Financial Crime World

Dutch Regulators Crack Down on Financial Institutions: AML Compliance in the Netherlands

The Netherlands, known for its technological leadership and competitive business climate, continues to attract international businesses in 2023. However, incoming financial entities should be aware of the stringent anti-money laundering (AML) regulations enforced in the country.

Penalties for Non-Compliance

Recent penalties imposed by Dutch regulators demonstrate the importance of AML compliance:

  • In 2022, US crypto exchange Coinbase was fined €3.3 million ($3.6 million) for failing to register correctly before offering services [ FinCEN ].
  • In 2021, Rabobank, one of the country’s largest banks, faced a probe for suspected AML law infringements following a DNB instruction to rectify its customer due diligence procedures [ Dutch News ].

Complexities of AML Regulations in the Netherlands

Let’s delve into the complexities of AML regulations in the Netherlands and the measures companies can take to avoid multimillion-euro fines.

Who’s Affected?

The Dutch Financial Markets Authority (AFM) and the Dutch Central Bank (DNB) oversee institutions required to comply with AML regulations:

  1. Banks
  2. Crypto service providers
  3. Investment firms
  4. Clearing institutions
  5. Insurers
  6. Trust services
  7. Electronic money institutions
  8. Pension funds
  9. Real estate agencies

(For a comprehensive list, visit the Netherlands Financial Intelligence Unit (FIU-the Netherlands) [FIU-the Netherlands] website.)

Who’s the Regulator?

The two primary financial regulators are the AFM and DNB, which cooperate extensively. The AFM is responsible for:

  • Ensuring financial market conduct [AFM website].

While the DNB focuses on:

  • The financial health of institutions [DNB website].
  • Verifying that board members meet the necessary criteria [DNB website].

Both institutions share vital information and work collaboratively to maintain the financial integrity of the Netherlands.

What are the Main Regulations?

Since 1990, the Netherlands has been a member of the Financial Action Task Force (FATF). The country’s AML legislation is primarily based on FATF Recommendations and the EU’s Fifth Anti-Money Laundering Directive (5AMLD). The Anti-Money Laundering and Anti-Terrorist Financing Act (Wet ter voorkoming van witwassen en financieren van terrorisme, or Wwft) [Staatscourant] serves as the primary AML legislation for the country.

How to Stay Compliant?

Institutions subject to AML regulations in the Netherlands must abide by several key measures:

1. Customer Due Diligence (CDD)

Financial firms must verify the identities of their clients as part of the CDD process [DNB website]. This involves obtaining specific information, such as names, addresses, and official documentation.

Acceptable forms of identity include:

  • Identity cards
  • Driving licenses
  • Passports
  • Residence permits
  • Electronic verification or eIDs

2. Know Your Business (KYB)

Business clients must undergo a similar due diligence process [DNB website], gathering basic information and verifying it using documents, electronic sources, or a combination of both.

3. Transaction Monitoring

Companies should regularly monitor customer transactions for suspicious activities [DNB website].

4. Reporting

Financial institutions must report cash transactions exceeding €15,000 ($16,300) along with suspicious transactions to the Netherlands’ Financial Intelligence Unit (FIU) [DNB website].

5. Sanctions and PEP Screening

Institutions must screen customers against sanctions lists and comply with any mandatory restrictions [DNB website].

6. Adverse Media Screening

Companies should scrutinize news sources to assess potential adverse media coverage regarding their clients [DNB website].

7. Record-keeping

Detailed client records must be kept for a minimum of five years, including names, addresses, transaction history, and identification documents [Wwft].

Penalties

The Dutch Criminal Code imposes penalties for various forms of money laundering. Here are some of the penalties:

  1. Money laundering with intent: A maximum prison term of six years or a fine of €87,000 ($95,000). Legal entities may incur a fine of up to €870,000 ($948,000)[Dutch Criminal Code].
  2. Habitual money laundering: A maximum prison term of eight years.
  3. Culpable money laundering (without intent): A maximum prison term of four years or a fine of €43,750 ($50,000). Legal entities may incur a fine of up to €437,500 ($500,000).
  4. Simple money laundering: A maximum prison term of two years.

Legal entities may face fines, at the court’s discretion, reaching up to 10% of their annual turnover.

The heaviest fine ever imposed was the staggering €775 million ($900 million) penalty DNB imposed against ING Groep NV in 2018 for AML regulatory breaches [Reuters].

FAQ

1. Is the Netherlands a high-risk country for money laundering? The Netherlands has a highly globalized and digitalized economy, making it susceptible to money laundering. However, the FATF does not list it as a country with strategic deficiencies.

2. Who regulates AML in the Netherlands? The Nederlandsche Bank and the Dutch Financial Markets Authority co-regulate Anti-Money Laundering regulations in the Netherlands.

3. What is the Netherlands’ Anti-Money Laundering Act? The Dutch Anti-Money Laundering and Anti-Terrorist Financing Act (Wet ter voorkoming van witwassen en financieren van terrorisme, or Wwft) is the primary AML regulation in the Netherlands.

4. What does KYC mean in the Netherlands? In the Netherlands, KYC stands for ‘Know Your Customer’, which refers to the process of verifying a client’s identity during onboarding.