The Dutch House of Representatives adopted the Fifth Anti-Money Laundering Directive (the “AMLD5 Implementation Act”) on 10 December 2019. The Act is currently before the Dutch Senate. The purpose of the Act is to implement the EU’s Fifth Anti-Money Laundering Directive in the Netherlands. Pursuant to that directive, certain crypto-service providers must comply with the obligations under the Money Laundering and Terrorist Financing (Prevention) Act (the “Wwft”).
In a previous blog about the AMLD5 Implementation Act, we discussed a number of obligations that will apply to certain crypto-service providers, including the obligations to investigate clients, report unusual transactions, and register with the Dutch Central Bank (DNB). In the present blog, we look in greater detail at the DNB’s supervision of certain crypto-service providers as regards compliance with the sanctions regulations.
Which crypto-service providers will be subject to the registration obligation?
The AMLD5 Implementation Act concerns the following crypto-service providers:
- parties offering professional or commercial custody wallets; and
- parties offering professional or commercial services for exchanging between virtual currencies and fiduciary currencies (such as euros).
These crypto-service providers must register with the DNB before they can offer their services in the Netherlands. This obligation applies to the following categories of individuals/legal entities that wish to offer exchange services or custody wallets in or from the Netherlands on a professional or commercial basis:
- parties that reside or have their registered office in the Netherlands;
- parties that wish to offer services in the Netherlands from another Member State (regardless of whether they are registered in that other Member State); and
- parties that only provide cross-border services from the Netherlands
Parties residing in or having their registered office in a third country are prohibited from offering exchange services or custody wallets in the Netherlands. The Minister can make an exception, however, for certain third countries.
Obligations pursuant to the sanctions regulations
The DNB can cancel the registration if the crypto-service provider does not meet the requirements of the Wwft or the (Dutch) 1977 Sanctions Act [Sanctiewet 1977]. The latter is a framework act pursuant to which Dutch and EU sanctions regulations apply in the Netherlands. Everyone in the Netherlands and Dutch nationals abroad are obliged to comply with the sanctions regulations in force in the Netherlands.
Certain institutions supervised by the DNB are subject to additional obligations under the 1977 Sanctions Act and the underlying regulations, such as the 1977 Sanctions Act (Supervision) Regulations [Regeling toezicht Sanctiewet 1977]. As a result of the AMLD5 Implementation Act, the aforementioned crypto-service providers also fall under the supervision of the DNB as regards compliance with the 1977 Sanctions Act. This makes them subject to the following obligations:
- having measures in place regarding administrative organisation and internal control (“AO/IC”) so as to comply with the Sanctions Act 1977;
- notifying the DNB immediately if it appears that the identity of “a contact” [relatie] (see below) corresponds with an individual or legal entity as referred to in the sanctions regulations (“hits”);
- retaining the notifications and details of the accounts of the contacts concerned in the notifications, and transactions with them, until five years after the sanctions regulations in which the individual or legal entity concerned are no longer in force or have been made inoperative.
The AO/IC measures to be put in place must in any case ensure adequate control of the crypto-service provider’s records of the presence of contacts on the sanctions lists. The purpose of this is for the crypto-service provider to freeze the financial resources of a contact or prevent the provision of financial resources or services to that contact in the event of a “hit”. The term “contact” is broader than the terms “business contact” [zakelijke relatie] and “client” [cliënt] within the meaning of the Wwft. A “contact” is any party involved in a financial service or financial transaction.
Failure to comply with these obligations may result not only in cancellation of the registration by the DNB – as a result of which the activities must be terminated – but also in in substantial administrative fines. Contravention of the sanctions regulations can also lead to criminal prosecution. Crypto-service providers that intend registering with the DNB must therefore remember to take account of the sanctions regulations in addition to the Wwft.
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