Enhanced oversight of Dutch trust offices11 Sep 2018
Following the Dutch Parliament's approval of a revised Dutch Trust Offices Supervision Act, the integrity procedures of trust offices will come under increased scrutiny from the Dutch Central Bank (De Nederlandsche Bank, DNB) in an attempt to further professionalise the Netherlands' trust industry.
Following globally publicised data leaks such as 2015's Panama Papers controversy, the ensuing public discussions and EU legislation (Fourth Anti-Money Laundering Directive (4AMLD)) have forced the hands of a number of governments, resulting in the perceived need for enhanced law on the supervision of trust offices.
The Dutch response was an inquiry from a Parliamentary Interrogation Committee. This was in an effort to expand the government's understanding of the operational side of trust offices and associated tax structures, laying the foundation for the updated, more stringent Dutch Trust Offices Supervision Act. The new legislation was approved in July and is expected to take force on 1st January 2019.
A positive burden - regulation
The primary objective of the new legislation is to further clamp down on tax evasion and reduce the amount of strategic tax avoidance.
By amending legislative insufficiencies and implementing increased regulatory measures, the Dutch government will establish a clearer definition of required trust office actions and their interpretation of international tax treaties. This will diminish the number of integrity risks in the trust services sector by bringing regulatory measures further in-line with the law.
Due to additional supervisory and enforcement powers for the DNB, the proposed compliance procedures concentrating on client acceptance and sustained surveillance will become more burdensome for Dutch trust offices, their clients and any parties engaged in transactions with them as a corporate service provider.
Despite being placed under the microscope once again (the Act follows a string of recent inquiries and assessments over the last four years), Dutch trust offices will be forced to evolve, making them more professional and respected entities - which is to be welcomed.
Due to its ongoing drafting, the new legislation still has some way to go in terms of providing total clarity. However, the main points of interest that are clear so far are:
- Trust offices will require at least two Directors to be actively involved in the daily management of the company.
- The compliance function should be in-house and cannot be outsourced.
- There is a new (more flexible) definition of the ultimate beneficial owner.
- Stricter 'know your customer' requirements.
- There are tougher penalties for breach of these requirements, including penalties of between €10,000-€5,000,000 and a risk of imprisonment. In defiance of this maximum fine, the DNB (as regulator) can also give a penalty of 10% of the net turn-over, with a maximum amount of up to €10,000,000.
- Trust offices will be required to provide an annual report of their business conduct.
- Trust offices will be obliged to be a (European) public limited liability company or a private limited liability company; and
- They may not give tax advice.
The new legislation will result in trust offices favouring a more cautionary approach to their operations. There is also concern from within the industry that these comprehensive measures may indeed threaten the existence of small to mid-sized Dutch trust offices.
For example, there already exists an exhaustive measure that requires trust offices to obtain a licence from the DNB. This procedure is rigorous, requiring extensive anti-money laundering, fiscal and anti-terrorism knowledge; expensive expertise that is difficult to acquire for small trust offices.
In-house compliance functions, such as whether an internal compliance officer is needed, will require a more formal explanation and definition in order for offices to know what is fully needed to adhere. The new regulation should give more clarity to this when drafting is complete.
Evolving with the times
At first glance, the incoming Dutch Trust Offices Supervision Act may be seen as another overly-stringent piece of legislation increasing the workload for trust offices, yet its potential long-term effect is quite the opposite. It could prove to be an effective method professionalising a trust office industry that has suffered significant reputational damage in recent years.
Ocorian's Netherlands office is well prepared and compliant with all existing legislation and upcoming regulation. Our team of experienced professionals offers expertise in the setup, management and administration of Dutch holding and finance companies. Learn more about our Netherlands offering here.
You can access the draft legislation here. (Note, your server may prompt a translation.)