Netherlands transaction monitoring: a novel solution to the banking industry’s AML puzzle?

Transaction Monitoring Netherlands (TMNL), a new collective monitoring initiative designed to tackle sophisticated money laundering and terrorist financing activities in the Netherlands, is expected to become operational in 2021. Born of a series of organized roundtables by the Dutch central bank (DNB) in 2017 and 2018, TMNL is a unique private company created by the five largest Dutch banks: ING, ABN Amro, Rabobank, Triodos Bank and de Volksbank (the “founding banks”) . TMNL will work closely with financial regulators and Dutch law enforcement agencies to combat money laundering through “faster, better and more complete detection of money laundering and terrorist financing.” “1

Filling a gap in AML detection and reporting

TMNL is another step in the continued efforts of Dutch financial institutions to combat money laundering, which is increasingly at the center of Dutch enforcement measures. The Dutch Banking Association (NVB) has estimated that around 16 billion euros ($ 18 billion) of funds are laundered in the Netherlands each year, stemming from activities such as drug trafficking, human trafficking human beings, child pornography and extortion.2

In recent years, Dutch authorities have aggressively enforced Dutch Anti-Money Laundering and Terrorist Financing (AML / CFT) laws, resulting in record fines. In September 2018, ING was fined 775 million euros ($ 900 million) to settle allegations by financial crime prosecutors that ING violated AML / CFT laws “structurally and for years” by failing to verify the beneficial owners of accounts and by properly monitoring suspicious transactions. 3 Shortly after the ING settlement, the DNB sent a letter to the Dutch Minister of Finance, acknowledging that “several banks have faulty control of customers and transactions” and that “the banking sector acts insufficiently as a guardian 4 A year later, in September 2019, Dutch prosecutors confirmed that they were conducting a similar investigation into ABN Amro, which reportedly reported suspicious transactions either too late or not at all, and failed to properly monitor the transactions. clients.5 Pending the outcome of this investigation, some analysts consider ING’s fine as a benchmark for predicting the extent of the sanctions that could be imposed on ABN Amro.6

Yet financial institutions may find it difficult to identify or detect potential criminal activity on their own. While criminal networks deliberately cover up money laundering schemes by using multiple accounts in multiple financial institutions (and often in multiple jurisdictions), a given institution will normally only see a fraction of the transaction, network or trend. , and most countries prohibit the sharing of information between financial counterparties. institutions with regard to the risk or suspicion of financial crime.

One response to these practical challenges has been to establish models of public-private partnerships for sharing financial information. The first of these partnerships, led by the example of the United Kingdom’s Joint Money Laundering Intelligence Taskforce (JMLIT) in 2015, marked a fundamental shift in the approach to financial crime and placed information sharing and collaboration between members of the public and private sector partnership as a focus of effort to detect and combat financial crime. What was once a unique British innovation in 2015 has now become a common feature of the financial crime architecture in most liberal democracies, with 18 countries (including the Netherlands) establishing similar partnerships, spanning 20 of the 30 major global financial centers.7

The Dutch banking sector takes action

Stimulated by the practical challenges as well as the prospect of ever higher fines and the joint action plan against money laundering of the Dutch Ministries of Finance and Justice and Security, the founding banks announced in September 2019 that they were working with the NVB to study the feasibility of a joint control program.8 On July 8, 2020, the founding banks announced that they had signed the TMNL shareholders’ agreement establishing TMNL as a company with independent limited liability, and that an amendment to the Dutch anti-money laundering laws to allow collective control was planned. NVB President Chris Buijink said in a statement that “[r]An effective fight against this type of crime is only possible through closer cooperation. This cooperation will have positive consequences all along the chain, from detection to prosecution. TMNL is an essential collective step which is a world first. “9

TMNL is still building the unique transaction monitoring utility using a cloud-based platform, which is expected to take 18 months to two years. The first transactional alerts should be generated by June 2021.10

TMNL: How will it work?

When launched in 2021, TMNL’s Collective Transaction Monitoring will cover all payment transactions of companies with Dutch accounts at the five founding banks, with the ultimate goal of extending monitoring to all their payment transactions, which ‘amount to 12 billion euros ($ 14 billion) per year, or 33 million euros ($ 40 million) every day.11 Other banks may join TMNL, but he did not specify when to will be open to additional members.12

TMNL has yet to release full details on how the combined monitoring will be carried out. Its process overview indicates that participating banks will send transaction information data to TMNL in an encrypted manner, with TMNL then combining and connecting transactions to identify and monitor all networks and patterns. Participating banks will not share information with each other. TMNL will then report any potentially unusual or suspicious transaction or network patterns to the relevant founding banks for further analysis and possible reporting to the Dutch Financial Intelligence Unit (FIU) .13 TMNL considers that such combined monitoring of transaction data will facilitate more efficient detection. indicators of money laundering, with a faster and more precise identification of criminal networks than would be the founding banks alone, which are moreover intrinsically limited to seeing only part of the flows or networks of money. An important question remains as to the nature and level of detail that TMNL will provide to the Founder Banks regarding its combined review. If TMNL only reports a bank’s individual transactions without providing details of why they are suspicious in the context of the combined data available only for TMNL, then it is unclear how the bank will be able to properly investigate and potentially report the transaction. Suspicious activity. TMNL must therefore strike the right balance between disclosing too much (with the attendant regulatory and data privacy issues) and too little, thus undermining the value it was designed to bring to transaction monitoring. In addition to the combined supervision by TMNL, each founding bank will continue to monitor its individual transactions under Dutch law.14

TMNL has not published the estimated costs of its operations or how they are distributed among the five founding banks, but the NVB estimated that 5,500 to 6,000 employees in the banking sector in the Netherlands “worked directly and on time. full ”on AML issues as of September 2019, a number that is expected to increase with an expansion of surveillance activities.15

TMNL in context – working with national agencies and partnerships

TMNL will work closely with Dutch law enforcement authorities, including the Ministries of Finance, Justice and Security, the Tax Information and Investigation Service (FIOD) and the FIU.16

TMNL will also work in parallel and feed into the Dutch national public-private financial information sharing partnerships, 17 which all exist under the strategic direction of a public-private coordinating authority, the Dutch Center of Financial Expertise (FEC).

Key points to remember

All countries rely on an effective prosecution chain to eradicate money laundering, from detection to conviction to prosecution. TMNL is expected to improve first link efficiency, helping banks detect suspicious activity faster and more efficiently. This should translate into more accurate and relevant reporting and information to implementing agencies, thereby improving the effectiveness and / or prospects of the second and third links, prosecutions and convictions. When combined with parallel efforts to share public-private financial information, there are clear gains to be made in combating financial crime as well as associated or underlying criminal activity.

If successful, TMNL can serve as a model for replication by other countries struggling to effectively combat money laundering. Germany, for example, saw a 50% increase in money laundering cases in 2019, according to its Financial Intelligence Unit.18 German authorities face a lack of public confidence in their ability to enforce with anti-money laundering laws have been successful and have been criticized for what is seen as a “hands-off approach and a number of missed opportunities to spot problems”, especially after the collapse of the Fintech Wirecard company.19 Wirecard does now under investigation, including with regard to allegations of money laundering by its employees.20

TMNL will be a welcome development for Dutch enforcement agencies, which should reap the rewards of innovation and substantive action in the private sector to better comply with anti-money laundering laws. The future success of TMNL could be a win-win for all participating banks as well as for regulators and enforcement agencies: banks can reduce their risk of facing record penalties of recent years, and regulators and agencies application may spend fewer resources investigating, compiling and combining the complex financial data reported by (or requested by) individual banks, effectively shifting some of the analytical burden to the banking industry itself.

Law enforcement and financial services agencies around the world will have a keen interest in TMNL’s progress and results, which could mark an important turning point in the evolution of anti-money laundering reporting. money and the financing of terrorism in the world.


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