17 January 2020

Infringement of the Wwft; administrative fine?

Category: Litigation and advice

Infringement of the Wwft; administrative fine?

What is the Money Laundering and Terrorist Financing (Prevention) Act (Wwft)?

The name of this Act says it all: the Wwft is an act that sets out rules for certain entities in order to prevent money laundering and the financing of terrorism. The Wwft entered into force on 1 August 2008. The Netherlands Authority for the Financial Markets (Autoriteit Financiële Markten) is the responsible body for Wwft supervision of investment firms, investment institutions, UCITS and financial service providers, as well as branches in the Netherlands.

Infringement of the Wwft; tax advisers, notaries and lawyers (advocaten)

Tax consultants, lawyers and civil-law notaries are also bound by the obligations of the Wwft. These professional groups are viewed as channels that could be (easily) be used by third parties for money laundering. In order to mitigate the risk of money laundering, these professional groups must therefore, among other things, conduct client investigations. The Dean (Deken) will supervise the compliance of lawyers with the rules of the Wwft. The supervision of tax advisers is regulated by the Financial Supervision Office (Bureau Financieel Toezicht, BFT).

Does the Wwft apply to investment institutions trading in crypto?

The Fourth Anti-Money Laundering Directive Implementation Act came into force on 25 July 2018. This directive contains new requirements for financial companies (such as banks). Banks have a stricter obligation to monitor institutions trading in crypto. You can read about this in my other blog. In fact, a (fifth) anti-money laundering directive has already been published in the Official Journal of the European Union. In the fifth anti-money laundering directive, the scope of the directive’s application has been broadened to include providers of services to exchange virtual currency and fiat currency as well as custodial wallet providers. The Directive states that in order to combat money laundering and terrorist financing (AML/CFT), competent authorities should be able to monitor the use of virtual currency through reporting entities.

Infringement of the Wwft; administrative fine or order subject to a penalty?

As mentioned above, the BFT has the responsibility of supervising tax advisers. In the case before the District Court of Rotterdam on 13 April 2018, it was argued that one of the tax advisers had failed to comply with a client investigation. The tax consultant in question had failed to identify the Ultimate Beneficial Owner (UBO).

This is one of the obligations of the Wwft: if there is a business relationship (and the case complies with the other requirements of the Wwft) then the tax consultant must conduct a client screening in which the tax consultant:

(a) identifies and verifies the customer’s identity; and

(b) identifies the client’s ultimate stakeholder; and

(c) takes risk-based and appropriate measures to verify his or her identity.

In this case, the tax adviser had failed to do so in a number of situations. The BFT therefore imposed an administrative fine. If the BFT finds that there is insufficient compliance with the Wwft, it is authorised to take administrative or disciplinary action. The BFT can impose an administrative fine (up to EUR 1 million, and in cases of recidivism even EUR 2 million) and (or) an order subject to a penalty. Besides this power, there are other powers held by the BFT. The BFT must report serious cases to the Public Prosecutor. The Public Prosecutor can then conduct a criminal investigation.

Is there always a client investigation?

The Wwft also stipulates that the Wwft does not apply to clients for whom (among others) tax consultants, lawyers and civil-law notaries perform work:

(i) to determine his or her legal position;

(ii) with regard to his or her representation and defence in court;

(iii) with regard to giving advice before, during and after legal proceedings;

(iv) with regard to giving advice on instituting or avoiding proceedings.

The phrase ‘the determination of the legal position of a client’ should be interpreted narrowly. There should be an opportunity to determine the service that is required against the background of the confidentiality provisions of lawyers and notaries. However, lawyers must be given the opportunity to know exactly what is going on and what needs to be done.

Has the UBO already been investigated?

The following points are still important. If another institution or body has already carried out customer due-diligence, this does not mean that the other institution is free not to carry out customer due-diligence. In fact, the failure to identify or late identification is considered a serious offence for which there is no possibility of redress. Despite the UBO that has already been established, the institution still has to commence its own investigation. Additionally, it is important to know that a payment of an advance does not affect the question of whether there is already a business relationship. Even without the payment of an advance, there may already be a business relationship. Another frequently made argument is that it was sufficient that the client investigation took place after the fact. This is not a strong argument. The client investigation, and the verification of the identity, must take place at the start of the provision of services and, where necessary, be refined during the provision of services.

Modification of the administrative fine?

The Besluit Bestuurlijke Boetes Financiële Sector (BBBFs) (Decree on Administrative Fines in the Financial Sector) stipulates that failure to comply with the client investigation by, for example, failing to identify the UBO in penalty category 2, will result in a fine. The standard amount is EUR 500,000, which can be modified/increased by the supervisory authority. Circumstances that are taken into account for moderation include the annual turnover, the capacity of the institution, the time that has elapsed, the number of times that the Wwft has been breached, and so on.