Can a custodial institution legally settle a Cook Islands trust—and what does that mean for FATCA and CRS reporting? In this episode, we walk through the reporting hierarchy step by step, explain where reporting stops, where it continues, and why confusion often arises when institutional settlors are involved.

• Reportable Person

Under FATCA (U.S.) and CRS (non-U.S.), a Reportable Person is typically:

– An individual, or

– A Passive NFE with individual Controlling Persons

➡️ Financial Institutions are generally not Reportable Persons

• Financial Institution (FI)

Includes Custodial Institutions, Depository Institutions, Investment Entities, and certain insurance companies.

➡️ These are Reporting Financial Institutions, not Reportable Persons.

• Custodial Institution

An FI that holds financial assets for others as a substantial part of its business.

• Settlor of a Trust

The person or entity that legally establishes the trust and contributes assets.

➡️ The settlor’s identity is central to the trust’s reporting analysis.

i. Identify the Settlor

The legal settlor is the Custodial Institution Trust, as evidenced by the trust deed and asset transfer.

ii. Classify the Settlor

The Custodial Institution Trust is a Reporting Financial Institution.

iii. Apply the Account Holder Test

For trusts, the settlor is treated as an Account Holder.

The trust must then determine whether that Account Holder is a Reportable Person.

iv. Reporting Conclusion

Because the settlor is a Financial Institution, it is not a Reportable Person.

➡️ The new trust therefore has no obligation to look through the institutional settlor to underlying individuals.

Result:

The reporting chain stops at the institutional level for the new trust.

The trust reports the Custodial Institution Trust as settlor and classifies it as an FI (using a GIIN for FATCA or jurisdiction of residence for CRS).

Even if the Custodial Institution is located in Svalbard and does not report locally, the information is not lost.

As a Reporting Financial Institution, the Custodial Institution Trust must:

• Perform due diligence on the original individual

• Determine whether that individual is a Reportable Person

• Report that individual under FATCA or CRS, where applicable

➡️ Reporting responsibility is reallocated upstream to the institution that directly holds and administers the assets.

This structure does not eliminate reporting—it reassigns the reporting obligation within the FATCA/CRS framework. Authorities focus on:

• Legal settlor status

• FI classification

• Account holder rules

• Substance and control

Any arrangement designed to defeat reporting can trigger re-characterisation, challenge, or enforcement.

From time to time, structures are presented as being “stronger” or “more private” than a traditional Cook Islands trust. In this episode, we critically examine one such multi-layered structure and place it in its proper context—technical theory vs. regulatory reality.

This is not an endorsement. It is an explanation of how such structures are described, how reporting logic is argued, and why extreme caution is required.

🔎 What This Episode Covers

The structure is typically described as follows:

• An SPV custodial institution is established

• The custodial institution owns one or more investment entity companies

• A trust acts as the founder of a foundation (in any jurisdiction)

• The founder of the foundation is the custodial institution

• The custodial institution is located in a non-participating jurisdiction (e.g., Svalbard)

The theory presented is that reporting obligations stop at the custodial institution level.

Proponents usually claim:

• A foundation does not report on its founder if the founder is a custodial institution

• If that custodial institution is in a non-participating jurisdiction, there is:

– No CRS automatic exchange

– No exchange on request

• No FATCA withholding exposure if the custodial institution earns no income

These claims rely heavily on technical CRS interpretation, not outcomes tested in court.

Supporters often reference Organisation for Economic Co-operation and Development CRS Commentary, particularly:

Section VIII – Commentary on Equity Interests

Key principles cited include:

• Where equity interests are held through a custodial institution, the custodial institution is the reporting party

• Foundations do not report on custodial institutions

• The same principles apply to trusts and trust-equivalent arrangements

• Investment entities do not report when a custodial institution sits above them

This is a technical allocation of reporting responsibility, not a guarantee of invisibility.

This episode highlights why such structures are high-risk in practice:

• Substance over form analysis may collapse the structure

• Non-participating jurisdiction status is not permanent

• Courts may still focus on control, benefit, and influence

• Exchange on request can arise via parallel legal routes

• Mischaracterisation risks regulatory sanctions

• Aggressive positioning increases audit, enforcement, and reputational risk

Importantly: OECD commentary is interpretive guidance—not immunity.

This type of structure may exist in theoretical reporting discussions, but:

• It is not a safe replacement for compliant planning

• It has not been judicially validated

• It carries significant enforcement risk

• It should never be implemented without senior legal, tax, and regulatory advice

Complexity does not equal protection.

And opacity is not a substitute for lawful planning.

Cook Islands trusts are often described as legally robust under offshore law—yet some have still ended badly for settlors in U.S. courts. In this episode, we explain why these outcomes occur, what courts are actually enforcing, and where the real risks lie.

🔎 What You’ll Learn in This Episode:

In many U.S. cases, the trust assets themselves remained protected under Cook Islands law and were not seized by creditors.

The problem arose because U.S. courts focused on the conduct of the individual within their jurisdiction, not on the offshore trust. Enforcement targeted the person—not the trust.

When a U.S. court believes a settlor has the ability to retrieve or influence assets but refuses to comply with a repatriation order, the court may impose coercive sanctions.

These can include:

• Fines

• Daily penalties

• Imprisonment for contempt

This is the most common reason these cases are labeled “unsuccessful” in the United States.

Courts consistently rule against settlors where they find:

• Excessive retained control (e.g., acting as co-trustee, appointing or replacing protectors)

• Inconsistent behavior, such as personal use of trust assets

• Late transfers, made after a lawsuit or legal threat has already emerged

Such facts are often treated as evidence of intent to defraud a specific creditor.

Cook Islands trusts do not fail because the offshore law collapses. They fail when:

• Planning is done too late

• Control is retained in substance, not just on paper

• Settlor behavior contradicts the structure’s legal design

In these situations, the risk becomes personal enforcement—not loss of the trust assets themselves.

This episode provides a clear, reality-based explanation of why outcomes in U.S. courts hinge on behavior, timing, and control, and why compliant, early planning is essential for any asset-protection strategy.