On 24 August 2022, the Financial Action Task Force (FATF) published its mutual evaluation report titled ‘Anti-money laundering and counter-terrorist financing measures – The Netherlands’ (the Report). The Report summarises the anti-money laundering and counter-terrorist financing (AML/CFT) measures in place in the Netherlands as at the date of the FATF’s on-site visit between 27 October and 18 November 2021. The Report analyses the level of compliance with the FATF 40 Recommendations and the level of effectiveness of the AML/CFT system, and provides recommendations on how the system in the Netherlands could be strengthened.
The full version of the Report addresses in detail, among other things, the money laundering and terrorist financing (ML/TF) risks in the Netherlands, its national AML/CFT policies and coordination, its legal system and operational issues, its preventive measures and its supervisory measures. The Report also contains a section providing a detailed analysis of the level of compliance with the FATF 40 Recommendations in their numerical order (page 201 and onwards of the full version of the Report).
The key findings listed in the Report include, but are not limited to, the following:
- Overall, according to the FATF the Netherlands has a good understanding of its ML/TF risks, as reflected in the National Risk Assessments (NRAs), Supranational Risk Assessments (SNRAs) and other sector assessments, policies, projects and cases. In continental Netherlands, fraud and drug related offences account for more than 90% of all proceeds of crime and ML risk manifests via the use of crypto currencies; trade-based services; underground banking, including unlicensed payment services; offshore companies; and services/goods of dealers of high-value goods. The methodology of the NRAs is generally sound and based on a structural process to collect and evaluate qualitative inputs from policy, supervisory, law enforcement and private sector authorities through extensive surveys, meetings and interviews. However, inputs into the NRAs can be strengthened by the inclusion of additional quantitative sources. A key strength of the Dutch system lies on its robust domestic co-ordination and co-operation on AML/CFT issues at both the policy and operational levels and it is a leader in public-private partnership and information sharing to combat ML/TF.
- Competent authorities use a wide range of financial intelligence sources in their investigations, including data hubs, Financial Intelligence Unit (FIU) disseminations, inter-agency co-operation platforms and public-private partnerships. Law enforcement authorities increasingly access FIU disseminations and request information exchange on criminal and unexplained wealth reports during their investigations into ML, TF and predicate offences. FIU products are of high quality, timely and targeted to law enforcement needs.
- Understanding of ML risk for financial institutions (FIs) and virtual asset service providers (VASPs) is generally good, and policies and procedures are in place commensurate to risks. The same applies to trust offices, which are supervised by the Dutch Central Bank (De Nederlandsche Bank, DNB). For other designated non-financial businesses and professions (DNFBPs), the understanding of ML risk and obligations varies and is generally more limited. The understanding of TF risk is lower across all obliged entities.
- Where a legal person has no ultimate beneficial owner (UBO) (e.g., in the case of some foundations and associations) or in exceptional circumstances where it is not possible to identify the UBO, Dutch legislation allows the registration of senior managing directors as ‘pseudo’ UBOs. Some FIs and most DNFBPs struggle to identify the UBOs of legal persons that are part of complex structures or have international components. In such circumstances, the obliged entities can fall back too quickly on the legally permitted option to register the ‘pseudo’ UBOs.
- In some cases, FIs – including larger banks – tend to classify too many customers as low risk without adequate justification. Obliged entities in most sectors generally understand and implement their reporting obligations, but unusual transaction reports (UTRs) filed in some sectors, such as lawyers and real estate, are low.
- The Netherlands has a strong licensing and registration framework for FIs, some VASPs and trust offices, which consists of robust checks to ensure criminals and their associates are prevented from operating in these sectors. However, while underground banking, unlicensed payment services and non-regulated providers of trust services are identified as high risk, there are insufficient resources allocated to mitigating these risks.
- DNB and the Dutch Authority for the Financial Markets (Autoriteit Financiële Markten, the AFM) have a good understanding of risk and apply a risk based approach, which is increasingly informed by robust data analysis. Despite two recent high profile out-of-court settlements involving major Dutch banks, some supervisors heavily rely on informal enforcement actions and warning letters. While informal measures can be effective, they can also be slower to address significant issues, including unlicensed activity.
- Most trusts cannot be established in the Netherlands (with the exception of Mutual Funds). Although nominee directors and shareholders are not recognised concepts in the Netherlands, they do exist in practice and are used in the management of conduit companies, which have no real presence in the Netherlands. Sanctions for failing to provide correct or up-to-date basic information are rarely imposed and no cases of providing incorrect UBO information have been detected to date. At the time of the on-site visit, the Netherland’s UBO register was only 27% populated.
The Report also contains a number of priority actions for the Netherlands, which include, but are not limited to, the following:
- The Netherlands should require all categories of DNFBPs and FIs, to take adequate measures to implement target financial sanctions (TFS) without delay and to report frozen assets and ensure the implementation of TFS is supervised.
- Supervisory authorities should continue to make full use of the powers available and rely less on informal measures when significant AML/CFT violations are identified.
- The Netherlands should increase supervisory resources to improve risk-based supervision with varying levels of intensity. Resources should also be enhanced to tackle unlicensed activity, including underground banking and the provision of illegal trust services.
- The Netherlands should enhance efforts to ensure the UBO register is populated with accurate information on the UBOs of legal persons active in the Netherlands and ensure that ‘pseudo’ UBOs are only used in limited circumstances and not as an alternative to carrying out checks to identify UBOs.
- The Netherlands should further develop its understanding of the risks of conduit companies and take mitigating measures to reduce these risks. The Netherlands should also develop an understanding of the activities of foreign trusts operating within the jurisdiction and consider measures to mitigate risks in relation to high risk activities, such as real estate transactions.
- The Netherlands should review its ML sentencing regime for natural and legal persons to ensure that the penalties applied are sufficiently dissuasive and develop specific ML orientation points, including factors to consider when determining the penalty, based on the gravity of the offence. The Public Prosecutor should ensure that a larger and wider range of penalties is demanded in practice.
The Dutch Minster of Finance submitted the Report to the Dutch Parliament on 24 August 2022. In the cover letter the Minister notes that according to the FATF the Netherlands has made great progress in recent years in its approach to combat ML and TF, but at the same time the FATF is making a number of recommendations. After the summer, the Dutch Minster of Finance, together with the Dutch Minister of Justice and Security will provide an integral joint policy response to the Report and announce a number of other studies in this policy area.