts has been a persistent concern, creating a legal vacuum that undermines efforts to track beneficial ownership and prevent the misuse of legal arrangements. This article will delve into the shortcomings of the current trusts law, analyze the anticipated provisions and impact of the Draft Trusts Bill, and highlight the critical implications for legal practitioners operating within Malawi's evolving financial landscape.

The current legal landscape for trusts in Malawi is characterized by its fragmentation and limited scope. The primary existing statutes are the Trustees Act (Chapter 5:02) and the Trustees Incorporation Act (Chapter 5:03). However, the Trustees Incorporation Act primarily facilitates the incorporation of trustees for charities and associations, granting them corporate personality to hold property and engage in legal proceedings, rather than providing a comprehensive framework for the establishment and regulation of private settlement trusts. This narrow focus has left significant gaps in transparency and accountability for other forms of trusts, which can be readily exploited for illicit purposes, including the concealment of assets and the laundering of criminal proceeds.

Malawi has, in recent years, made strides in strengthening its broader AML/CFT regime. The Financial Crimes Act (Act No 14 of 2017) repealed and replaced the earlier Money Laundering, Proceeds of Serious Crime and Terrorist Financing Act, 2006, establishing the Financial Intelligence Authority (FIA) as the principal national agency for combating financial crimes. Further amendments, such as the Financial Crimes (Amendment) Act No. 22 of 2025, have sought to address identified deficiencies and align the country with global standards. Additionally, Malawi launched its National Anti-Money Laundering, Combating Financing of Terrorism and Proliferation of Weapons of Mass Destruction (AML/CFT/CFP) Policy in July 2024, signaling a concerted effort to enhance its financial integrity. Despite these advancements in the general financial crime framework, the specific area of trusts has remained a notable vulnerability, prompting the urgent need for the proposed Trusts Bill to complete the country's AML/CFT architecture.

The Draft Trusts Bill is designed to address the critical shortcomings of Malawi's existing trusts law by introducing a modern, practical, and responsive legal framework. A key objective is the establishment of a comprehensive registration regime for settlement trusts, a feature currently absent from Malawian law. This registration requirement is expected to significantly enhance transparency by ensuring that adequate, accurate, and up-to-date information on trusts and their beneficial owners – including settlors, trustees, protectors, and beneficiaries – is collected and made accessible to competent authorities.

This move directly aligns with international best practices and the recommendations of the Financial Action Task Force (FATF), which emphasizes the need for countries to assess and mitigate the money laundering and terrorist financing risks associated with legal arrangements. FATF guidance specifically calls for mechanisms to ensure beneficial ownership information on trusts is obtainable efficiently and in a timely manner, often through the establishment of trust registries. By implementing such a regime, Malawi aims to bolster investor confidence and shed its image as a jurisdiction with weak anti-money laundering controls.

The Bill is also anticipated to clarify the fiduciary duties of trustees and establish clearer mechanisms for the oversight of trust assets, which have historically been susceptible to misuse for illicit financial flows. This will likely introduce more stringent reporting obligations for trustees and mandate enhanced due diligence measures, mirroring the obligations already placed on other financial institutions under the Financial Crimes Act. The interplay between the new Trusts Bill and existing AML/CFT legislation, such as the Financial Crimes Act, will be crucial. The Bill is expected to complement these laws by extending beneficial ownership transparency reforms, which have already seen progress under Malawi's Companies Act, to the trust sector.

While the specific provisions of the Draft Bill are still subject to stakeholder input, its overarching goals indicate a shift towards greater regulatory scrutiny and accountability. This will undoubtedly present challenges for practitioners in terms of compliance and client education, but ultimately aims to strengthen the integrity of Malawi's financial system. The emphasis on a risk-based approach, as advocated by FATF, will likely guide the implementation of the new law, requiring practitioners to conduct thorough risk assessments for trust arrangements and apply appropriate due diligence measures.

Malawi's Draft Trusts Bill represents a pivotal step in modernizing the country's legal infrastructure and fortifying its defenses against financial crime. By introducing a comprehensive framework for the registration and oversight of trusts, the government is directly addressing long-standing vulnerabilities that have facilitated money laundering and terrorist financing. This legislative reform is not merely a domestic initiative but a strategic move to align Malawi with international AML/CFT standards, thereby enhancing its reputation within the global financial community.

For legal practitioners, the enactment of this Bill will necessitate a thorough review of existing trust deeds and administrative practices to ensure full compliance with the new statutory requirements. Attorneys advising clients on estate planning, wealth management, and corporate structures involving trusts must prepare for increased transparency obligations, more stringent reporting, and enhanced due diligence. Active engagement with the ongoing consultation process is advisable to help shape a practical and effective final law. Practitioners should closely monitor the Bill's progression through Parliament and prepare to adapt their advisory services to navigate this new, more robust regulatory environment, ensuring their clients remain compliant and their practices uphold the highest standards of financial integrity.