The Dutch Central Bank recently published its updated guidance on sanction laws and legislation against money laundering and terrorism financing. The guidance, not a legally binding document, includes a number of changes in light of legislative amendments that took effect on 1 January 2015. In addition, the new guidance sets out new good practices. This 2015 guidance is highly relevant to institutions supervised by DNB, including pension funds and insurers. For example, the regulator expects all Dutch financial institutions to perform a thorough risk and integrity analysis and carry out their own investigations into any possible misconduct. By doing so, they can avoid any direct or indirect involvement in money laundering and terrorist financing.
The Dutch Central Bank (DNB) first published its guidance on legislation to prevent money laundering and terrorism financing in 2011. This was aimed at implementing the recommendations of the Financial Action Task Force (FATF). The recent amendments mainly concern statutory duties relating to client audits, monitoring and reporting.
Chapter 9 of the guidance deals with sanctions regulations. The key points are:
- Funds and assets of sanctioned persons must be frozen.
- A financial institution may not directly or indirectly provide funds or economic resources to sanctioned persons.
- As a result, a financial institution needs to establish its contract party’s ultimate beneficial owner (UBO). This includes shareholders and other stakeholders exercising substantive power over the relevant party. In short: the person owning or controlling the entity.
- Entities directly or indirectly owned or controlled by a sanctioned person may be considered sanctioned as well (see also the Guidelines on implementation and evaluation of restrictive measures (sanctions) in the framework of the EU Common Foreign and Security Policy).
Under the new guidance, funds or economic resources are indirectly provided to sanctioned persons if:
- 50% or more of the share capital in the contract party is held by a sanctioned person, or
- a sanctioned person has actual control over the contract party.
As a general rule, the guidance recommends identifying stakeholders that directly or indirectly hold 25% or more of the shares in a contract party.
Financial institutions need to take these guidelines into account, together with the industry-wide supervisory themes used by DNB as part of its supervisory role. All supervised financial institutions must organise their operations in such a way as to safeguard controlled and sound operations. DNB also expects all Dutch financial institutions to investigate any possible violations, whether internal or external. This will ensure that they do not become involved in terrorist financing.
Recent media coverage surrounding ABN AMRO illustrate the importance of the subject of UBO and control. The ABN AMRO case is part of an ongoing investigation by DNB at ABN AMRO in the context of the industry-wide supervisory themes used by DNB. According to press coverage, ABN AMRO has been criticised by DNB on how it addresses risks of corruption. The criticism was partly based on ABN AMRO’s relationship with its client Gunvor, an oil trading company. According to DNB, ABN AMRO only partially analysed signs of corruption at Gunvor, even though these signs had allegedly existed since 2007 and involved an alleged secret stake of President Putin. It was also alleged that Gunvor benefited, in the first years of its existence, from the possible relationship of one of its primary shareholders (Mr Timchenko) with Mr Putin. In March 2014, according to media coverage, Timchenko sold its 43.5% stake in Gunvor. The sale was made almost immediately after Timchenko was included on the US sanctions list due to his close ties with President Putin. Timchenko explained the sale by alleging that it “anticipated potential economic sanctions” and to “ensure with certainty the continued and uninterrupted operations of Gunvor Group”. The value of this transaction was not disclosed. According to DNB, ABN AMRO apparently only relied on written explanations by the client, without performing a thorough investigation into the matter.
As part of structuring their operations and maintaining sound business practices, institutions should identify risks of corruption arising from conflicts of interest or bribery and take measures to control those risks. Financial institutions are also prohibited from providing funds or economic resources to sanctioned persons or to entities controlled by a sanctioned person. According to DNB, ABN AMRO should have better addressed and analysed the identification and mitigation of corruption risks.