The Anti-Money Laundering and Terrorist Financing Act
Auteur: Frank van Buren, 30 september 2022
“Professionals and citizens experience the operation of the Anti-Money Laundering and Terrorist Financing Act (in Dutch: “WWFT”) almost daily. Whether opening a bank account, renewing a credit card, or buying a house, a car or an expensive watch, every time we are confronted with an increase of administrative questions we have to answer and documents we have to submit. Almost everyone finds this annoying. Hence this article to further explain the background and how it works.”
What exactly is the Anti-Money Laundering and Terrorist Financing Act and what is the history of the creation of this law? To whom does this law apply and what are the measures and procedures to be taken?
In the late 1980s, an intergovernmental organization was created, the Financial Action Task Force (FATF), to issue guidelines and recommendations (Anti Money Laundering Directives /AMLD) to protect the global financial system.
The 1st Anti Money Laundering Directive of 1991 (AMLD1) aimed to prevent money from drug crimes from being laundered by the financial sector. The effect of the directive was thus limited to the financial sector (banks, insurance companies, etc.).
The 2nd anti-money laundering directive (AMLD2) followed in 2001 after recommendations by the FATF in 1996. In addition to banks, non-financial service providers such as accountants, brokers, notaries, lawyers, tax consultants, trust offices, casinos and dealers in high-value goods (cars, luxury high-end goods, art, etc.) were also covered. For The Netherlands, this meant implementation of the “Wet Identificatie bij Dienstverlening (WID)” and the “Wet Melding Ongebruikelijke Transacties (Wet MOT)”.
The 3rd anti-money laundering directive (AMLD3) followed in 2005 and also focused on the financing of terrorism (9/11!) and contained stricter rules for client identification and stricter UBO investigation of entities. Enhanced client due diligence became mandatory for Political Exposed Persons (PEPs) to which a separate directive was devoted. The WID and the MOD Act lapsed in the Netherlands in 2008 when they were implemented in the Anti-Money Laundering and Terrorist Financing Act.
The 4th anti-money laundering directive (AMDL4) followed in 2015 after recommendations from the FATF in 2012. The separate PEP directive became part of AMLD4, the definition of a UBO was amended and made it always mandatory to identify a UBO.
The 5th anti-money laundering directive (AMLD5) followed in 2018 and was implemented in the (updated) Anti-Money Laundering and Terrorist Financing Act in June 2020. New are provisions on virtual currencies, anonymous prepaid cards, high-risk third countries (designated by the EU) and information exchange between authorities.
The 6th anti-money laundering directive (AMLD6) followed in 2018 and was implemented in the Anti-Money Laundering and Terrorist Financing Act in December 2020. In themselves, the 5th and 6th directives did not contain shocking changes but tightened existing rules. This was quickly followed by the first Anti Money Laundering/ Combatting the Financing of Terrorism (AML/CFT) regulation and a regulation appointing a European AML/CFT (AMLA). If all legislative pathways are completed, the
AMLA is scheduled to be created in 2023 and operational in 2024. This European authority will have far-reaching powers.
This brief overview may show that the 7th and subsequent directives are already on their way to achieve an integrated EU approach to money laundering and terrorist financing and its supervision.
The Anti-Money Laundering and Terrorist Financing Act? To whom does it apply?
Art. 1a Wwft
Banks, companies other than banks that provide credit, (think lease companies or PL providers), payment institutions, investment companies and institutions, electronic money institutions, exchange institutions, life insurers, institutions for collective investment in securities, financial service providers that mediate in life insurance, payment service agencies and branches of foreign financial companies as mentioned above.
Non-financial enterprises: (persons, legal entities or companies acting in the course of their professional activities)
A. Lawyers and
B. Notaries added notaries and candidate notaries.
C. Professionals with a similar legal profession or business as A and B
Insofar as they;
1. Advise or assist in:
a. The purchase and sale of registered property.
b. Managing money, securities, coins, precious metals or other securities.
c. Establishing or managing companies, legal entities or similar bodies.
d. Buying or selling shares in, or wholly or partly buying or selling or taking over enterprises, companies, legal persons or similar bodies.
e. Activities in the tax field similar to those of a tax consultant
f. Establishing a right of mortgage on registered property, or
2. Acting in the name and on behalf of a client in any financial transaction or real estate transaction.
D. Trust offices ( in accordance with the trust office supervision act required to be licensed by DNB)
E. Domiciliary providers (provision of address or mailing address).
F. Intermediaries in the formation and conclusion of agreements on real estate and rights to which real estate is subject (incl. rental agreements with an amount above €10,000/month).
G. Buyers and sellers of goods, insofar as cash payment takes place in excess of € 10,000
H. Intermediaries regarding purchase and sale of vehicles, ships, works of art, antiques, precious stones, precious metals, jewelry, etc.
I. Buyers or sellers of works of art with a value above € 10,000
J. Providers or services for exchanging between virtual currencies and offering virtual currency
K. Providers of custodial wallets
L. Providers of games of chance
M. Appraisers of real estate and rights to which real estate is attached
An exception to this provision applies to attorneys and tax advisors if they assist a client in litigation, or for the prevention of litigation, or when advising to determine a client’s legal position.
What measures must an institution subject to the Anti-Money Laundering and Terrorist Financing Act take?
In order to comply with the Anti-Money Laundering and Terrorist Financing Act obligations, the institution must have procedures and practices to manage the risks of money laundering and terrorist financing. What does the law say about this?
1. The risk analysis
Section 1.2 Risk Management
art. 2 b. 1 Wwft:
“An institution shall take measures to identify and assess its risks in which the measures are proportionate to the nature and size of the institution” and
art. 2.b.2 Wwft:
in identifying and assessing risks, the institution shall consider at least the type of client, product, service, transaction and delivery channel and countries or geographical areas.
This means that a Wwft-obligated institution, before entering into a client relationship, has investigated and recorded the following:
a. The identification and verification of the client.
b. Is the client acting for himself or for a third party?
c. What is the purpose of establishing the business relationship?
d. What is the source of the assets and what are the sources of income that will be used.
e. Establishing and recording the ownership and control structure. A complete organizational chart including the UBO or pseudo UBO is highly recommended to clearly clarify the structures.
f. Is the (pseudo) UBO a PEP?
g. The client should be screened for the presence on sanctions lists in accordance with the Sanctions Act 1977 and any “bad press” regarding financial misconduct.
h. The classification of the client in a risk profile, related to the nature and size of the “Wwft”- obligated organization, the type of client, the product or service involved, the type of transactions and delivery channels and geographically typical risks (e.g. countries appearing on sanctions lists).
Client acceptance can only be accepted (or rejected) after this procedure, possibly with the recording in the procedures of mitigating measures to keep the risks manageable. Financial enterprises that fall under the financial supervision law and trust office supervision act, such as banks, insurance companies and trust offices, often use a Systematic Integrity Risk Analysis (SIRA), a dynamic risk assessment method that in many cases goes too far for institutions subject to the Anti-Money Laundering and Terrorist Financing Act.
2. The establishment of a compliance and audit function.
This is mandatory insofar as it is appropriate to the nature and size of the institution subject to Anti- Money Laundering and Terrorist Financing Act.
3. An institution subject to the Anti-Money Laundering and Terrorist Financing Act must have a training and education plan.
In summary, this means that the staff must be trained and educated so that they are able to perform client research correctly and completely, recognize unusual transactions and what is necessary for staff to act Wwft “proof”.
4. Data capture
Chapter 5 of the Anti-Money Laundering and Terrorist Financing Act deals with the recording of data recorded in the context of carrying out the client screening (art. 33). There is a statutory retention period of 5 years after termination of the business relationship or 5 years after the reporting and execution of a transaction (art. 34).
The above enumeration is complete. But realize well, that your lawyer, your broker, your leasing company, the art gallery, the real estate firm, your notary, your car dealer, your insurance company, your tax specialist, your administrative office and last but not least your bank, are all almost always “Wwft” obligated in the exercise of their profession. With every financial transaction you make, your bank is required and they are legally obliged to create a file of you or your institution and monitor the transaction. That this is not an easy task is clear from the enormous fines that DNB has imposed on ING Bank and the ongoing investigations at ABN-AMRO Bank, Volksbank, Rabobank and Triodos.