24 Aug Are you subject to the Money Laundering and Terrorist Financing (Prevention) Act (Wwft)?
In an earlier blog we discussed the Money Laundering and Terrorist Financing (Prevention) Act (Wet ter voorkoming witwassen en financiering van terrorisme), hereinafter Wwft. As the name implies, the aim of the Wwft is to combat money laundering and terrorist financing. Various obligations for the institutions specified in the Act (the ‘Wwft institutions’) have been introduced to achieve this aim. As a result, ‘Wwft institutions’ must investigate their clients, monitor transactions, and report unusual transactions to the Financial Intelligence Unit (FIU-Nederland). So an active effort is expected on the part of ‘Wwft institutions’, both prior to and during the provision of their services.
A question that we are often asked is when a company qualifies as a ‘Wwft institution’. We need to look at the scope of the Wwft first in order to be able to answer this question.
Section 1(a) of the Wwft states that the legislation applies to:
i. banks
ii. other financial institutions, and
iii. designated natural persons, legal persons or companies acting in the exercise of their professional activities (hereinafter: professionals).
Banks
The first category, ‘banks’, is fairly self-explanatory and needs little or no explanation. Banks fall within the scope of the European Union’s definition of a credit institution.[1] Under that definition, an entity qualifies as a bank if its business is to receive deposits from the public and to grant loans on its own account. It is important to note that the entity is only a bank if both activities are combined.
Contrary to the first category, which is fairly self-explanatory, the second and third categories raise more questions than they answer. What exactly is meant by ‘other financial institutions’ and which professionals are designated as ‘Wwft institutions’?
Other financial institutions
Answering the question of what is meant by ‘other financial institutions’ requires consultation of both the Financial Supervision Act (Wet financieel toezicht), hereinafter Wft, and European legislation. With due regard to those sources, the Wwft defines ‘other financial institutions’ as follows:
- a) An institution, other than a bank, that performs one or more of the following banking activities:
– Issuing loans
– Financial lease
– Issuing and administering other means of payment (such as traveller’s cheques)
– Providing guarantees and producing surety bonds
– Advising companies on capital structure, corporate strategy and related activities, as well as offering advice and services relating to mergers and acquisitions
– Intermediation in interbank lending markets
– Taking custody of and administering securities
– Renting out safe deposit boxes - An institution, other than a bank, that provides one or more of the following payment services (payment service provider, PSP):
– Services for depositing cash (coins and banknotes) in a payment account, and all the processes required for operating a payment account.
– Services that allow the withdrawal of (giro) money from the payment account in cash, and all the processes required for administering a payment account.
– The execution of payment transactions such as bank transfers, or the deposit or withdrawal of funds.
– The execution of payment transactions where the funds are covered by a loan issued to the user.
– Issue and/or acceptance of payment instruments or of a means or method by which a payment order can be authorised (such as credit cards).
– Money remittance, which is defined as: providing or receiving funds without opening an account, for the sole purpose of transferring the amount of money to the beneficiary (whether or not via another payment service provider).
– The execution of payment transactions by a telecommunications, IT or network operator where that operator acts solely as an intermediary between the payer and the supplier. - Investment undertakings (various services and activities related to financial instruments such as securities and derivatives)
- Investment institutions (funds)
- Electronic money institution (an institution that receives funds in exchange for issuing electronic money (such as electronic gift cards)
- Currency exchange institutions (such as border exchange offices)
- Life insurance undertakings, other than life insurance undertakings that exclusively offer in-kind funeral insurance
- Undertakings for collective investment in transferable securities (UCITS, funds)
- Life insurance brokers
- Payment service agents
- Branches in the Netherlands of other financial institutions as referred to above under a to i, with registered offices outside the Netherlands.
Professionals
The following professionals have been designated as institutions to which the Wwft applies:
a) Tax advisers who, individually and independently, perform professional activities, or parties who, individually and independently, perform comparable activities on a professional or commercial basis.
b) Registered accountants or external accountancy and finance consultants, or parties who individually and independently perform comparable activities on a professional or commercial basis.
c) Lawyers, in so far as they:
i) zelfstandig onafhankelijk beroeps- of bedrijfsmatig advies geven of bijstand verlenen bij:
– purchasing or selling registered property;
– managing money, securities, coins, banknotes, precious metals, gems or other valuables;
– establishing or managing companies, legal persons or similar entities, or organising the contributions necessary for their establishment, operation or management [2];
– buying or selling shares in, or fully or partially buying or selling, or taking over enterprises, companies, legal persons or similar entities [3];
– activities in the field of taxation comparable to those of tax advisers as referred to in a) above; or
– establishing a right of mortgage on a registered property.
ii) act individually and independently in a professional or commercial capacity on behalf of and at the expense of a client in any financial or real estate transaction.
d) a) Notaries, in so far as they:
i) provide independent professional or commercial advice or assistance in connection with the activities described above for lawyers, point i);
ii) act independently in a professional or commercial capacity on behalf of and at the expense of a client in any financial or real estate transaction.
e) Beroepsbeoefenaren die werkzaamheden verrichten die vergelijkbaar zijn met die van een advocaat of notaris
f) Professionals who carry out activities comparable to those of a lawyer or notary
a) Providers of domiciliation services (postal addresses)
b) Estate agents
c) Buyers or sellers of goods insofar as payment for the goods is made in cash for an amount of €10,000 or more
d) Parties acting as brokers relating to the purchase/sale of objects of substantial value, such as vehicles, ships, works of art, antiques, gems, precious metal jewellery or jewels
e) Buyers or sellers of works of art insofar as payment for the goods is made for an amount of €10,000 or more
f) Professional or commercial providers of virtual currency/fiduciary currency exchange services (crypto brokers)
g) Professional or commercial providers of crypto wallets (crypto custodians)
h) Gaming providers such as casinos and lotteries [4]
i) Valuers
j) Pawn shops
Further natural or legal persons or companies as yet to be specified
When determining whether an activity is provided on a professional or commercial basis, a number of aspects need to be considered; for example, whether the service is only provided occasionally, or whether the provider receives remuneration or generates income from it. To qualify, the activity must therefore take place systematically or with some regularity. The extent to which the activities in question are lucrative or are the main activity of the enterprise is irrelevant from the point of view of applying the Wwft.
Legislation exemption
The basic principle of the anti-money laundering directives on which the Wwft is based is that legal professionals are subject to the anti-money laundering provisions when they participate in financial or corporate transactions. In some situations, however, the applicability of the Wwft is negated by a litigation exemption. [5]
Tax advisers, lawyers, civil-law notaries and similar professions can make use of the litigation exemption if their work for a client involves:
a) determining the client’s legal position (the exploratory interview);
b) representing and defending the client in court;
c) giving advice before, during and after legal proceedings, or
d) giving advice on instituting or avoiding legal proceedings.
It is important to note that an exemption only applies if the activities relate to exploratory talks or are connected with legal proceedings. The ‘normal’ consultancy activities that do not involve legal proceedings are not subject to the litigation exemption.
Conclusion
Although the Wwft basically designates three categories of Wwft institutions, a large number of (legal) persons and companies can be deemed to be a Wwft institution. This range of applicability has far-reaching implications. You should therefore carefully check whether you or your company fall within the defined scope. If you have any questions about what does or does not constitute a Wwft institution or other Wwft-related subjects, please contact Eline Janssen.
[1] Section 4(1)(1) Regulation (EU) No. 575/2013 (CRR).
[2] Section 1(1)(b) of the State Taxes Act (AWR) defines entities as: associations and other legal persons, partnerships and companies, undertakings of legal persons governed by public law and special-purpose assets.
[3] Idem.
[4] Section 1(b) of the Wwft exempts some gaming providers from their obligations under the Wwft. Casinos, however, cannot be exempted because their services are associated with an increased risk of money laundering and terrorist financing.
[5] Section 1(a)(5) Wwft.