The Netherlands is a country with a substantial risk of money laundering and terrorist financing. This is due to the fact that a large amount of illegally obtained funds are laundered in the country, making the Netherlands a central player in this illegal activity. Research conducted by Dutch financial institutions reveals that over 16 billion euros of money are laundered annually in the country, a figure that is alarming and concerning for both the government and financial institutions operating in the Netherlands.
To address this issue, the Dutch government has taken proactive measures for anti-money laundering and counter-terrorist financing. Regulations have been put in place for the Financial Intelligence Unit (FIU), Dutch banks, and other financial institutions to report suspicious activities. These reporting regulations are implemented to ensure that these institutions are vigilant and take their role in preventing money laundering seriously.
Regulatory Bodies
Detecting and analyzing crimes are of great importance in combating money laundering and terrorist financing crimes. For this purpose, countries have resorted to a national central unit for reporting suspicious transaction reports and analyzing reported data. In short, the Financial Intelligence Unit is the unit where money laundering and terrorist financing activities are reported. The first financial intelligence unit was established in the early 1990s, and its number increased rapidly. Today, many countries have Financial Intelligence Units. Money laundering is carried out in many ways in many countries, especially in drug trafficking. This situation has created an information and communication network between FIUs. In the Netherlands, FIU was established to tackle the issues of money laundering and terrorist financing. As a crucial component in the fight against these illegal activities, the FIU plays a vital role in evaluating suspicious transactions and reporting money laundering activities. It was established in the early 1990s in response to the growing need for an authority to receive, evaluate and share financial information.
The FIU operates in accordance with AML regulations and conducts regular risk assessments to ensure that businesses in the Netherlands comply with these regulations. These regulations, along with the Suspicious Activity Report (SAR) system, help to prevent money laundering by requiring businesses to report any potential risks or activities to the FIU.
The FIU also has the power to postpone transactions and check the compliance of reporting organizations with AML and CTF obligations. It serves as a guide and trainer for authorized organizations, providing support and information on AML and CTF regulations. The FIU's role in preventing money laundering and terrorist financing is essential to maintaining the integrity of the financial system in the Netherlands.
An informal group called the Egmont Group also plays a role in Netherlands AML regulatory side. It is an international organization consisting of 159 Financial Intelligence Units (FIUs) from around the world. Its primary purpose is to help countries develop their national anti-money laundering systems and promote secure information exchange between FIUs. Established in 1995, the Egmont Group operates in accordance with international standards for AML and CTF and follows the approved Basic Charter and Guidelines for Information Exchange Principles. As part of their duties, the FIUs in the Egmont Group are responsible for collecting, analyzing, and forwarding financial information regarding money laundering and terrorist financing to relevant departments. Some FIUs also have the power to investigate money laundering activities. The Egmont Group provides guidance to ensure secure information exchange and adherence to AML/CTF obligations. In the Netherlands, the Financial Intelligence Unit (FIU) is a member of the Egmont Group and operates within the framework of the Dutch anti-money laundering framework, ensuring that it is able to exchange information with other FIUs and participate in international efforts to prevent financial crime.
Major AML Regulations in the Netherlands
Financial institutions in the Netherlands are obliged to report suspicious activities to the FIU. Institutions that need to report suspicious activities to the FIU are defined by Wwft Act, including institutions such as banks, investment firms, and cryptocurrency service providers. According to Wwft, companies in the Netherlands must comply with AML regulations and take some precautions.
In the Netherlands, under Anti-money laundering obligations, companies are obliged to perform customer due diligence alongside other regulations. Transactions such as customer identification information, address definitions, and analysis of customer activities include customer due diligence.
PEP Screening and Monitoring is another significant regulation companies in the Netherlands must comply with. People with PEP status are at greater risk of money laundering and terrorist financing than others. Therefore, companies need to detect risk situations by performing regular pep screenings.
Adverse Media Screening is essential for businesses to identify and protect from risks as a necessary part of the Anti-Money Laundering and Know Your Customer process. Also, through adverse media screening, companies in the Netherlands can identify possible money laundering risks and take the necessary measures against these risks before it's too late.
Transaction monitoring plays a crucial role in companies' detection of money laundering. Customer transactions and account activities are monitored before suspicious activities are reported to the FIU. Institutions should be on alert for any unusual transactions or activities identified as high risk.
The Netherlands is a country where money laundering is one of the active crimes. Especially in recent years, many scandals in the country have caused tough regulatory sanctions. With the decrease in banking confidence, banks have taken essential steps in the fight against money laundering. ING, ABN, Amro, Rabobank, Triodos Bank, and Volksbank merged to adopt transaction monitoring to prevent money laundering.
Correspondingly, a new agency was established known as Transaction Monitoring Netherland. Also, several regulations have been created to implement transaction monitoring.
2022 FATF Report for AML in the Netherlands
FATF conducted an examination for the implementation of AML regulations and its recommendations in the Netherlands on 24 August 2022. According to the report, the measures taken by the Netherlands to combat money laundering and terrorist financing have shown positive results, but more needs to be done to prevent legal entities from being used for criminal purposes and to ensure appropriate sanctions are in place. The country is mainly concerned with money laundering risks related to fraud and drug offenses, as well as terrorist financing risks from religious extremism and right-wing terrorism. The Netherlands has a solid anti-money laundering and countering terrorist financing system in place, with good coordination and partnerships between various agencies and the private sector. The Netherlands is also effective in international cooperation, but more resources are needed for risk-based supervision. The country prioritizes confiscating criminal assets but must do more to prevent legal entities from being used for criminal purposes and to access beneficial ownership information. The Netherlands has effectively dealt with terrorist financing cases but should focus more on the reporting and supervision of sanctions.
The report mentions these key findings for the country:
- The Netherlands has a good understanding of its ML/TF risks, as reflected in the NRAs, SNRAs, policies, projects, and cases. Fraud and drug-related offenses account for more than 90% of all proceeds of crime, and ML risk manifests via the use of cryptocurrencies, trade-based services, underground banking, offshore companies, and high-value goods.
- Competent authorities use various financial intelligence sources for their investigations, and law enforcement authorities are increasingly accessing FIU dissemination and information exchange on criminal and unexplained wealth.
- Law enforcement agencies have initiated a significant number of ML investigations and pursue different types of ML. The lack of statistics on predicate offenses and ML cases limits a comprehensive view.
- In the BES Islands, the expertise of LEAs has improved, but they still rely on support from the mainland Netherlands. The overall number of ML investigations and convictions is low.
- The Netherlands pursues confiscation as a policy and has a solid legal and institutional framework and financial expertise. Confiscations in out-of-court settlements with legal persons account for the majority of collected results.
- The Netherlands has successfully detected, investigated, and prosecuted TF, with a majority of cases involving the funding of foreign terrorist fighters. No convictions have been achieved in cases involving NPOs, which are categorized as high-risk for TF.
- The Netherlands implements PF, and TF targeted financial sanctions and co-operates closely with the private sector on terrorism investigations. The level of sanctions imposed is generally low, affecting dissuasiveness.
- The AML/CFT system in the Netherlands is generally effective but can be strengthened by including additional quantitative sources in the NRAs and by improving the feedback mechanism to the FIU.
- Understanding ML and TF risks for financial institutions and virtual asset service providers is good, with policies and procedures in place to match the risks. Trust offices are supervised by the Dutch Central Bank, and their understanding of ML risk is also good. Understanding of ML and TF risk varies among designated non-financial businesses and professions and is generally limited.
- In the case of legal persons without a beneficial owner, Dutch legislation allows senior managing directors to be registered as "pseudo" beneficial owners. Some financial institutions and most designated non-financial businesses struggle with identifying the ultimate beneficial owners of complex structures or those with international components. In these cases, they often resort to registering "pseudo-BOs."
- Some financial institutions, including larger banks, have a tendency to classify too many customers as low-risk without proper justification. Obliged entities in most sectors understand and follow their reporting obligations, but unusual transaction reports filed by sectors such as lawyers and real estate are low.
- The Netherlands has a strong licensing and registration framework for financial institutions, some virtual asset service providers, and trust offices, with robust checks in place to prevent criminals from operating in these sectors. However, there are insufficient resources allocated to mitigate risks from underground banking, unlicensed payment services, and non-regulated trust service providers.
- The Dutch Central Bank and the Dutch Authority for the Financial Markets have a good understanding of risk and use a risk-based approach informed by robust data analysis. Understanding of risk by designated non-financial business supervisors is less developed, and supervision is generally reactive and limited due to resource constraints. Some supervisors rely heavily on informal enforcement actions and warning letters.
- Most trusts cannot be established in the Netherlands, with the exception of mutual funds. Although nominee directors and shareholders are not recognized concepts in the Netherlands, they exist in practice and are used in the management of conduit companies with no real presence in the country. Sanctions for failing to provide correct or up-to-date information are rarely imposed, and no cases of providing incorrect BO information have been detected to date.
- The Netherlands provides timely and high-quality responses to mutual legal assistance and extradition requests, with simplified procedures within the EU enhancing cooperation with EU member states. The Netherlands' international cooperation on major international cases involving virtual assets is significant, but there is room for improvement in the quality of cross-border dissemination reports between EU financial intelligence units.
