Anti money-laundering and anti-terrorist financing act.
WWFT is short for the Dutch anti money-laundering and anti-terrorist financing act, which is based on a European directive. As the name already suggests, the purpose of this more is to prevent money laundering and terrorism financing. In short, EU resident service providers that are subjected to these rules must report “ abnormal” transactions with a specific agency in their country. For the Netherlands this is the “Autoriteit voor Financiële Markten, (the “AFM”). Like every financial service provider in the EU, Langendorff Tax Consultancy is also subject to this law/directive.
To whom and what does this law apply?
Whether this law applies does not depend on the type of customer, but depends on the type of service provided or the legal title of the service provider. This law applies, for example, always to tax lawyers within the EU, but also to car traders and real estate brokers. In other words, even if you run a coaching practice and even if it is highly unlikely you work with cash money, that you or your activities can be linked to money-laundering or terrorist financing, your tax adviser will still need to collect certain information in order to comply with this law.
Consequences of not complying with this law for the service provider:
If a service provider does not comply with these rules he can be confronted with penalties up to 2 million euros or jail time up to 2 years (other penalties may apply in other EU jurisdictions). Not complying also means not collecting proper documentation. In addition, a service provider may even be confronted with a claim that he co-facilitated a certain illegal transaction. The punishment is a personal punishment, which means that companies for which this service provider is working will be considered transparent for punishment purposes.
As mentioned, not only tax lawyers are subject to these laws, but also every bookkeeper, accountants, notary, real estate brokers and car traders. Even attorneys may be subject to this law to the extent that the services that they provide do not fall under the legal attorney-client privilege.
What may be noticed from this law as customer:
This law can be divided into four main chapters that oblige service providers to do following:
- to identify and verify the specifics of the real customer (collect KYC documentation),
- to determine a risk profile of the customer
- to monitor the financial transactions of this customer and to compare this with the risk profile
- only if the service provider concludes an abnormal transaction, he may be obliged to report this abnormal transaction to the respective authorities
Customers of service providers will mainly be confronted with the first obligation. In order to be able to create a risk profile of the customer, it is vital for the service provider to know who his customer is. Especially in the case of an active company, for example, which is part of a holding structure, the service provider will need to collect a lot of information up to the ultimate beneficial owner (s). Information that will be collected concerns, amongst others, annual accounts, chamber of Commerce extracts, shareholders registers, passports (in some cases legalized) etc. We acknowledge this this may take a lot of work and time.
We are of the opinion that it is good that these laws exist, while at the same time we acknowledge that this may result in a lot of work for our customers. In addition, the monitoring obligation (third bullet point above) obliges us to ask for regular updates of the information.
Prohibition to provide services as long as KYC procedure has not been complied with
It is important to note that a service provider is not allowed to provide any service or advise as long as he has not identified and verified the customer and as long as he has not determined a risk profile.
How can you help (yourself)
As indicated, officially it is not allowed to provide services as long as the risk profile has not been determined. As such, the sooner we have received the necessary information, the sooner we can help you. As a customer, you can play an important role in speeding up this process by being able to provide the information in a speedily and complete fashion.
We will certainly not be the only service provider which is subject to this law and as such, it is worthwhile to maintain, as part of the business processes within your firm, a special “know your customer” – file so that the information is ready to be provided when asked for.
If anything changes within the structure, if passports are outdated etc, it is recommended to immediately update this file. At the same time, please also provide us with a copy of that update also.
Confidentiality versus obligation to report
Obviously, we will treat all information you send/sent us confidential. However, within every jurisdiction there are always laws that, amongst others this EU directive, that obliges us to breach this confidentiality. As such, we are also obliged to report any abnormal transactions regardless our confidential relationship.
Report of abnormal transactions:
Purpose of this law is that abnormal and criminal transactions are reported by the service provider that notices them. If such a report is made, the service provider is forbidden to inform the customer that he has made or is about to make such a report. Informing the customer may also result in penalties for the service provider or the accusation that he has helped the customer to get away with this transaction. As you may appreciate, we will comply with the laws if necessary.
What is an abnormal transaction?:
What exactly is an abnormal transaction? The law is not very clear about this. In general one should think about transactions that relates to (possible) money-laundering and/or terrorist financing. However, also less obvious transactions may need to be reported if they may qualify as “abnormal” transactions. We acknowledge that this is still pretty vague, but perhaps the following example may give an idea:
Assume a customer runs a butcher shop in Amsterdam. The tax consultant collects all the necessary information which shows that he is indeed a butcher. Typical transactions of this butcher are defined in the risk analysis, such as buying meat, knives and herbs etc. These will be considered normal transactions. If at some point this butcher spends a large sum of money for the purchase of fireworks, then this purchase can be considered as abnormal from the normal profile. Theoretically, such a purchase would then be something that should be reported. At the same time, if the person was not a butcher but a fireworks trader, this same transaction would have been considered a normal transaction not worthwhile to report assuming it was/is legal for him to trade in fireworks.
In addition to normal transactions, large cash transactions need to be reported too if certain conditions are met.
Purpose of this article is to provide customers of Langendorff Tax Consultancy some background information with respect to the WWFT-laws/EU anti money laundering and anti-terrorist financing directive. It is important to mention that this article is not intended to provide a full detailed overview of this law and how it works. It also should not be considered as an explanation as to how Langendorff Tax Consultancy effectively applies this law in its practice.
If you have any questions, please feel free to contact us.