Vadim BlauStein: The Fourth Anti-Money Laundering Directive and the trust offices

  • Gemaakt op woensdag 27 juni 2018 15:49

Last year has seen the entering into force of the Directive (EU) 2015/849 on the prevention of the use of the financial system for the purposes of money laundering or terrorist financing (also known as 4th (AML) Directive). It has been adopted on 20 May 2015, but a two-year period was given for the EU Member States to bring their legislation into compliance with this Directive, and to take additional measures for the purpose of battling money laundering and terrorist financing. This had to be done by 26 June 2017.

As this directive directly relates to the areas of financial, corporate and trust services, we ask Vadim Blaustein, CEO of BlauStein Lawyers, to provide comments on this topic.

Mr. Blaustein, your company has its headquarters in the Netherlands. Could you say that many things have changed in your business area after the 4th AML Directive came to force?

Vadim Blaustein: The impact of the new Directive is not that big. In fact, the Netherlands were traditionally in the front lines of the fight against money laundering and had quite an extensive legislation on this matter already in place. It is worth mentioning that from year to year they also maintain a good standing in Corruption Perception Index (CPI) ratings, 8th place in 2016 and 9th in 2015 for example. Even though it has been an attractive jurisdiction for foreign business to incorporate their structures, the whole "offshore" discussion is not really related to the Netherlands.

The Dutch law on prevention of money laundering and terrorist financing (Wwft) was adopted in 2008 and laid down rules for client identification, know-your-client (KYC) standards and measures. Being amended since, by the year 2017 it already imposed an obligation on the entities involved in financial transactions, legal or bookkeeping services, intermediary services etc. to perform client due diligence (CDD), transaction monitoring and keep records available for the authorities upon request. Since 2014 the current version of the law on trust offices (Wtt) is also in force, setting even more detailed and strict rules for trusts and management companies and corporate services providers. Those businesses were put under regulations in many ways similar by strictness to the rules applied to financial institutions (such as banks). During the past years this area of legislation was further developed and harshened, for example, in the requirements of independent audit. A new version of the law (Wtt 2018) is being discussed now, but it is a whole different story. In general, for us in the 4th Directive there are no surprises affecting our usual ways of business.

What are the key points of the 4th AML Directive, then?

Vadim Blaustein: From the ones that relate to our area of business the first and foremost is that the threshold of a financial transaction from which a CDD should start has reduced to EUR 10.000. However, this is a very technical change, which does not require new procedures to be designed and implemented, thus it is quite easy to adjust.

Another point is a change regarding politically exposed persons (PEPs). The definition now also includes members of the governing bodies of political parties, and the approach is now the same for PEPs who are resident in the same country as the service provider and those who are not. Once again, on the part of the service provider it is a very technical matter - referring to an updated PEP list is no different from what we have done before. It is a normal part of the customer due diligence procedure.

Finally, the EU Member States are now obliged to create central registers with information on the beneficial ownership. The idea is to improve the quality of the available data on the beneficial owners and to give more instruments to the national government bodies tasked with dealing with unusual or suspicious transactions, bodies such as FIU-Nederland (in action since 2006). These registers are also supposed to meet the demand of the Financial Action Task Force (FATF) for a higher level of transparency in matters of beneficial ownership. As for the Netherlands, creation of this register is currently being delayed, although proposals for the relevant piece of legislation were submitted in the first half of 2017. After its adoption, companies will have one and a half years to comply with the requirement.

There are additional provisions regarding banks and gambling entities, but these are outside the scope of our business, so there is not much to comment. As you surely know, banks have always been subjected to special regulations and supervision from the authorities, and the same, but for a different reason, can be said about the gambling industry. Naturally, the strict control over the areas most vulnerable to money laundering and illegal financial activities must be an important part of any state AML/CTF policy.

So the adoption of the AML Directive did not affect your services or your clients?

Vadim Blaustein: It mainly did not. We had followed the strictest KYC/CDD procedures before and as part of these procedures established beneficiaries and ran background checks for each of our clients. It is true that disclosing client information to the authorities now is a requirement rather than a possibility; however, this data does not go public, thus observing confidentiality of the sensitive information. In this regard the anti-money laundering legislation is being affected and complemented by the new European legislation regarding personal data protection. The General Data Protection Regulation (GDPR) has entered into force very recently - on 25 May 2018, and is currently being paid a lot of attention by the authorities and controlling entities.

And does this regulation demand more adjustments from you?

Vadim Blaustein: It has some very specific requirements, and we must ensure that our policies are up-to-date with it in order to protect our clients' information. However, this is a substantial topic of its own, so in order to avoid diversion from our theme today we can return to GDPR next time.

As for the AML Directive, as I was saying, in our headquarters we are used to performing the KYC/CDD according to the strictest standards. However, we are active not only in the Netherlands; our offices are opened in other European countries. Previously, some of them had less strict rules and procedures. Of course, this situation changes, and the KYC/CDD requirements become harmonized throughout Europe. Naturally, we adapt to it, and it helps a lot that we have been familiar with such requirements before and that our compliance work is centralized.

Do you see such centralization as an advantage? The AML Directive provides that each Member State still can tailor their legislation on AML according to their needs, so it is not completely the same.

Vadim Blaustein: We base our centralization on one of the strictest AML requirements in Europe. By this we ensure that CDD is always performed in the most enhanced way, even if it is not required by the authorities in a particular country. Maintaining a single database of clients does not divert many resources, but simplifies data protection and co-operation between our offices. It also falls within the corporate mission of BlauStein - to benefit to the financial and corporate services sector and improve its transparency and trustworthiness. So we consider it is an advantage, yes.

What are your estimations regarding the foreign business and investors in the Netherlands now?

Vadim Blaustein: DIt is very important to see the big picture. While the 4th Directive most likely will not have much impact, changes in other parts of Dutch legislation, such as corporate and tax, may actually cause the loss of some of the unique advantages the Netherlands had in the eyes of the international business. At the same time, worldwide developments and changes could bring new opportunities. In one of our previous interviews I have mentioned the chance which the Netherlands may get as the result of Brexit. Of course, as the process continues and the final arrangements are still vague, it is difficult to give a certain answer. But we remain optimistic and expect that we always will have interesting offers and solutions for our clients.

Thank you for your interview.

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