Update fifth anti-money laundering Directive: amendments Wwft

By 10 January 2020 several amendments will be made to Dutch legislation as a result of the implementation of the fifth EU anti-money laundering Directive, EU Directive 2018/843 on the prevention of the use of the financial system for the purposes of money laundering or terrorist financing (the “AML5”). This implementation will result in, amongst others, an amendment of the Dutch Money Laundering and Terrorist Financing Prevention Act (Wet ter voorkoming van witwassen en financieren van terrorisme) (the “Wwft”). The amendments in Dutch legislation as a result of the implementation of the AML5 mostly concern amendments to the Wwft. A few amendments (e.g. the registration of ultimate beneficial owner(s) (the “UBO”) of legal entities and trusts) will be addressed in separate legislative proposals. We will not discuss these amendments in this article.

Background AML5

Most of the amendments in the AML5 are amendments to EU Directive 2015/849 (the “AML4”). The three main reasons for these changes are:

1. the rise of new technology services used in alternative financial services (e.g. virtual currencies), these were not covered in the AML4;
2. an increased link between organised crime and terrorism; and
3. a desire for more and better cooperation between the respective supervisory authorities (toezichthoudende autoriteiten) both within and between EU Member States.

Amendments to Dutch legislation

The amendments to the Wwft as a result of the implementation of the AML5 concern the following general topics:

• the inclusion of virtual currencies in the Dutch integrity legislation;
• the inclusion of further measures concerning high risk countries;
• the expansion of the possibilities to cooperate for the supervising authorities; and
• further limitations regarding the use of anonymous prepaid cards.

The use of virtual currencies usually comes with a great amount of anonymity due to which transactions of terrorists and criminals can easily be concealed. Certain providers of digital wallets for virtual currencies will now fall under the scope of the Wwft as well. This concerns the providers of custodian wallets: the providers which can access (i.e. hold, save and transfer) the virtual currencies of their customers. In addition, the providers of exchange services between digital and fiduciary currencies will also fall under the scope of the Wwft. These providers will now have to conduct a client investigation (cliëntenonderzoek) and monitor transactions and the other provisions of the Wwft will also apply to them. They will also have a registration duty with the Dutch Central Bank (De Nederlandse Bank, DNB) which will then monitor these parties. The scope of the Wwft in relation to the trading of art and in relation to people and legal entities which mediate with transactions regarding real property or rights in relation to real property will also be expanded. For example, the storage of art with a value of more than EUR 10,000 and lease agreements (concerning real estate) with a monthly rental price of EUR 10,000 or more will also fall under the scope of the Wwft. The European Commission has identified certain countries outside the EU (third countries) as high risk countries in relation to money laundering and/or terrorist financing. The current provisions of the AML4 which require that a stricter client investigation will have to be conducted in the event of a transaction with a client from a high risk third country will be clarified. These clarifications include provisions describing when (under which circumstances and in which situations) and how (which additional measures will have to be taken in comparison to the regular client investigation) this stricter client investigation will have to be conducted. Lastly, in order to create a more efficient manner to share information between (European) supervisory authorities, the following new possibilities for the exchange of information will be included in the Wwft:

• the possibility to exchange information between supervisory authorities who are supervising banks and financial institutions in relation to the AML5 and other supervisory authorities which are supervising these institutions;
• the possibility to exchange information between national supervisory authorities who are supervising based on the Wwft and other national supervisory authorities to whom tasks have been assigned in relation to the prevention and investigation of money laundering and related basic offenses and/or terrorist financing; and
• the possibility to share information between supervisory authorities and investigative authorities.

Amendments which could affect KYC-procedures

In addition to the amendments stated above, the following amendments will affect current KYC-procedures (know your client-procedures):

• if a member of the higher management will be appointed as the UBO of a client (because the actual UBO could not be identified), such personnel member must be identified and the file must evidence (i) why this choice was made, (ii) which measures were taken during the identification process of the UBO and (iii) which difficulties were endured;
• a client investigation must not only be conducted on new clients, but also on existing clients (the frequency of the client investigation on existing clients will depend on the risk-level of the specific client);
• the provision concerning the proof of a UBO via an excerpt from the Dutch trade register of the Chamber of Commerce will be sharpened – having a proof of registration is not sufficient and does not mean that you do not have to investigate and verify the UBO’s identity;
• additional measures and obligations will be implemented in relation to clients from high risk third countries; and
• if a transaction is at least (i) complex, (ii) unusually large, (iii) has an irregular pattern, or (iv) has no clear economic or legitimate purpose, one must (further) investigate the background of such a transaction and increase the frequency and nature of the monitoring of the entire commercial relationship concerned.

How will this affect you?

From the legislative proposal it follows that the amendments to the Wwft will be implemented by 10 January 2020. It is possible that you will have to change your KYC-procedures due to these changes. Please do not hesitate to contact our Banking & Finance team if you have any further questions regarding the implementation of the AML5 into Dutch legislation or regarding the consequences of the implementation of the AML5 for you.