#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.