Self-Dealing, Explained

Executive control is a difficult and skilled responsibility to hold, a fact just as true for CEOs as it is for trustees of a charity or fund. But in the former case, industry experience and training often come in handy when dealing with the legal element to managing assets. For trustees, this may be new territory – and, without the right counsel, could cause them to fall foul of the law.

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There is one law in particular which can serve to trip up even the most well-meaning of trustees: self-dealing. Self-dealing is a complex legal issue, which can affect a wide variety of individuals from the domestic level all the way to the executive level. But what exactly is it, how does it work and how can you avoid it?

What is Self-Dealing?

Self-dealing is an illegal act where an individual party uses another’s assets without working to their best interests. It is typically an individualistic act, whereby trust, charity, estate or customer assets are utilised for personal gain.

With regard to trustees, self-dealing is a specific action taken, wherein which the assets of a trust, charity, fund or estate are sold or re-allocated in a way that benefits the trustee over the institution they work on behalf of. This may involve the re-allocation of funds, or the selling of tangible assets.

The Mechanisms of Self-Dealing

It is most easily spotted in wealth management, where a stockbroker or advisor may tell a customer to invest in a poorly performing stock in order to increase overall commission. Alternatively, someone entrusted with a customer’s money for wealth management purposes may misappropriate those funds for personal gain, either by using them as a personal loan or skimming interest.

As far as trustees are concerned, the most brazen examples of self-dealing occur in the management of charity or trust assets. A self-dealer may use trust money for personal reasons, or sell a trust’s assets to themselves as a private citizen. However, the complexities of self-dealing can catch innocent individuals out – especially when it comes to the management of a deceased relative’s estate.

Avoiding Self-Dealing Accusations

Seeking legal advice is the single most important thing you can do as a trustee of any charity or customer funds or assets. There are numerous ways in which self-dealing laws can be accidentally contravened, whether through the technicalities of granting yourself a pay rise or the honest attempt to buy trust property. Independent legal counsel ensures you navigate your circumstances transparently and correctly.