As of 1 January 2013 the Wwft (Wet ter voorkoming van witwassen en terrorismefinanciering: Anti-Money Laundering and Anti-Terrorist Financing Act) has changed and a great number of modifications have come into force. In this news item we will discuss the most important changes, examining above all the modifications that are important for the client assessment and the notification duty.
The Wwft came into effect on 1 August 2008. The Netherlands was evaluated in 2010 by the Financial Action Task Force (“FATF”); the FATF’s evaluation report identified some shortcomings in the Wwft. The changes as of 1 January 2013 are the result of the implementation of the FATF recommendations.
Client assessment
One of the most important subjects in the Wwft is client assessment. In a nutshell client assessment means that the institution is obliged:
- to be convinced of the client’s identity;
- to fully understand the nature and purpose of the transaction; and
- to conduct an ongoing check of the professional relations.
Representative
The client assessment has been tightened up with regard to the verification of the representative authority of persons who act on behalf of a client. This will always apply when the client is a legal entity. When the representative is also a legal entity the chain will have to be followed until a natural person has been identified. In practice many institutions will already have such a substantiation in the case of a representative; and now this practice has also been legally embedded.
Identifying ‘ straw man constructions’
The obligation to verify whether a client acts on his own behalf or on behalf of a third party is also new; this involves recognising possible ‘straw man constructions’, with people being deployed to perform transactions in their own name but for the benefit of (criminal) third parties. The institutions must take adequate risk-based measures to be able to identify such constructions.
Trusts
The legislator has added a stipulation to the modified Wwft on how to deal with foreign trusts. These trusts cannot be organised according to Dutch law, but are recognised in the Netherlands. Since a trust does not have any legal personality it is not considered as a client, but as a service for the benefit of a trust. In practice this means that the institution must also establish who the settlors, trustees and beneficiaries of the trust are, according to the usual steps of the client assessment.
Partnerships
In addition to the stipulations concerning trusts a specific stipulation has been incorporated into the Wwft for the client assessment of partnerships (firms, limited partnership). The institution is obliged to identify all partners and to apply a risk-based procedure to establish the identity of the partners. Furthermore the institution needs to identify the natural person being the UBO (Ultimate Beneficial Owner), the natural person who:
- Is entitled to a share in the community of 25 percent or more after dissolution;
- Is entitled to a share of 25 percent of the proceeds of the partnership;
- Can exercise 25 percent or more of the votes, based on the agreement that underlies the partnership.
Furthermore the other aspects of the client assessment also apply; nature and purpose of the transaction, representative capacity.
Politically exposed persons (‘ PEPs’ )
Also added to the stipulations concerning PEPs is that persons living in the Netherlands can also be regarded as PEPs. Furthermore, it is now explicitly stated that the stipulations with regard to PEPs also apply to the client’s UBO. In that case an investigation will have to be carried out into the source of the PEP’s assets, the intensity of which will be appropriate to the risk, and the institution’s senior management should determine whether or not to enter into a professional relation with the client in question. In addition, the PEP’s entire assets will have to be taken into account and not just the part relevant for the transaction.
Notification duty
In addition to the client assessment the notification duty is one of the pillars of the Wwft. Institutions have the duty to notify suspicious or unusual transactions. This notification duty is an important instrument for supervisors to track down laundering and flows of money for terrorist purposes.
Extension notification duty
Apart from the notification duty with regard to unusual transactions institutions must now also make a notification in the event of a ‘failed’ client assessment with indications that the client is involved in laundering or financing of terrorism. In any case, it is considered a ‘failed’ client assessment when the legally required information cannot be obtained.
Term of notification duty
Before 1 January 2013 un unusual transaction had a notification term of 14 days. As a result of the modification the emphasis is now on notification ‘forthwith’, with a maximum limit of 14 days. This means that the institution must notify within 14 days and at the earliest moment factually possible.
Warranty
The concept ‘in good faith’ has been added to the article concerning the safeguard from criminal prosecution of notifying institutions. This means that the institution is not indemnified if there is mention of guilt or complicity by the institution itself.
Transaction concept
The definition of the term transaction has been extended. As of 1 January 2013 a transaction is understood to be ‘any act or combination of acts by or for the benefit of a client of which the institution has knowledge on behalf of its services to that client’. The purpose of this is to bring all transactions together under a common understanding involving the client and that which the institution has knowledge of within the context of the service.
Other modifications
In addition to the above-mentioned changes of the client assessment and the notification duty the Wwft has also been modified regarding a number of other topics:
- Liberalisation of the professional activities of accountants; these also explicitly include forensic activities.
- Liberalisation of services/institution which are subject to the Wwft (i.e. electronic money institutions are included in the act, expanding the scope concerning registered property and mortgage advice not provided by legal professionals have also become activities with notification duty).
- Altered training requirements; employees need to be trained periodically.
To conclude
It is important for institutions to make an analysis of the impact of the modifications in the Wwft and, if necessary, to adapt their procedures and organisation. Here are a few important topics:
- Adapting policy with regard to client acceptance in order to ensure that the scope of client assessments is sufficiently broad.
- Drawing up policy and procedures to be able to identify straw man constructions.
- Drawing up or supplementing policy to deal with trusts.
- Actualising identification procedures for partnerships.
- Actualising PEP-procedures.
- Adapting policy and procedures with regard to the notification duty. In particular the scope in relation to the changed definition of transaction should be properly determined.
- Adapting policy with regard to staff training.
We can assist you with the evaluation of the performed analysis or perform it ourselves. In addition we can help you think about ways you can adapt your organisation to comply with or continue complying with the requirements of the Wwft.
For more information please contact us by calling +31 (0)20-4165403 or mailing us at info@charcoendique.nl