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Transparency International Netherlands: Unmask anonymous owners behind offshore structures

transp internationalBRUSSELS, April 05, 2017 - One year after the revelations of the Panama Papers there is still a lot of work to do for the Netherlands to effectively prevent and fight widespread international money laundering structures and unlawful tax evasion. This is especially the case as regards offshore structures that enable the owners to remain anonymous and hide behind legal constructions and arrangements. This follows from a research report published Tuesday by Transparency International Netherlands (TI-NL) titled ‘Behind The Scenes: Beneficial Ownership Transparency in the Netherlands’.
 
The report, which is available here, demonstrates that the Netherlands has a relatively good understanding of general money laundering risks. However, risks related to ultimate beneficial owners (UBOs) have not yet been sufficiently addressed in neither regulation nor practice. The Netherlands’ score on UBO transparency is weak in international comparison. To meet the international standards for UBO transparency, an adjustment of Dutch regulation will not suffice. It will be necessary to conduct an integral, national risk analysis that concerns specific UBO issues, looks at related future risks and screens the effectiveness of the regulation in practice. 
 
“It is important that the Netherlands takes UBO-related risks seriously and analyses them thoroughly. With its position as one of the most important global financial centres, the Netherlands carries a special responsibility regarding this issue”, said TI-NL Research & Project Officer Fritz Streiff.
 
The Dutch financial sector is relatively sizable, with a total banking assets to GDP ratio of 379% in 2014. Additionally, 91 of the 100 largest multinationals have Dutch subsidiary or holding companies with no meaningful economic activity in the Netherlands. This results in the outsized role of the Netherlands as regards international financial flows. Consequently, the Netherlands is especially vulnerable to money laundering. This vulnerability calls for a strong and effective anti-money laundering system, including regarding UBO transparency. The research report published by TI-NL evaluates the current state, future plans and effectiveness in this area.
 
“UBO-related issues play a central role in this framework. The Panama Papers, the VimpelCom scandal and the criminal investigations into ING’s alleged involvement in money laundering and corruption that followed clearly demonstrate this. This is not sufficiently addressed in the Dutch risk analyses. The future introduction of the UBO-register is an important step. But it is not enough”, according to Streiff.
 
The research report shows that UBO-issues do not get enough attention in current Dutch regulation, policy and practice. The report also finds a significant shortcoming in the fact that the Netherlands has not conducted an integral, national analysis of risks connected to money laundering so far. Another point of critique is the fact that up until this point the problematic position of foreign trusts has been largely ignored by the government, that fraud-sensitive bearer shares still exist in the Netherlands and that Dutch trust service providers can act as nominee directors for their international clients.
 
Following the implementation of the Fourth European Anti Money Laundering Directive, the Dutch legislature is currently developing new regulation. A draft law for a future UBO register was published last week and the Act on Prevention of Money Laundering and Financing of Terrorism (Wwft) is also being amended. The report welcomes these changes, but also points at the shortcomings of these legislative plans.
 
The research report provides eleven specific recommendations for Dutch, European and international policy makers and legislators. The most important recommendations are:

    • To decrease the chance that the new legislation will allow ill-intentioned persons to stay under the radar, a new UBO definition should be introduced by lowering the owner threshold from 25% to 10% for all companies and other legal entities;
    • The first integral, national risk analysis planned for this year should specifically address UBO-related issues, identify current and future high-risk sectors and scenarios, and consult all relevant stakeholders, including civil society organisations;
    • An independent authority should be designated to verify and double check the UBO information that Dutch companies and other legal entities will be obliged to provide to the future UBO register;
    • The UBO register should include information on the UBOs of foreign trusts with a connection point in the Netherlands;
    • bliged entities and its managers that fail to report accurate UBO information should be sanctioned with large fines and, in deliberate cases, with short-term imprisonment, as is the case in the United Kingdom; and
  • The possibility for a trust service provider to act as nominee director of Dutch (subsidiary) companies of its clients should be abolished.

 TRANSPARENCY INTERNATIONAL NETHERLANDS
Lotte Rooijendijk
TRANSPARENCY INTERNATIONAL EU
ALEX JOHNSON
Communications Officer

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