26th August 2022

#79: AML; the end does not justify the means

The Financial Action Task Force (FATF) is the global money laundering and terrorist financing watchdog. This week the FATF published its report on the Dutch anti-money laundering system and the extent to which it complies with FATF measures and the degree of effectiveness. The report shows several interesting findings. One of these findings relate to the effectiveness of the FIU. We question the report on this point based on the findings of the Netherlands Court of Audit.

First, the FATF praises the Netherlands for its robust domestic co-ordination and co-operation on AML/CFT issues at both the policy and operational levels. On the role of the FIU it reports that the FIU plays a major role in the production and dissemination of financial intelligence to the investigating parties, both proactively and upon request. It receives a significant amount of information from obliged entities on subjective and objective money laundering indicators. The report states that the FIU analytical products are of high quality. Remarkable is that the FATF asserts that the lack of comprehensive statistics on the usage of FIU disseminations in police investigations and on the number of disseminations left unattended in the police database is a minor concern. We question however the effectiveness of all the AML notifications that have to be done and whether it ways up against the burden that is put on the professionals and if it does not violate some basic human rights.

The past year showed a sharp increase in the number of notifications of unusual transactions, according to the FIU in its recently published annual review 2021. Especially banks and since recently also crypto service providers, are (increasingly) reporting unusual transactions under the Dutch AML laws. In 2021, for example, more than 1.2 million reports were made. This is an increase of more than 500,000 compared to the previous year. It is striking that this enormous increase in reports of unusual transactions did not lead to more suspicious transactions. In fact, the number of suspicious transactions fell by 7% to less than 100,000.

The report by the Dutch Court of Audit states that this information is still too inadequate for investigative agencies to easily select the transactions that are most suitable for a criminal investigation. The 80 or so FIU employees probably have difficulties keeping up with the flood of notifications and filtering them for the investigative authorities. This is completely understandable, as 1.2 million reports is no small matter. In addition, deliberately failing to comply with the obligation to report is a punishable offence in itself. Together with legislation that is too broad in scope, this may mean that reports of “uninteresting” transactions are made too quickly for fear of negative consequences, while it is already clear in advance that the FIU will not follow up on these notifications. This calls into question the effectiveness of the system in its current form.

The Court of Auditors is also critical of the current state of affairs. In the aforementioned report it says that the Dutch approach to the risk of money laundering is progressing, but is still not enough. In particular, the very substantial efforts of private parties – such as the many reports from banks – could be better utilized. “There are therefore opportunities to combat money laundering more efficiently and effectively, (…) In our opinion, the reporting chain for unusual transactions is ripe for a next step,” the Court of Audit said.

However, the Council of State that recently published its advisory report on a new Money Laundering Action Plan Bill of law is critical. Although this report is focused on a bill of law, the criticism could be taken at heart in general. First of all, it recognizes the important function of (among others) banks as gatekeepers in the fight against abuse of the financial system. Nevertheless, it believes that the joint approach to money laundering by banks, supervisors and investigative authorities entails major risks. Risks of unjustified exclusion from society, the infringement of fundamental rights, and even risks of stigmatization and discrimination. In light of a lack of efficiency of the current system, one may question whether these risks are acceptable. Proportionality should always be the starting point. “The end does not justify all means, especially if those means imply far-reaching infringements of fundamental rights,” according to the Council of State.

In our practice we regularly encounter cases where the risks mentioned by the Council of State become reality. We endorse the goal of combating money laundering and terrorist financing. However, we must guard against a system in which a large number of reports prove to be ineffective, while entailing far-reaching risks for those involved. We therefore welcome the recent published reports in the Netherlands and hope that the FATF will also keep the human rights in mind.

Do you have any questions about the above or would you like to exchange views with us? Please contact boezelman@hertoghsadvocaten.nl or boer@hertoghsadvocaten.nl.

29th October 2021

#69: EPPO goes shopping?

Political tensions within the EU are the order of the day. It seems that discussions about own sovereignty versus EU laws are here to stay. On the other hand the EU is working hard trying to harmonize laws and procedures. Fact is however that the EU still has a long way to go when it comes to unification on the various terrains, including criminal law. What is the effect of this for the young and blossoming European Public Prosecutor’s Office (EPPO)? Fact is that this organization has a very decentralized operation and every country has (slightly) different laws and procedures . Will this enhance the risk of EPPO going shopping in different EU countries?

Young and blossoming

The press publications about the first ongoing investigations of EPPO are a fact. On 20 October EPPO reported about 10 arrests in Germany, Italy and Bulgaria regarding suspicion of a criminal organization and evading taxes. The operation was led by a European Delegated Prosecutor (EDP) in Germany. On 1 October EPPO published about conducted searches in Austria regarding custom fraud, also led by a German EDP. And on 4 August EPPO reported about searches that were conducted in Germany, the Netherlands, Slovakia, Bulgaria and Hungary for a investigation into cross-border VAT fraud. It seems that the first investigations are focused on VAT and Customs fraud and have a German leadership. The material competence of EPPO with regard to VAT and custom fraud seems pretty straight forward. But are there any risks of EPPO going forum hopping given the material competence and the implementation within the national laws, and if so, what are they?

Material competence harmonized?

As explained in Lawlunch #66 the material competence of EPPO covers three different aspects. First,  EPPO can investigate and prosecute the so-called PIF offences; offences that are regulated in the PIF directive EU 2017/1317. VAT fraud is one of the crimes as described in the PIF directive. Second, the Regulation focuses on participation in a criminal organization, as long as the organization is focusing on committing PIF offences. Last, the Regulation covers criminal offences that are inextricably linked to crimes affecting the financial interests of the EU. One of the questions is of course why are the PIF crimes described in a Directive and not a Regulation. As a directive gives member states more freedom in the way these crimes are implemented. This makes it possible that the meaning of a PIF crime is slightly different in different countries. Legal certainty is at stake here.

This goes even more so for the interpretation of the second pillar of the material competence of EPPO, the so-called criminal organization with a focus on PIF offences. What does ‘focus’ mean? Does it need to be the prime focus of the organization? And what is the level of intent needed in for instance The Netherlands versus Germany? The same goes for the last category of crimes that falls within the material competence of EPPO regarding criminal offences inextricably linked to PIF offences. What does this mean? For instance, everybody knows that The Netherlands has a broad possibility to prosecute money laundering. Will the Netherlands be an attractive country for EPPO to prosecute inextricably linked crimes such as money laundering?

Or does EPPO prefer to prosecute a case in a country were, for example, the protection of the rights of a suspect are much lower. A comparative analysis of criminal procedural law is available to compare notes.

Forum shopping

This is all enhanced by the fact that EPPO has a choice of forum in cross-border cases. While in principle a case must be handled by an EDP in the country where the focus of the criminal activity is. However, until a decision to prosecute has been taken the central body of EPPO may reallocate the case in the general interest of justice. The risk of forum shopping might be a given. As long as harmonization within the EU is far from sight, the right to legal certainty of an EPPO suspect is just as far away.

Do you have any questions about the above or would you like to exchange views with us? Please contact boezelman@hertoghsadvocaten.nl or boer@hertoghsadvocaten.nl.

28th June 2019

#42: The right to a trial within a reasonable period

Article 6 of the ECHR gives a suspect the right to a public hearing before an independent and impartial court within a reasonable period of time. Our experience is however that (financial) criminal investigations take a very long time. The workload of the Financial Intelligence office is too high. Also the workload of the Courts prevents the prosecution of all criminal cases. The question is: what can a do suspect against such delays? Can a suspect enforce the right to a trial within a reasonable time?

What a reasonable period is depends on the circumstances of the case. It depends on i) the complexity of the case; ii) the influence of the suspect or his counsel on the proceedings and iii) the way in which the case was handled by the competent authorities. According to the jurisprudence of the Dutch Supreme Court, an exceedance of a reasonable period is usually compensated by a reduction in sentences. Exceeding the reasonable period does not lead to inadmissibility of the public prosecutor, not even in exceptional cases.

But what if no prosecution takes place and the public prosecutor does not bring the case to trial? In the Netherlands it is possible to submit a request to terminate the case on the basis of Article 36 of the Code of Criminal Procedure. The question is however, whether the prosecution can be deprived of its right to prosecute due to a violation of the reasonable period on the basis of Article 36 of the Criminal Code. Courts seem to answer this question in various ways. However, such Court decisions cannot be appealed to the Supreme Court.

For this reason an advocate general of the Supreme Court, who provides independent advice to the Supreme Court, has submitted this legal question to the Supreme Court in a cassation procedure which is initiated in the interest of the law. One of the questions is whether an infringement on the right to a fair trial within a reasonable period can be a criterion in the application of Article 36 of the Dutch Criminal Code. Especially taking into account the jurisprudence of the Supreme Court which states that exceeding the reasonable period can never constitute a ground for declaring the prosecutor inadmissible in his prosecution.

The advocate general comes to the conclusion that sanctioning an unreasonable delay in the investigation and prosecution cannot lead to and end of the case, since this would be contrary to the aforementioned case law of the Supreme Court. However the advocate general provides another route to speed up the procedure. According to him the appropriate route to prevent an unnecessarily long investigation or the absence of a prosecution is the following:

At the request of the suspect, the examining magistrate can, on the basis of Article 180 (3) of the Criminal Code, commission a public prosecutor to end the investigation an prosecute the case if the investigation takes too long. However if the public prosecutor ignores this term the law does not provide for an explicit sanction. That is why, according to the advocate general, Article 36 DCC can serve as a safeguard. In that omission, the examining magistrate can find reason to submit the case to the court, who can then declare that the case has ended. In that case, that statement is not a sanction for exceeding the reasonable period as such, but for exceeding the set term by the examining magistrate. According to the advocate general, this is then compatible with the case law of the Supreme Court regarding the reasonable period.

In our opinion, this step-by-step plan is somewhat artificial. Why does the public prosecutor still have a last chance after an unreasonably long deadline? Is an infringement of the set term of the examining magistrate more serious than a violation of the human rights of the suspect on the basis of Article 6 ECHR? We believe that it is up to the prosecutor to consider and protect the fundamental rights of Article 6 ECHR. If a public prosecutor does not prosecute a case for an unreasonable period of time, apparently it is not that important. And can it still be possible to find truth even so many years afterwards? We believe that Article 36 CC should have an important function in protecting Article 6 ECHR in the event of an inactive or slow investigation. Maybe the Supreme Court in its decision provides the tools to protect the rights of a fair trial of a suspect.

If you have any questions about this subject or if are you confronted with a related issue please feel free to contact us via boezelman@hertoghsadvocaten.nl and boer@hertoghsadvocaten.nl.