Managing financial risk under Dutch Wwft
Category: Litigation and advice
The Money-Laundering and Terrorist Financing Prevention Act (WWFT), was implemented as a means of preventing money laundering and terrorism financing schemes. Based on a European directive, it essentially places an obligation of due diligence on EU resident service providers. This requires them to be vigilant for and report any unusual transactions with the relevant agency in their country, for The Netherlands, this is the ‘Autoriteit voor Financiële Markten’ (AFM).
The Amsterdam attorneys of Blenheim have ample experience advising international and national clients concerning the WWFT.
Applicability of the Wwft on financial services
For this law to be applicable to a given situation, it relies on the nature of the service provider and by extension, the legal recognition afforded to them. At a basic level, any financial activity that can be linked to money laundering or terrorism financing will give birth to this due diligence obligation. As such, the threshold that needs to be met to reach this standard is not very high. It does not solely apply to tax lawyers and accountants, but can extend to traders and even attorneys. For any financial activity at risk, the appointed tax adviser will need to collect all relevant information to ensure compliance with this law.
What is Required under Dutch Money Laundering and Terrorist Financian prevention Act?
As mentioned, this legislation primarily serves as a dual obligation to maintain due diligence and report any ‘abnormal’ activities. Generally, this involves the following:
- Service providers must know their customer (KYC) and collect the corresponding documentation for this. This allows a genuine identification of the customer and verifies the legitimacy of the transaction.
- Once the initial documents have been gathered, the provider must then compile a risk profile for the customer.
- This risk profile must be used to monitor the transactions made by the customer.
- If a transaction is flagged as ‘abnormal’, this is where the second obligation to report the activity emerges.
- All of these steps are vital in ensuring compliance with the legislation. The urgency and the time required for each element can vary depending on the type of customer involved. For example, a small trader will usually only deal with individuals and as such, will need limited information. Whereas a transaction involving an active company will require a great deal more time due to the larger volume of documents that are needed. Alongside this initial collection of customer details, there must be periodic updates to ensure the due diligence obligation in monitoring the transactions is accomplished.
Failing to meet Wwft standards
If a customer has not been profiled or this had not been done to a satisfactory level, then the service provider is unable to offer their services or advertise them. If a service provider nonetheless proceeds, or falls short in the other requirements, they can be penalised by through fines or even a prison sentence depending on the severity. It is important to maintain a vigilance at all times, as an activity that is not conducted primarily by the service provider may still hold them in breach of the law as an accessory to the illegal transaction.
How to Ensure you Meet the Criteria
Other than the principles outlined above, it is imperative to make sure the degree to which they are followed is adequate. Make sure the KYC procedure is concrete, missing gaps or outdated knowledge can lead to an omission of due diligence.
What is an Abnormal Transaction?
This requirement has not been fully clarified, but considering the context, it is advisable to report any activity highlighted as financially suspicious. For example, purchasing real estate far exceeding its actual value is a clear abnormal transaction. It is usually understood that not all anomalies are easily detectable, but warning signs are normally present. This means preparing for less obvious transactions falling prey to a financial abnormality. The example below gives a visual picture:
The customer is a foundation that has been established as a public benefit institution, giving rise to certain tax benefits. However, the firm hired begins to doubt whether the activities are the true purpose of the customer. This could stem from placing large amounts of money into the foundations capital or the customer undertaking activity irrelevant to the purpose of their foundation. As such, it turns out the foundation is merely a disguise as a platform for tax fraud, which has been deemed a money laundering scheme.
Recent Updates Dutch Money Laundering and Terrorist Financian prevention Act
The WWFT was recently amended on the 25th of July 2018. This clarified both the applicability and enforcement powers of the legislation. It applicable scope now extends to professional/business persons selling goods for which cash payments are made of EUR 10,000 or more. In addition, gambling service providers have now been placed with these obligations under the law.
The maximum penalty, in terms of fines, has also been rectified, rising from EUR 4 million to EUR 5 million. Further, depending on the severity of the circumstances, taking away the licence of the institution may also be an imposed penalty.
Questions? Please do not hestitate to call Blenheim with your question on the Wwft.