KYC / CDD

If you have a business account with a bank, you may well have been getting all sorts of awkward questions from your bank’s KYC, CDD, Compliance or Risk Management department about your customers and suppliers, your payment flows and the sources of your capital. If your bank is not fully satisfied with your answers, it may decide to close down your account(s) and even to call in any loans you may have arranged. In order to avoid such a situation, it’s vitally important that you take action as soon as you receive a letter from your bank containing what appear to be intrusive questions.

Things have changed. The fact that you have used the same payment practices for many years, that they have never been questioned by the bank in the past and indeed that they may even stem from the bank’s own recommendations – all these arguments are no longer relevant.

What is the WWFT?

Under EU legislation on money-laundering, banks are required not just to ‘know their customers’, but also to monitor their customers’ money flows. The Dutch government has implemented the EU legislation by enacting a law known as the ‘Anti-Money Laundering and Anti-Terrorist Financing Act’, or the WWFT for short. The aim of the WWFT is to prevent criminals from laundering their criminal gains and/or from using them to fund criminal organisations.

The Act compels financial institutions such as banks to check their customers’ backgrounds and to look into their activities and money flows. If the supervisory authorities take the view that a bank – or any other financial institution as defined by the WWFT – is not doing enough to enforce the law, they are entitled to impose a hefty fine. As a case in point, ING was hit with a whopping €775 million fine in 2018.

KYC and CDD

In other words, bank are legally obliged to check the identities of their current and potential future customers. They must know exactly with whom they do business (or are intending to do business), so as to prevent any abuse from taking place, even if the customers themselves are not aware that the bank’s services are being abused. The basic rule here is: ‘Know Your Customer’ (KYC).

The banks have decided that the best way of complying with the legislation is by getting their corporate customers to fill in a range of forms about aspects such as their group structure, the identity of their ‘ultimate beneficial owners’ (UBOs), and whether they have any links with people known as ‘politically exposed persons’ (PEPs). The banks use this information to compile a customer profile that specifies the customer’s objectives, makes clear whether or not the customer is operating as a professional expert, and also whether the customer’s business activities may be classified as high- or low-risk. If, for example, the bank subsequently finds that a customer’s trading or payment practices do not match its risk profile, it will then undertake a more in-depth investigation known as a ‘customer due diligence’ (CDD) check.

What’s the reason for all these KYC and CDD procedures?

Although the EU is now going full steam ahead in adding new directives to its current package of anti-money laundering measures, the requirement imposed by the WWFT for banks to check their customers’ backgrounds and activities has in fact been around for a long time now. However, it was not until the recent spate of ‘Laundromat’ scandals that the banks decided to severely tighten up their internal guidelines and recruit a huge number of new staff for dealing precisely with this issue. Suddenly, they are no longer accepting certain payment practices that were tolerated for many years in the past. In many cases, they are quite simply passing on their obligations under the WWFT to their corporate customers . And in some cases, they are not even telling their customers how they should change their practices to make them WWTF-compliant.

It goes without saying that the EU’s anti-money laundering legislation applies to all EU-domiciled banks, whereas the WWFT regulations apply exclusively to all Dutch banks.

The main problem is that, if your bank decides to close down your account, you can’t simply switch to another bank. The result is that you no longer have a bank account and have no way of making non-cash payments. This is a situation that could easily threaten the future of your company – and perhaps even result in bankruptcy.

Moreover, five Dutch banks (viz. ABN AMRO, ING, Rabobank, Triodos Bank and de Volksbank) recently decided to set up an organisation known as TMNL to monitor bank transactions. Although TMNL is formally responsible for identifying unusual payment patterns by analysing anonymised data, the banks may well be able to use it as a vehicle for sharing data and findings.

If you’ve received a letter from your bank with intrusive questions about your customers and suppliers, now’s the time to call our KYB team!

Has your bank written to you threatening to close down your account? In that case, there’s no need to take it lying down. Our advice is to contact the Keep Your Bank (KYB) Team at RWV Advocaten as soon as you receive a letter from your bank with intrusive questions about your customers and suppliers.

Our KYB Team is made up of Matthy van Paridon, Harjo Bakker and Elias van Mourik. They are ready to advise you and, if necessary, to go to court on your behalf in order to obtain interim relief to stop your bank from closing down your account. They also regularly publish on this issue.