The fight against money laundering remains a charged and current issue. To ensure that money and goods from the underworld do not end up in the legitimate economy, gatekeepers play a crucial role. Banks, but also traders in valuable goods, lawyers, and notaries are heavily involved. How does the detection and combating of money laundering work? And is it being done as it should be?
In Good Morning Legal People, Helène Erftemeijer and Maarten Rijssenbeek provide explanations. Erftemeijer is the Sector Coordinator for anti-money laundering at the Dutch Banking Association, Rijssenbeek is a partner in Forensic & Financial Crime at Deloitte.
What is money laundering?
Since the knowledge level about financial-economic crime is very varied, Rijssenbeek starts with a crash course in (anti)money laundering practices from the perspective of banks. The regulations banks must comply with focus on three risk aspects: money laundering, financing of terrorism, and sanctions and trade embargoes. These three aspects are often bundled under the term money laundering. In money laundering, banks are misused to give criminally obtained money an ostensibly legal origin. This money originates from predicate crimes like tax evasion, embezzlement, drug trafficking, fraud, and environmental crime. Since money laundering is not a very old offense, the regulations are also relatively new. Around 1989, the Financial Action Task Force (FATF) was founded, prompted by the large amount of South American drug money. The FATF created a regulatory framework that needed to be implemented worldwide. Part of this was the designation of so-called “gatekeepers” who must investigate their clients, the origin of funds, and how this wealth is moved through transactions. Banks are also designated as gatekeepers. Countries then had to translate the FATF’s recommendations into regulations and enforce compliance. Otherwise, they risked being placed on the grey or black list, complicating trade. Therefore, Ministers of Finance generally put a lot of pressure on its implementation.
Dutch Practice
In the Netherlands, the model of the reporting chain was almost adopted one-to-one from the FATF. This model is established by the European Commission in the Anti Money Laundering Directives (AMLDs), which were then implemented by the Netherlands in the Money Laundering and Terrorist Financing Prevention Act (Wwft) and the Sanctions Act (Sw). Regulators like the Dutch Central Bank (DNB) and the Authority for the Financial Markets (AFM) provide guidance on how this legislation should be interpreted and what it means for the implementation in the operations of gatekeepers.
In 2027, a directive that further harmonizes the approach within Europe will become active. The regulations will be clearer and easier to manage. It enables more intensive collaboration, with more room for a risk-based approach.
The reporting chain begins with gatekeepers in the Dutch financial system. They conduct client due diligence, perform transaction monitoring and screening, and report unusual transactions to the Financial Intelligence Unit (FIU). The FIU enriches these reports with additional information, also from abroad, which may result in a transaction being marked as suspicious and a file being transferred to the police. Research may then lead to prosecution by the Public Prosecutor’s Office.
Effectiveness
Helène Erftemeijer knows the workings of banks firsthand, having spent a large part of her career in the banking sector. Much is going well, she states, but much could also be improved. In 2022, nearly 2 million transactions were reported as unusual. ‘Only’ 5% of these transactions were subsequently declared suspicious. To screen and monitor relationships and transactions and comply with KYC (Know Your Customer) obligations, banks employ more than 13,000 staff members. This means that one in five employees is involved in gatekeeper activities. The annual costs associated with this for the Dutch banking sector are estimated to be about €1.4 billion.
Although it has become increasingly difficult for criminals to open a bank account and the number of reports of unusual transactions has risen sharply, the system could be more effective and efficient. Additionally, there are unwanted side effects. The methodology has a privacy impact, and customers experience more inconvenience when managing their banking affairs due to more complex procedures.
NextGen Gatekeepers
There is a need to comply with laws and regulations, and banks want to prevent their financial system and thus their products and services from being used for illegal activities. But the approach can be more effective. For example, by being able to share information with relevant government agencies and through more intensive collaboration between public and private partners. What helps here is that the DNB has given more room for a risk-based approach and thus for a new methodology that brings more balance between ‘more where needed’ and ‘less where it can be’. More effort to notice criminal activities, less often bothering ordinary customers. Regulators and gatekeepers must get the same picture of what to do. So-called ‘feedback loops’ in the reporting chain could play an essential role here. Thus, an effective, learning system is created with efficient NextGen Gatekeepers.
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