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5. The Netherlands—Supervision of Money Remittance Offices

Author(s):
International Monetary Fund
Published Date:
March 2005
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Author(s)
Maud J. Bökkerink

Given the large turnover in the money remittance sector, money remittance offices are considered a significant part of the Dutch financial system. In addition, because it has emerged that money remittances can be misused for money laundering and terrorist financing, the Netherlands has found it necessary to regulate the money remittance providers.

Money remittance offices in the Netherlands are governed by four laws: the Money Transaction Offices Act, the Identification of Services Act, the Disclosure of Unusual Transactions Act, and the Sanctions Act. These laws are part of the Dutch legal framework to protect the integrity of the financial system and to prevent money laundering and the financing of terrorism. Part of the Dutch central bank’s supervisory task is to inspect compliance with these laws for money remittance providers. In case of breaches of these laws, the central bank, De Nederlandsche Bank (DNB), has its own enforcement powers. The DNB also has specific mechanisms to cooperate with the public prosecutor and law enforcement agencies to ensure that the objectives of the laws are met.

Legal Framework

Informal money remittance services, such as hawala, are prohibited in the Netherlands, unless the service providers are registered with the DNB in accordance with the Money Transaction Offices Act, the law on the registration and supervision of money transaction offices. This law, which came into force in July 2002, regulates currency exchange and money remittance offices and places service providers under the supervision of the DNB.1 It imposes requirements on the integrity of persons involved in money transaction offices and on the sound management and administrative organization of those offices. The Dutch government chose a registration system because it perceived that the full range of supervisory tools applicable to credit institutions was too rigorous for institutions that perform only money remittances.

Money remittance providers also are required, in accordance with the Identification of Services Act, to identify their customers, as well as persons acting on behalf of customers, before entering into a business relationship. Identification is obligatory for all money remittances, regardless of the amount.2

Since August 1998, money remittance providers have been obliged to report unusual transactions to the Office for the Disclosure of Unusual Transactions (Meldpunt Ongebruikelijke Transacties—MOT, the Dutch financial intelligence unit).3 In accordance with articles 8 and 9 of the Disclosure of Unusual Transactions Act, both executed and intended transactions have to be reported on the basis of the three main “indicators” for money remittance offices. First, money remittance offices have to report transactions when they have reason to believe that the transaction is related to money laundering. Second, they have to report all cash transactions over €2,000. Third, they have to report a transaction when it is believed that a customer prefers to keep the transaction amount below the threshold to avoid reporting (“smurfing”).4

In 2002, money remittance offices reported 95,000 unusual transactions to the MOT, and in 2003 almost 124,000; 95 percent of those transactions consisted of transactions over €2,000. Of the unusual money remittance transactions that were reported in 2002, the MOT turned over 13,420 transactions to law enforcement authorities as suspicious; in 2003 they turned over 27,300 transactions. According to the 2003 report of the Office for Disclosure of Unusual Transactions, the total value of suspicious transactions was €52.6 million in 2002, and in 2003 the value was €99 million. Of the reported unusual transactions, approximately 80 percent were remitted from the Netherlands to other countries and 20 percent were received from other countries. In 2003 the three most popular countries of destination—for both unusual and suspicious transactions—were Colombia, the Dutch Antilles, and Turkey. Suspicious money transfers sent to the Netherlands came mostly from Austria, Germany, Italy, and the United States. Finally, money remittance offices have to comply with the requirements of the Sanctions Act. This act is an important instrument in countering the financing of terrorism. In accordance with the act, money remittance offices have to freeze terrorist funds and are prohibited from providing financial services to terrorists and terrorist organizations.

Registration

Under the Money Transaction Offices Act, operating a money remittance office is prohibited unless the office is registered with DNB. When applying for a registration as a money remittance office, the office has to furnish, inter alia, information on the identity and criminal records of the directors, owners, and managers, as well as on the envisaged operational management. Applications for registration as a money remittance office can be refused if the central bank is of the opinion that the integrity of the financial system would be impaired or if the management or administrative organization is not adequate to ensure the proper conduct of business or compliance with other statutory obligations to which the office is subject.5

A money remittance office must also provide a bank guarantee. This requirement is important for consumer protection and guarantees customers that the cash (or cash equivalent) that has been paid by the customers, but not yet paid out to the beneficiary, can be refunded, for instance, in the case of bankruptcy. The total amount received but not yet paid may never exceed the amount of the bank guarantee.6 In addition, money remittance providers have to pay a fee to register and an annual fee to cover the cost of supervision. The cost for both is €3,000. In addition, money transaction offices are also charged an annual fee as a percentage of their annual revenues. The fees are intended to fully recover the costs of supervision.

When processing applications, the central bank assesses the fitness and propriety of the applicants. The supervisor looks into property agreements, shareholders’ registers, the institution’s Articles of Association or cooperation agreement, the latest available annual accounts, and other information. The supervisor also tests the reliability of the person or persons who will determine the policy of the money remittance office, holders and prospective holders of qualifying holdings in the money remittance office, the provided policy plan, the description of the administrative organization and internal controls, and the bank guarantee.

Since the Money Transaction Offices Act came into force in July 2002, approximately half of the applications for registration have been refused. The main reasons were that the trustworthiness of managers, owners, and directors was not beyond any doubt, and that the administrative organization did not comply with the act. As of September 15, 2004, 31 money transaction offices had been registered; for several offices the decision was pending.7

Some of the applicants that were refused registration lodged a notice of objection with the central bank. In a majority of those cases, the objections have been considered unsustainable. In a very few cases, the applicants have lodged an appeal with the district court.

In several cases where the registration was refused, the central bank followed up to see if the offices had stopped their money remittance business. Of those investigations, some cases led to a cease and desist order, and other cases were referred to the public prosecutor.

Supervision and Enforcement

The central bank has adopted a zero tolerance policy in enforcing the obligations of the supervisory laws. The policy applies to all legal and illegal financial institutions that are active in the financial markets in the Netherlands. The policy can also be recognized in the organizational structure of the Supervisory Directorate of the central bank. This directorate has three types of units: a unit that handles applications, supervisory units, and a special enforcement unit for illegally operating institutions.

An inspection team of about six staff members performs onsite inspections of registered money remittance offices two to four times a year. In addition, money remittance offices are required to send a monthly financial report, draw up annual accounts, and write an annual report.

The supervisor’s enforcement powers include giving specific instructions, imposing cease and desist orders under penalty, and imposing administrative fines. The supervisor also can report an offense to the public prosecutor or cancel an office’s registration. The enforcement powers to be used depend on the concrete aspects of a case. Aspects that are taken into account are, for instance, the level of intent or the degree of recidivism. The underpinning for the central bank’s enforcement policy is that offenses against the laws cannot be tolerated; the goal is to reach conformity with the rules and regulations. To attain that goal, supervisory measures are proportional, and institutions are given a chance to change their behavior. Repressive measures are taken only if no change occurs. Furthermore, if there are reasonable grounds to suspect that an institution is involved in criminal activities, the central bank will always report it to the public prosecutor.

The enforcement unit of the central bank is taking a proactive attitude in monitoring the market. To see if money remittance offices are operating without a registration, the unit visits certain locations, checks the Internet with dedicated software, and checks national and regional publications and newspapers. The central bank follows up on all signals, usually starting with an onsite visit to gather information. Violations of the registration requirement are discussed with the public prosecutor in regular meetings, during which decisions are made on administrative or criminal actions.

Financial Expertise Center

The central bank maintains regular contact with the public prosecutor and law enforcement authorities to share information and cooperate in case of breaches of the relevant laws. One mechanism for this cooperation is the so-called Financial Expertise Center (FEC). The FEC is an interagency coordinating body for the exchange of information on financial crime. It was established in 1998 by covenant of the participating agencies under the guidance of the Ministries of Finance and of Justice. Participants in the FEC include all organizations that have a mandate relative to the financial sector: the financial supervisors, the financial intelligence unit, tax authorities, the intelligence and security service, law enforcement authorities, and prosecutorial authorities. The function of the FEC is to enable the participants to strengthen the way their respective organizations perform their tasks by sharing information to ensure that they recognize offenses more easily.

The FEC has two consultative bodies for information sharing and cooperation: a research group and an investigation group. In the research group, interagency project teams conduct surveys and study trends and developments in the financial sector with respect to money laundering, financing of terrorism, and other financial crimes. Information is shared anonymously. The project teams make recommendations, for instance, on the legislation in force, on improvements with respect to the enforcement of supervisory rules, or on reporting procedures to the financial intelligence unit. The reports of the research group are published on the FEC’s website (http://www.fecinfo.nl).

The investigation group discusses concrete cases. The objective of this group is to bring together participants who have only a piece of information on a certain case, such as a piece of information that by itself seems strange but does not present grounds for suspicion. By sharing all pieces of information from different organizations, often an illegal activity can be revealed. By using this coordinated approach, and by combining information from relevant participants, members of the investigation group decide on the best course of action, that is, administrative or criminal investigation and sanctions.

In a project that the FEC completed on money transaction offices, the survey performed by the research group revealed that registered money transaction offices play an important role in detecting underground currency exchange and money remittance offices, especially through the reporting of unusual transactions. The project team found from analyzing 50,000 reported unusual transactions that a relatively small group of customers was responsible for more than 50 percent of the transactions (approximately €500 million). Police information revealed that part of this group consisted of professional money-changers for criminal organizations.

On the basis of this analysis, the FEC’s investigation group did a follow-up project to enable authorities to adequately enforce all applicable laws. The project team collected information not only on registered offices but also on illegal offices. The project team analyzed and prioritized signals emerging from all the available information and made proposals for additional investigations. Signals that were taken into account were, for instance, concurrence of administrative, criminal, or tax offenses; the amounts involved in transactions; and the number of occurrences. In 2004, the public prosecutor will investigate six cases proposed by the project team.

The central bank has found that the collaboration of several organizations through the FEC has been a significant vehicle for assessing the risks of money remittance and currency exchange transactions to the financial sector. It has also been valuable in enhancing information-sharing and interagency cooperation.

Conclusion

As mentioned in the preamble of the Money Transaction Offices Act as well as in the explanatory note to this law, the Dutch regulatory system has been designed to protect the integrity of the financial system and to prevent money laundering and the financing of terrorism. In conjunction with the laws described above and with the enforcement and cooperation tools available to the authorities, the system functions very well in safeguarding the Dutch financial system from misuse by illegal money transaction offices.

Maud Bökkerink is a financial sector expert in the Monetary and Financial Systems Department of the IMF. Before that she worked for the Dutch Ministries of Finance and of Justice on combating money laundering and the financing of terrorism.
1The Money Transaction Offices Act replaced the Exchange Offices Act of 1995, which governed the registration and supervision of exchange offices.
2Article 1(1)(a) sub 7 and 1(1)(b) sub 9 Identification of Services Act, and article 1(g), article 2(1)(g) of the combined decree of the Identification of Services Act and the Disclosure of Unusual Transactions Act, Decree of February 24, 2003.
3Article 1(1)(a) sub 10 Disclosure of Unusual Transactions Act, and article 4(1)(b) and 4(1)(c) of the combined decree of the Identification of Services Act and the Disclosure of Unusual Transactions Act, Decree of February 24, 2003.
4Indicator T9810211: transactions where there is reason to believe that the transaction is connected with money laundering, indicator T9810141: transactions over €2,000 where funds are provided in cash, in checks, or by means of a credit or debit card, or where funds are paid out in cash, in checks, or by transfer into an account, and indicator T9810231: preference of the customer for transactions below the threshold, presumably to avoid reporting.
5Money Transaction Offices Act, Article 2(1).
6Money Transaction Offices Act, Articles 1(d) and 2(2).
7Of the 31 registered offices, 18 are registered to perform money remittances. Some offices perform only currency exchange transactions and no money remittances. A list of registered offices can be found at http://www.dnb.nl.

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