Sometimes, problems have to be addressed after they have actually taken place. When the fourth Anti-Money Laundering and Counter Terrorist Financing Directive was transposed into Dutch legislation on 25 July 2018 (as the Money Laundering and Terrorist Financing (Prevention) Act, or WWFT in Dutch) , several adjustments were made which have led to an enormous increase in proceedings, protocols, client investigations and duties to report. The Financial Intelligence Unit-the Netherlands, the organisation to which unusual transactions must be reported, has now sounded the alarm because they are being inundated with unusual transaction reports made as a result of the WWFT. This is a result of the objective indicator which applies to so-called high-risk states. The legislator has announced that it will intervene. In our opinion, abolition of this objective duty to report will unjustly put the burden on the WWFT organisations since they still have to screen the transactions on the basis of the subjective indicator.
High-risk states indicator
When the fourth Anti-Money Laundering Directive was implemented, a second objective indicator was quietly included in the WWFT Implementation Decree. An objective indicator means that organisations are obliged to report such a transaction regardless of the subjective question of whether there is a presumption of money laundering or terrorist financing. This objective indicator reads as follows:
‘A transaction by or on behalf of a natural person or a legal entity residing in or established in or with its registered office in a country that under Article 9 of the fourth Anti-Money Laundering Directive is designated as a country with a higher risk of money laundering and terrorist financing in delegated acts of the European Commission.’
The European Commission’s list
Since 2016, the European Commission has published a list of such high-risk countries, which has been repeatedly updated in recent years. On 13 February, the European Commission published a new list as an annex to a delegated directive on the procedure of how high-risk countries are determined. There are 23 countries on this list, some of which have also been mentioned as high-risk countries by the Financial Action Task Force. Five countries were deleted from the list, namely Bosnia-Herzegovina, Guyana, Laos, Uganda and Vanuatu. Apparently, this list is first submitted to the European Parliament and does not become effective until the twentieth day after it has been published in the EU’s Official Journal, which has not yet (2 April 2019) happened. However, several member states apparently criticised the fact that certain countries were mentioned in the list, for instance Saudi Arabia and a few countries on American territory.
Because the status of the list is not clear, it is extremely unclear how the objective factor should be implemented. Firstly, there is no certainty about which list should be used at present. Neither has there been a clarification of whether the list valid at the time of the report or the one valid at the time of the transaction should be used. Many organisations must have seen this objective indicator and thought that it is better to be safe than sorry and therefore it is no wonder that reports came pouring in.
Abolition of the high-risk countries indicator?
It had already been anticipated in the guidelines published by the NOB/RB (the Dutch Association of Tax Advisers and the Dutch Register of Tax Advisers) that the objective indicator would lead to a large number of reports, because for example travel agencies organising trips to the aforementioned countries would have to report every payment. After the ING bank reached an out-of-court settlement for a huge amount and after the signal from the Dutch National Bank (DNB) that institutions are adopting a minimalist interpretation of legal requirements, banks will also be making sure they report these transactions without any exception. The consultation about the Financial Markets Amendment Decree 2019 (Article IX) shows that this indicator has caused a flood of reports; the explanatory notes state that the number of reports to the FIU-Netherlands has increased by 96%.
As a result, the FIU-Netherlands can operate less effectively because the great number of reports is at the expense of its capacity to investigate other reports. In the Consultation Decree it is therefore suggested that the objective indicator should be scrapped.
Reasonable enforcement policy
As a result of this intended modification, the WWFT regulatory authorities, for example the BFT (Bureau Financieel Toezicht or BFT) and the Dutch Tax and Customs Administration announced that they would apply a reasonable enforcement policy concerning the objective countries indicator. Possible violations related to this indicator will not be punishable. However, if a subjective indicator would also have applied, this leniency does not apply. It is therefore important to keep monitoring transactions concerning high-risk countries.
Increasing the workload due to the WWFT again
It is sad to conclude that the WWFT organisations have invested a lot of time and money over the past year in implementing new legislation in their compliance systems. Therefore, in itself it is reasonable that the FIU-the Netherlands, rather than the WWFT organisations, analyses the transactions of high-risk countries in order to verify whether there is a presumption of money laundering or terrorist financing. However, if the objective indicator is to be scrapped, the ball is back in the court of the WWFT organisations. As a consequence, they will again experience an increase in their workload if they themselves have to assess whether a subjective indicator is applicable to these transactions.