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