#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.

#17: White lies or swindle?

Various classic criminal offences are getting more common in the area of fraud cases. Examples are charges of forgery or money laundering in a case which is in principle a tax fraud case. The wide coverage of those penal provisions make them a beloved weapon for the authorities to prosecute alleged fraud. If tax or another kind of financial fraud cannot be proven, these kind of provisions are a good back-up. In practice they are some sort of safety net. The new kid in town seems to be the charge of swindle. Jurisprudence shows that article 326 of the Dutch Penal Code is getting more and more popular. But when does an act qualify as swindle? The Supreme Court of the Netherlands has set some records straight by the end of last year by giving an overview judgement .READ MORE

#08: Truth is stranger than fiction

Does the truth exist? In criminal cases the answer to this is questionable. Since the criminal procedure takes place after the alleged crime, the truth is always a reconstruction of what might have happened. Therefore it seems fair to say that the truth does not exist. In a criminal procedure the next best thing can be achieved; finding facts that are closest to the truth. The law provides us with tools to do so. The rules regarding lawful evidence are incorporated in the Dutch Criminal Procedural Code. In this article it will be questioned whether the legal provision giving more evidential value to reports from police officers is in accordance with the aim of finding the (next best) truth.READ MORE

#07: Accessory penalties and measures

The Dutch sanctions system distinguishes between penalties and measures. Penalties are mainly aimed at punishment and general deterrence. Measures, on the other hand, aim for the improvement of the security and safety of persons or property. Another element is the restoration of the situation as it was before the criminal conduct occurred. Practice shows that besides the possibility to punish someone who is convicted of a crime with imprisonment, community service or a (severe) fine, the possibility of imposing accessory penalties and measures is becoming more common. Therefore an overview of such penalties and measures as stated in the Dutch national law might be helpful.READ MORE

#06: The Dutch hunt for professional facilitators

In the Netherlands not only the (alleged) offender of a crime can be prosecuted. The professional who advised on certain matters relating to the object of a criminal investigation can become a suspect as well. The notary who advised on a legal document which is possibly false can be prosecuted. The tax advisor who advised his client on how to evade taxes can be complicit to tax fraud. Any professional that is involved with alleged criminal offences of his client can thus be faced with a criminal investigation on his involvement. The legal ‘weapons’ of Dutch law enforcement have increased over the last years and the so called ‘facilitators’ of financial fraud are the targets of these weapons. In the fall of 2015 the prosecutor’s office announced in the media that they will open their ‘fight against fraud’ by aiming to punish accountants and notaries who assist mala fide entrepreneurs. In this hunt for professional facilitators, suspects may not only be faced with administrative penalties or criminal prosecution, but also with disciplinary complaints. Which legal ‘weapons’ does Dutch law provide for?READ MORE

#05: Impunity for procedural errors

Every criminal defence lawyer will recognize the frequently asked question; how can you argue that a suspect should be set free based on procedural errors while you know he is guilty? A plea on the importance of the rule of law can be the logical response. However, the easy answer in the Netherlands is: “Well my friend, those days are gone.” We will first explain why this is and second what the risks are of this development.READ MORE

#03: Dutch pragmatism is taking over

The public prosecutor’s office in the Netherlands is of the opinion that professional privilege creates an obstacle in criminal investigations, mostly in fraud cases. In a public statement a public prosecutor stated that professional privilege is misused by for instance lawyers in order to cover up potential evidence in fraud cases. The public prosecutor’s office requested the judicial powers to clarify the scope of the professional privilege. It is not clear whether this public request of the public prosecutor’s office was obeyed. However we notice an increasing number of judicial decisions in which the professional privilege is object of discussion. While the professional privilege has a lot of interesting aspects we would like to lift out one topic. In this article we concentrate on the rules and procedures with regard to a search and seizure of for instance a law firm. Furthermore we question whether the current practice meets the criteria of the European Court of Human Rights (ECHR).READ MORE