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We investigate the threat of money laundering in the EU’s 7th largest economy.

The Netherlands is the 17th largest economy in the world, and the 7th largest in the European Union, with a 2020 GDP of $914 billion. As part of the Euro Zone, it comes under the European Central Bank. It also has its own central bank, De Nederlandsche Bank.

The country is also a global financial centre with a highly developed financial services sector. It is a major commercial transportation hub, with some industrial manufacturing as well as petroleum extraction and processing. The banking sector accounts for a very large part of the economy, with the ratio of banking assets to the GDP of the Netherlands being 314% in 2020.

In the last few years, several major Dutch banks have been sanctioned onerously by the authorities for serious AML law violations. In this article, we will look at the nature of the money laundering threat in the Netherlands and the regulatory framework that exists to address this threat.

Is the Netherlands susceptible to money laundering?

Money laundering is a significant risk in the Netherlands, given the large and internationally oriented financial sector, the open, trade-oriented economy and the high digitization levels of the financial systems. A reported 16 billion Euros gets laundered annually in the country.

In 2011, the FATF published a Mutual Evaluation Report for the Netherlands where it was deemed Compliant for six and Largely Compliant for twenty two of the FATF 40 + 9 Recommendations. It was Partially Compliant or Non-Compliant for 2 of the 6 Core Recommendations. The MER found that though the Netherlands was susceptible to money laundering, it had a robust AML/CFT police regime, barring a few minor chinks in the regulatory armour.

Eight years later, in 2019, the country underwent its second National Risk Assessment. The findings showed that the Netherlands still remained vulnerable to money laundering. Of the fifteen largest money laundering threats found in the country, the greatest impact was found to be from ‘money laundering via cashless transactions with licensed banks’, underscoring the vulnerabilities present in the financial services sector in the country.

It also showed that while the AML instruments in the country mitigated the threats to a large extent, there were still areas of low policy resilience, especially for methods that increase the anonymity of transactions, such as money laundering via cryptocurrencies. Drugs and financial fraud are the two main predicate offences, together accounting for more than 90% of the money laundered.

Despite its money laundering vulnerabilities, the FATF does not list the Netherlands in its list of countries identified as having strategic deficiencies.

AML instruments in the Netherlands

The Netherland’s primary AML/CFT legislation, the Wwft (Prevention) Act requires financial institutions to take a risk-based approach to AML. In particular, financial service providers are required to conduct high threshold KYC due diligence before carrying out their activities.

The Financial Investigation Unit is the national AML watchdog entity. All banks and financial institutions are obliged to report any suspicious transactions to the FIU. The FIU is the main AML law enforcement entity in the country, investigating and prosecuting all cases of money laundering.

AML fines on major banks

One indicator of Netherland’s efficient and functional AML infrastructure is the fines imposed on several major Dutch banks in the past few years by regulatory authorities for money laundering related oversights. The Netherlands accounted for a lion’s share of the global fines for violating AML laws. This was largely because of the major Dutch bank ABN Amro being fined 480 million Euros for serious regulatory shortcomings leading to several of its accounts being used for money laundering.

Another major bank, Rabobank was warned by the Dutch Central bank DNB to fix its customer due diligence practices and bring them in compliance with AML laws. Earlier in 2019, the DNB had fined Rabobank one million Euros for not having its customer files in order.

The heaviest fine imposed was in 2018 when prosecuting authorities fined ING Groep NV over 775 million Euros ($900 million) for violating AML laws by not properly vetting the beneficial owners of client accounts and by not noticing unusual transactions through them.

To fortify their fight against money laundering and to reduce probabilities of future sanctions, five of the biggest Dutch banks- ABN Amro, ING, Rabobank, Triodos Bank and de Volksbank have formed a coalition called Transaction Monitoring Netherlands (TMNL) to identify suspicious patterns in payments traffic that individual banks cannot identify.

Cryptocurrency and AML

Another area of concern from an AML perspective is cryptocurrencies. In its 2019 country report, the IMF, flagged the development of cryptocurrencies as a challenge for the Netherlands, creating opportunities for criminals to launder proceeds. In May 2020, the Netherlands amended its Wwft to bring in strict AML/CFT regulations for crypto service providers. Crypto service providers are now obliged to observe strict KYC standards and set up procedures for reporting suspicious transactions. However, the inherently anonymous and cross border nature of block chain technologies will make it a challenge to bring in all crypto transactions within the pale of AML regulations.

Concluding Thoughts

The spate of fines imposed on Dutch banks for AML violations is a good indicator of a well functioning regulatory system that catches violators and punishes them. At the same time, continued major infractions by leading banks will eventually lead to questions being raised about the Netherlands AML commitments, and might invite attention from global watchdogs like the FATF. Initiatives like the TMNL, and amendments to bring crypto transactions within the AML/CFT regulatory framework will help give a boost to the country’s efforts in fighting money laundering.

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