Malawi Moves to Close Money Laundering Loopholes With New Trusts Law

Malawi is undertaking a significant legislative overhaul of its trusts law through a new Draft Trusts Bill. This initiative is primarily aimed at closing critical money laundering and terrorist financing loopholes that have persisted due to an outdated and fragmented legal framework. The current regime, largely based on the *Trustees Incorporation Act* (Chapter 5:03) and common law, lacks provisions for the registration and transparent oversight of settlement trusts, creating vulnerabilities for illicit financial flows. The proposed Bill seeks to introduce a modern, comprehensive framework that aligns Malawi with international anti-money laundering (AML) and counter-terrorist financing (CFT) standards, particularly those set by the Financial Action Task Force (FATF), by enhancing transparency, establishing beneficial ownership requirements, and strengthening regulatory oversight.

Malawi is poised for a significant transformation in its legal landscape governing trusts, with the government actively pursuing the enactment of a comprehensive Draft Trusts Bill. This legislative initiative, currently undergoing stakeholder consultations, is a critical step towards modernizing a framework that officials acknowledge is long overdue for reform. The primary impetus behind this overhaul is to address and close persistent loopholes that have rendered trusts susceptible to misuse for money laundering and terrorist financing activities, thereby enhancing the integrity of Malawi's financial system.

The existing legal provisions for trusts in Malawi have been widely criticized for their inadequacy, particularly concerning the lack of a robust registration regime for settlement trusts. This gap has created an environment where beneficial ownership information is often opaque, making it challenging for authorities to track illicit financial flows. The Draft Trusts Bill aims to rectify these deficiencies by introducing stringent transparency and accountability measures, aligning the country with global best practices in combating financial crime.

This article will delve into the background of Malawi's trusts law, examine the key anticipated provisions of the Draft Trusts Bill, and analyze its potential impact on the country's anti-money laundering and counter-terrorist financing efforts. It will also consider the broader implications for legal practitioners and the financial sector, emphasizing the shift towards a more transparent and regulated environment for trust administration.

Historically, the legal framework for trusts in Malawi has been fragmented and largely reliant on common law principles, supplemented by specific statutes such as the *Trustees Incorporation Act* (Chapter 5:03). However, the *Trustees Incorporation Act* primarily caters to the incorporation of trustees for qualifying charities and associations, leaving a significant void regarding the regulation and oversight of private settlement trusts. This absence of a dedicated and comprehensive regime for settlement trusts has resulted in a lack of transparency, making them attractive vehicles for concealing beneficial ownership and facilitating illicit financial activities.

Malawi has been under increasing pressure to meet international financial oversight standards, particularly those promulgated by the Financial Action Task Force (FATF). The FATF recommendations emphasize the need for countries to ensure adequate, accurate, and up-to-date information on beneficial ownership for legal arrangements, including trusts, to combat money laundering and terrorist financing effectively. While Malawi has made strides in strengthening its broader anti-money laundering and counter-terrorist financing (AML/CFT) framework through legislation such as the *Financial Crimes Act* (Act No. 14 of 2017) and its subsequent amendments in 2023 and 2025, trusts have remained an area of concern due to the existing legal vacuum. The *Financial Crimes Act* established the Financial Intelligence Authority (FIA) as the principal national agency for combating financial crimes, with powers to investigate criminal proceeds relating to money laundering and terrorist financing. However, the lack of specific trust regulation has hindered the full effectiveness of these broader AML/CFT efforts.

The Draft Trusts Bill represents a crucial legislative intervention designed to bridge the identified gaps in Malawi's existing legal framework for trusts. A central tenet of the proposed legislation is the establishment of a robust registration regime for settlement trusts, a feature currently absent. This move is directly responsive to international obligations, particularly FATF Recommendation 25, which calls for countries to ensure transparency of legal arrangements and the availability of beneficial ownership information. By requiring the registration of trusts, the Bill aims to create a central repository of information on settlors, trustees, beneficiaries, and any other individuals exercising ultimate effective control, thereby enhancing the ability of competent authorities to identify and track beneficial owners.

Solicitor General and Secretary for Justice and Constitutional Affairs, Gertrude Lynn Hiwa SC, highlighted that the Bill seeks to create a modern, practical, and responsive legal framework that supports trust structures while promoting legal certainty, transparency, and strengthening appropriate regulatory oversight. This implies that the Bill will likely introduce more stringent reporting obligations for trustees, requiring them to maintain and provide accurate and up-to-date information to regulatory bodies. Such enhanced due diligence and reporting requirements are in line with FATF guidance for a risk-based approach to beneficial ownership and transparency of legal arrangements, which emphasizes the need for obliged entities to assess and mitigate ML/TF risks associated with trusts.

Furthermore, the Bill is expected to clarify the fiduciary duties of trustees, providing a clearer mechanism for the oversight of trust assets. This will not only bolster investor confidence but also ensure that trust assets are not misused as vehicles for illicit financial flows. The alignment with FATF recommendations is critical for Malawi's financial reputation and its efforts to deter illicit money flows. While Malawi has made progress in beneficial ownership reforms under its Companies framework, the Draft Trusts Bill is specifically designed to extend these advancements to trusts, ensuring a comprehensive approach to financial transparency.

However, the effectiveness of the new legislation will depend significantly on its implementation and enforcement. Challenges may arise in establishing and maintaining an accurate and accessible register, ensuring compliance from all relevant parties, and providing adequate resources and training to regulatory and enforcement agencies. The ongoing stakeholder consultations, involving diverse participants from the private sector, legal profession, and civil society, are crucial for refining the legislation to balance robust AML controls with the practical realities of legitimate estate planning and commercial trust management.

The introduction of Malawi's Draft Trusts Bill marks a pivotal moment in the country's ongoing efforts to combat money laundering and terrorist financing. By addressing the long-standing deficiencies in its trusts law, Malawi is taking a decisive step towards aligning its legal framework with international standards, particularly those advocated by the FATF. The anticipated provisions for trust registration, beneficial ownership transparency, and enhanced regulatory oversight are expected to significantly strengthen the country's financial integrity and deter the misuse of trusts for illicit purposes.

For legal practitioners, trustees, and financial institutions operating in Malawi, this legislative development necessitates a proactive approach. Attorneys advising clients on trust structures, estate planning, and asset management must prepare for a new era of increased transparency and compliance. A thorough review of existing trust deeds and administrative structures will be essential to ensure adherence to the new statutory requirements. Monitoring the progression of the Draft Trusts Bill through the parliamentary process and engaging with subsequent regulations will be crucial for navigating the evolving regulatory landscape and ensuring seamless compliance.