Dutch Financial Institutions Must Step Up Due Diligence to Combat Money Laundering and Terrorist Financing

The Netherlands’ Anti-Money Laundering and Anti-Terrorist Financing Act (Wwft) requires Alternative Investment Service Providers (AISPs) to conduct thorough customer due diligence to prevent their services from being used for illicit activities.

Compliance with the Wwft: Essential Elements of Customer Files

In accordance with simplified CDD, the standard approach for AISPs, customer files must be documented and contain a minimum of four essential elements:

• Customer Identification: AISPs must verify the identity of their customers based on Article 3(2) under a of the Wwft.
• Identity Verification: A risk-based approach can be employed for verification, with single independent sources sufficient for natural persons. For instance, personal data from bank APIs or Trade Register extracts may suffice.
• Purpose and Intended Nature of the Business Relationship: AISPs must establish the purpose and intended nature of the business relationship, as outlined in Section 3(2) under c of the Wwft.
• Review of Customer Representatives: When a natural person claims to represent a customer, AISPs must determine their authority to do so. For legal entities, board members often serve as representatives.

Determining Representative Authority

In cases where a natural person represents a legal person indirectly, the chain of representative authority must be established. This can involve obtaining extracts from the Trade Register of the Chamber of Commerce.

Identifying and Verifying Ultimate Beneficial Owners (UBOs)

AISPs must also identify and verify the ultimate beneficial owner (UBO) of their customers, taking all necessary measures to ensure verification. While no prescribed format exists for identifying UBOs, this can be achieved through declarations or organisational diagrams.

Risk Management Systems: Politically Exposed Persons (PEPs)

Furthermore, AISPs must have adequate risk management systems in place to determine whether customers or UBOs are politically exposed persons (PEPs). This includes conducting PEP reviews at the start of business relationships and upon identification of increased risk factors. External sources and tools can be used for this purpose.

Effective Implementation: Maintaining Financial Integrity

In light of these requirements, Dutch financial institutions must demonstrate a heightened commitment to due diligence, ensuring their services do not inadvertently facilitate money laundering or terrorist financing. Effective implementation is crucial in maintaining the integrity of the financial system and upholding international standards.