The new AML rules in the Netherlands
In the Netherlands, the new Money Laundering and Terrorism Financing (Prevention) Act (in Dutch: Wet ter voorkoming van witwassen en financieren van terrorisme or “Wwft”) came into effect July 8th this summer with major consequences for the professional or commercial trade in works of art in the Netherlands.
It has now become mandatory for art dealers to conduct a client screening (klantenonderzoek), not only for cash payments but also for cashless payments in excess of € 10,000. This also includes related transactions (i.e. cumulative transaction value of € 10,000 or more).
Auction houses must also conduct customer surveys and immediately report any unusual transactions to the Financial Intelligence Unit (FIU) Netherlands. As of this summer, a client screening will also be mandatory for the sale of works of art of € 10,000 or more, using freeports.
If a transaction involving a person or company (or financial institution) from a country with a high risk of money laundering is involved, the obligation to screen your client will be even more stringent. You can find the list of these countries here.
But what does a client screening entail?
The Wwft prescribes that an institution must conduct a client screening before entering into a business relationship or carrying out a transaction. There are two levels of screening: (1) a normal client screening, and (2) an enhanced client screening. In addition, there is an obligation to monitor existing clients.
Normal client screening
First, you must identify the customer and verify that the specified identity matches the actual identity. Furthermore, the ultimate beneficial owner (or UBO - the person who pulls all the strings within a company) of a transaction or client will have to be identified, and reasonable steps need to be taken to verify that identity. This is not always easy to find out, especially when the client resides outside of the Netherlands.
You must also determine whether the natural person representing the client is authorized to do so. The art dealer or gallery must identify this natural person and verify his or her identity. In addition, the gallery must be able to recognize so-called "fall guys” or “money mules". The dealer must therefore take reasonable steps to determine whether the natural person is acting for him- or herself or for others.
The dealer must also determine the purpose and intended nature of the business relationship. This seems simple enough, but can still cause problems in practice.
In summary, when determining to what extent a client screening should be applied, the art dealer or gallery assesses the money laundering risk and the risk of terrorist financing. Based on the risk sensitivity of a client, transaction or service, a dealer or gallery must draw up a risk profile of this customer, and it must be determined whether a more stringent client screening (or immediate notification) is necessary.
Enhanced client screening
Should the outcome of drawing up a customer's risk profile gives cause to do so, or if a transaction involving a person or company (or financial institution) from a country with a high risk of money laundering is involved, the duty to screen your client will be even more stringent.
A dealer or gallery should consider the following investigation measures when conducting an enhanced client screening:
a) collect additional information about these customers and beneficial owners;
b) collect additional information regarding the purpose and nature of that business relationship;
c) collect information about the origin of the funds used in that business relationship or transaction and the source of the assets of those clients and those beneficial owners;
d) collect information about the background and rationale for the intended or executed transactions of those customers;
e) obtain approval from senior management to establish or continue that business relationship; and
f) perform enhanced checks on that business relationship and the transactions of those customers, by increasing the number of checks and frequency of updates of data on those customers and those beneficial owners and by selecting transaction patterns that require further investigation.
Constant control (monitoring) of the client and the transactions carried out during the duration of the relationship is mandatory. During the onboarding of a client, or after the customer screening, a risk profile must be drawn up (see also above). It is important that an art dealer or gallery periodically checks whether the customer still meets this risk profile.
The frequency and depth of this assessment partly depend on the risk classification of the customer. The higher the risk, the more often and in-depth a review of the customer situation will have to take place. Thanks to this continuous monitoring, it is possible to detect anomalous transaction patterns and to ascertain whether situations have arisen that entail an increased risk.
Any deviating transaction patterns can be a reason for the dealer or gallery to report an unusual transaction to the FIU. It is up to the dealer or gallery to assess whether the unusual transaction qualifies as an incident. Every incident must be reported immediately to the FIU.
A possible incident report to the FIU must be made online, after registration, via the reporting portal.
An UBO-register shall be introduced in the Netherlands by the end of this year. Companies are obliged to register their ultimate beneficial owner (UBO) with the Dutch Chamber of Commerce.
Do you want to learn more about the mandatory client screening and the UBO-register? Do you have other questions concerning the requirements for an (international) art transaction?
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