2005 INTERNATIONAL NARCOTICS CONTROL STRATEGY

UNCLAS SECTION 01 OF 07 THE HAGUE 003338 SIPDIS STATE FOR INL/C/CP(ERINDLER),EUR/ERA, EUR/UBI STATE ALSO FOR EB/ESC/TFS, S/CT, EUR/PGI TREASURY FOR U/S LEVEY AND A/S O'BRIEN TREASURY PLEASE PASS FINCEN STATE PLEASE PASS FEDERAL RESERVE DEA HQS FOR OFE AND OKF JUSTICE FOR OIA, AFMLS AND NDDS PARIS ALSO FOR OECD USEU FOR UNDERWOOD E.O. 12958: N/A TAGS: EFIN KCRM KTFN PTER ETTC NL SUBJECT: 2005 INTERNATIONAL NARCOTICS CONTROL STRATEGY REPORT (INCSR) FOR THE NETHERLANDS - PART II: MONEY LAUNDERING AND FINANCIAL CRIMES REF: STATE 210351 ¶1. The following is Embassy The Hague's submission of Part II of the 2005 International Narcotics Control Strategy Report: Money Laundering and Financial Crimes. Embassy Point of Contact for this report is Deputy TFCO/Econoff Karen Enstrom at enstromkl@state.gov. As requested reftel, Post will also email the report to Ed Rindler. ¶2. BEGIN TEXT OF REPORT. THE NETHERLANDS The Netherlands is a major financial center and as such is an attractive target for the laundering of funds generated from a variety of illicit activities. Activities involving money laundering are often related to the sale of heroin, cocaine, cannabis, or synthetic and designer drugs (such as ecstasy). As global players, several Dutch financial institutions engage in international business transactions involving large amounts of United States currency. There are, however, no indications that significant parts of dollar transactions by financial institutions in the Netherlands stem from illicit activities. Activities involving financial fraud are believed to generate a considerable portion of domestic money laundering. Much of the money laundered in the Netherlands is likely owned by major drug cartels and other international criminal organizations. There are no indications of syndicate-type structures in organized crime or money laundering, and there is virtually no black market for smuggled goods in the Netherlands. There is no evidence that money laundering is focused on any particular part of the financial sector. Although, under the Schengen Accord, there are no formal controls of the borders with Germany and Belgium, the Dutch authorities run special operations in border areas to keep smuggling to a minimum. The Netherlands is not an offshore financial center nor are there any free trade zones in the Netherlands. In 1994, the Government of the Netherlands (GON) criminalized money laundering related to all crimes. In December 2001, legislation was enacted making the facilitating, encouraging, or engaging in money laundering a separate criminal offense, easing the public prosecutor's burden of proof regarding the criminal origins of proceeds. Under the law, the public prosecutor needs only to prove that the proceeds "apparently" originated from a crime; self- laundering is also covered. In two cases in 2004 and 2005, the Dutch Supreme Court confirmed the wide application of the money laundering offenses by stating that the public prosecutor does not need to prove the exact origin of laundered proceeds and that the general criminal origin as well as the knowledge of the perpetrator may be deducted from objective circumstances. The Netherlands has an 'all offenses' regime for predicate offenses of money laundering. The penalty for deliberate acts of money laundering is a maximum of four years imprisonment and a maximum fine of 45,000 euros ($53,842), while liable acts of money laundering (of people who do not know first-hand of the criminal nature of the origin of the money, but should have reason to suspect it) are subject to a maximum imprisonment of one year and a fine no greater than 45,000 euros ($53,842). Habitual money laundering may be punished with a maximum imprisonment of six years and a maximum fine of 45,000 euros ($53,842),and those convicted may also have their professional licenses revoked. In addition to criminal prosecution for money laundering offenses, money laundering suspects can also be charged with participation in a criminal organization (Article 140 of the Penal Code),violations of the financial regulatory acts, violations of the Sanctions Act, or noncompliance with the obligation to declare unusual transactions according to the Economic Offenses Act. The Netherlands has comprehensive anti-money laundering legislation. The Services Identification Act and the Disclosure Act set forth identification and reporting requirements. All financial institutions in the Netherlands, including banks, bureaux de change, casinos, life insurance companies, securities firms, stock brokers, and credit card companies, are required to report transactions that appear unusual, a broader standard than "suspicious" transactions, to the Office for Disclosure of Unusual Transactions (MOT), the Netherlands' financial intelligence unit (FIU). In December 2001, the reporting requirements were expanded to include trust companies, financing companies, and commercial dealers of high-value goods. In June 2003, notaries, lawyers, real estate agents/intermediaries, accountants, business economic consultants, independent legal advisers, trust companies and other providers of trust related services, and tax advisors were added. Reporting entities which fail to file reports with the MOT may be fined 11,250 euros ($13,461) or be imprisoned up to two years. Under the Services Identification Act, all institutions that are subject to reporting obligations must identify their clients, including the identity of ultimate beneficial owners, either at the time of the transaction or at some point prior to the transaction, before providing financial services. In 2004, an evaluation of the anti-money laundering reporting system, commissioned by the Minister of Justice, was published. In response to the report, the GON enacted a number of measures to enhance the effectiveness of the existing system. In November 2005, the Board of Procurators General issued a National Directive on Money Laundering Crime that included an obligation to conduct a financial investigation in every serious crime case, guidelines for determining when to prosecute for money laundering, and technical explanations of money laundering offenses, case law, and the use of financial intelligence. A new set of so- called indicators, which determine when an unusual transaction must be filed, also entered into force in November 2005. These new indicators represent a partial shift from a rule-based to a risk-based system and are aimed at reducing the administrative costs of reporting unusual transactions for the reporting institutions without limiting the preventive nature of the reporting system. The Dutch Parliament has also approved amendments to the Services Identification Act and Disclosure Act, which will take effect in 2006, that expand supervision authority and introduce punitive damages. Financial institutions are also required by law to maintain records necessary to reconstruct financial transactions for at least seven years. The requirements also have been applicable to the Central Bank of the Netherlands (to the extent that it provides covered services) since 1998. There are no secrecy laws or fiscal regulations that prohibit Dutch banks from disclosing client and owner information to bank supervisors, law enforcement officials, or tax authorities. Under the Code of Criminal Conduct, for example, law enforcement officials can request bank records. Financial institutions and all other institutions under the reporting and identification acts, and their employees, are specifically protected by law from criminal or civil liability related to cooperation with law enforcement or bank supervisory authorities. Furthermore, current legislation requires Customs authorities to report unusual transactions to the MOT; however, the Dutch do not currently have a currency declaration requirement for incoming travelers. Under the 2004 Dutch EU Presidency, the EU reached agreement on a Cash Courier Regulation, which implements Financial Action Task Force (FATF) Special Recommendation IX on terrorist financing. Implementation is expected in 2007. The Money Transfer and Exchange Offices Act, which was passed in June 2001, requires money transfer offices, as well as exchange offices, to obtain a permit to operate, and subjects them to supervision by the Central Bank. Every money transfer client has to be identified. The Central Bank of the Netherlands, which merged with the Pension and Insurance Chamber in April 2004, and the Financial Markets Authority, as the supervisors of the Dutch financial sector, regularly exchange information nationally and internationally. Sharing of information by Dutch supervisors does not require formal agreements or memoranda of understanding (MOUs). The MOT, which was established in 1994, reviews and analyzes the unusual transactions and cash transactions filed by banks and financial institutions. The MOT receives over 98 percent of unusual transaction reports electronically through its secure website. It forwards suspicious transaction reports with preliminary investigative information to the Police Investigation Service and to the office for operational support of the National Public Prosecutor for MOT cases (BLOM). In 2006, MOT and BLOM will merge and both entities will be integrated within the National Police (KLPD). This new FIU structure (MOT/BLOM) will provide an administrative function that will receive, analyze, and disseminate unusual currency transaction reports. It will also provide a police function that will serve as a point of contact for law enforcement. Foreign FIUs will be able to turn to this new organization with requests for financial and law enforcement information. Over the last five years, MOT and BLOM have cooperated closely in responding to international requests for information, so this merger will not change the nature of the Dutch reporting system. In 2003, the MOT received 177,157 reports (totaling over 1.5 billion euros or approximately $1.7 billion) and forwarded 37,748 to the BLOM and other police services as suspicious transactions for further investigation. In 2004, the MOT received 174,835 reports (totaling over 3 billion euros or $3.6 billion) and forwarded 41,003 to the BLOM and other police services for further investigation. The average amount reported was 79,000 euros (approximately $94,500) in 2004, an increase from the 41,000 euros (approximately $49,000) reported (on average) in 2003. This significant increase was due to a few large transactions. In order to facilitate the forwarding of suspicious transactions, the MOT and BLOM created an electronic network called Intranet Suspicious Transactions (IST). Also, a secure website for the actual reporting of unusual transactions by financial institutions was developed, thus completing the electronic infrastructure. Furthermore, fully automatic matches of data with the police databases are included with the unusual transaction reports forwarded to the BLOM. Since the money laundering detection system also covers areas outside the financial sector, the system is used for detecting and tracing terrorist financing activity. On January 1, 2003, the MOT and BLOM formed a special unit (the MBA-unit) to work together to analyze data generated from the IST. Once the data is analyzed by the MBA-unit, it forwards reports to the police. In 2004, the MBA-unit sent 200 reports to the police for further investigations. In 2004, BLOM opened 712 investigations, which involved 15,203 transactions. BLOM conducted 80 Hit-And-Run Money Laundering (HARM) actions, including eight involving exchange transactions, 60 involving the physical presence of large amounts of cash money (cross border),and six cases involving withdrawals, deposits, wire transfers or offers of bank checks. Of these 80 HARM actions, 58 were the result of BLOM's own investigations. With regard to the cross-border movement of cash, the Royal Constabulary apprehended 60 outgoing cash couriers at Amsterdam Schiphol airport and confiscated nearly 10 million euros ($12 million) in cash. In 2004, the Office of the Public Prosecutor issued summons for money laundering offenses in 244 cases, resulting in 138 convictions with 87 cases still pending. The Public Prosecutor HARM team was established in 2001. Both the MOT and BLOM are internationally recognized institutions that play a major role in the Egmont Group. BLOM provides the anti-money laundering division of Europol with suspicious transaction reports, and Europol applies the same analysis tools as BLOM. The Netherlands has enacted legislation governing asset forfeitures. The 1992 Asset Seizure and Confiscation Act enables the authorities to confiscate assets that are illicitly obtained or otherwise connected to criminal acts. The legislation was amended in 2003 to improve and strengthen the options for identifying, freezing, and seizing criminal assets. The police and several special investigation services are responsible for enforcement in this area. These entities have adequate powers and resources to trace and seize assets. Asset seizure has been integrated into all law enforcement investigations into serious crime. The system is principally value-based, though property-based orders can also be made. Any tangible assets, such as real estate or other conveyances that were purchased directly with the proceeds of a crime tracked to illegal activities, may be seized. Property subject to confiscation as an instrumentality may consist of both moveable property and claims. Assets can be seized as a value-based confiscation. Asset seizure and confiscation legislation also provides for the seizure of additional assets controlled by drug traffickers. Legislation defines property for the purpose of confiscation as "any object and any property right." Proceeds from narcotics asset seizures and forfeitures are deposited in the general fund of the Ministry of Finance. Dutch authorities have not identified any significant legal loopholes that allow drug traffickers to shield assets. In order to promote the confiscation of criminal assets, special court procedures have been created, enabling law enforcement to continue financial investigations in order to prepare confiscation after the underlying crimes have been successfully adjudicated. All police services investigating in the field of organized crime can rely on the real time assistance of financial detectives and accountants, as well as on the assistance of BOOM, the special bureau advising the Office of the Public Prosecutor in complex (i.e. international) seizure and confiscation cases. To further international cooperation in this area, the Camden Asset Recovery Network (CARIN) was set up in The Hague in September 2004. BOOM played a leading role in the establishment of this informal international network of asset recovery specialists, whose aim is the exchange of information and expertise in the area of asset recovery. Statistics provided by the Office of the Public Prosecutor show that the amount of assets seized in 2004 amounted to 11 million euros ($13 million),compared to 10 million euros ($11 million) in 2003. (These figures do not include tax- related confiscations. Dutch tax authorities can tax any income, whether legal or illegal.) The United States and the Netherlands have an agreement on asset sharing dating back to 1994. The Netherlands also has a treaty on asset sharing with the UK, as well as an agreement with Luxembourg. Dutch agencies do react to tips from U.S. government officials and from officials of other countries. In June 2004, the Minister of Justice sent an evaluation study to the Parliament on specific problems encountered with asset forfeiture in large, complex cases. In response to this report, the GON announced several measures to improve the effectiveness of asset seizure enforcement, including steps to increase expertise in the financial and economic field, assign extra public prosecutors to improve the coordination and handling of large, complex cases, and establish a specific asset forfeiture fund. The Office of the Public Prosecutor has designed a new centralized approach for large confiscation cases and a more flexible approach for handling smaller cases. Both will take effect in 2006. These measures should significantly increase BOOM's capacity to handle asset forfeiture cases. Terrorist financing is a crime in the Netherlands. The "Sanction Provision for the Duty to Report on Terrorism" was passed in 1977 and amended in June 2002, to implement European Union (EU) Regulation 2580/2001 and UNSCR 1373. This ministerial decree provides authority to the Netherlands to identify, freeze, and seize terrorist finance assets. The decree also requires financial institutions to report to the MOT all transactions (actually carried out or intended) that involve persons, groups, and entities that have been linked, either domestically or internationally, with terrorism. Any terrorist crime will automatically qualify as a predicate offense under the Netherlands "all offenses" regime for predicate offenses of money laundering. Involvement in financial transactions with individuals and/or organizations designated nationally, by the EU, or by the UN has been made a criminal offense. The Dutch Finance Ministry, in close coordination with the Foreign Affairs Ministry, distributes lists of designated entities to financial institutions and relevant government bodies (including local tax authorities). Freezing of assets is an administrative procedure. The Netherlands has frozen more terrorist related assets than any other EU member state. The Act on Terrorist Offenses took effect on August 10, ¶2004. The Act introduced Article 140A of the Criminal Code, which criminalizes participation in an organization when the intent is to commit acts of terrorism, and defines participation as membership or providing provision of monetary or other material support. Article 140A carries a maximum penalty of fifteen years imprisonment for participation in and life imprisonment for leadership of a terrorist organization. The GON is considering new legislation that would expand, among other things, investigative powers and the use of coercive measures in anti-terrorist inquiries. Unusual transactions reported by the financial sector are the first filter against the abuse of religious organizations, foundations and charitable institutions for terrorist financing. No individual or legal entity (churches or religious institutions included) is exempt from the obligation of identification when using the financial system. Financial institutions must also inquire about the identity of the ultimate beneficial owners. A paper trail is thus maintained throughout the payment chain. A second filter is provided by Dutch civil law, which requires registration of all active foundations in the registers of the Chambers of Commerce. Each foundation's formal statutes (creation of the foundation must be certified by a notary of law) must be submitted to the Chambers. Charitable institutions also register with, and report to, the tax authorities in order to qualify for favorable tax treatment. Approximately 15,000 organizations (and their managements) are registered in this way. The organizations have to file their statutes, showing their purpose and mode of operations, and submit annual reports. Samples are taken for auditing. Finally, many Dutch charities are registered with or monitored by private watchdog organizations or self- regulatory bodies, the most important of which is the Central Bureau for Fund Raising. In April 2005, the GON approved a plan to replace the current initial screening of founders of private and public-limited partnerships and foundations with an on-going screening system. The new system, which will be introduced in the course of 2007, will implement FATF Special Recommendation XXX and improve Dutch efforts to fight fraud, money laundering, and terrorist financing. Data about informal "hawala" banking as a potential money laundering/terrorist financing source is still scarce. Initial research by the Dutch police and Internal Revenue Service and Economic Control Service (FIOD/ECD) indicates that the number of "hawala" banks in the Netherlands is rising. The Dutch government plans to implement improved procedures for tracing and prosecuting informal (unlicensed) or "hawala" banking, with the Dutch Central Bank, FIOD/ECD, the Financial Expertise Center, and the police playing a coordinating and central role. The Dutch Finance Ministry plans to participate in a World Bank-initiated international survey on money flows by immigrants to their native countries, with a focus on relations between the Netherlands and Suriname. The Dutch Central Bank will also initiate a study into the number of informal banking institutions in the Netherlands. In Amsterdam, a special police-unit has been investigating underground bankers. These investigations have resulted in the disruption of three major underground banking schemes. The Netherlands is in full compliance with all FATF Recommendations, with respect to both legislation and enforcement. The Netherlands also complies with the EU Second Money Laundering Directive, and in some areas, is ahead of the EU legislation (such as full money laundering controls on money remitters, including licensing and identification of customers). In December 2004, the Dutch EU Presidency reached political agreement within the EU on the Third Money Laundering Directive, which was subsequently adopted by the EU in 2005 with full implementation by EU member states by 2007. The Dutch have already implemented some obligations resulting from this directive, such as effective supervision of currency exchange offices and trust companies. In December 2003, the International Monetary Fund (IMF) conducted an assessment of the Netherlands' anti-money laundering and counter-terrorist financing system. The Report on the Observance of Standards and Codes (ROSC), released in September 2004, indicates that the Netherlands has a sound anti-money laundering and counter-terrorist financing framework. In 2005, the second round of the Council of Europe's Group of States Against Corruption (GRECO) evaluation of the Netherlands resulted in positive conclusions regarding Dutch seizure and confiscation legislation. The MOT supervised the PHARE Project for the European Union (March 2002 - December 2003). The PHARE Project was the European Commission's Anti-Money Laundering Project for Economic Reconstruction Assistance to Estonia, Latvia, Lithuania, Poland, the Czech Republic, Slovakia, Hungary, Slovenia, Romania, Bulgaria, Cyprus, and Malta. The purpose of the project was to provide support to Central and Eastern European countries in the development and/or improvement of anti-money laundering regulations. For this purpose, the MOT established a project team and a consortium of international experts. Although the PHARE project concluded in December 2003, the MOT has moved forward with the development of the FIU.NET Project (an electronic exchange of current information between European FIUs by means of a secure internet). FIU.NET is not exclusively for European countries; other countries can also be connected. The United States enjoys good cooperation with the Netherlands in fighting international crime, including money laundering. In September 2004, the United States and the Netherlands signed two agreements in the area of mutual legal assistance and extradition, stemming from the agreements that were concluded in 2003 between the EU and the United States. One of the amendments to the existing bilateral agreement is the exchange of information on bank accounts. The MOT has established close links with the U.S Treasury's FinCEN and is also involved in efforts to expand international cooperation between disclosure offices. The Netherlands is a member of the FATF and Moneyval and participates in the Caribbean Financial Action Task Force as a Cooperating and Supporting Nation. The MOT is a member of the Egmont Group. MOT has concluded formal information sharing MOUs with Belgium, Aruba and the Netherlands Antilles. The Netherlands is a party to the 1988 UN Drug Convention and the 1990 Council of Europe Convention on Laundering, Search, Seizure, and Confiscation of the Proceeds from Crime, as well as the new Council of Europe Convention of 2005. The Dutch participate in the Basel Committee, and have endorsed the Committee's "Core Principles for Effective Banking Supervision." The Netherlands is a party to the UN International Convention for the Suppression of the Financing of Terrorism and the UN Convention against Transnational Organized Crime. END TEXT OF REPORT. BLAKEMAN