Three fundamental changes to the Dutch AML system

Let’s get strategic

It’s time (says also the Netherlands Court of Audit) to formulate a national AML strategy. The first step is defining what an effective AML approach is. The essence will be to reduce the amount of criminal money going through the Dutch financial system, as DNB stated. Or is it also about reducing societal impacts?

With a clear definition in place, the strategy should then state clear objectives, targets and priorities for gatekeepers and other actors in the AML chain. As stated in the update to the Plan van Aanpak Witwassen, its starting point could be the National Risk Assessment (NRA), in which money laundering risks that our country faces are analysed, based on the latest insights from the Financial Intelligence Unit and law enforcement. Formulating a strategy means carefully assessing this range of risks, and prioritising the risks that the actors in the AML chain must focus on. It also means accepting that deprioritised risks will be missed. In addition, it means indicating to gatekeepers in operational terms and goals how each of them can contribute to the execution of the strategy. So the national AML strategy is not only descriptive, but also directive.

The strategy, the outcomes and the contributions of gatekeepers need to be evaluated regularly, with a national AML dashboard being developed for this purpose. This national AML dashboard is an indispensable tool to monitor the effectiveness of the strategy – and to identify where a change in direction is needed. It will also enable supervisors to evaluate gatekeepers in terms of their contribution towards the objectives and targets stated in the strategy. An evaluation focused more on performance rather than just compliance. 

Let's get coordinated

To steer the efforts of all the parties in the system into one coherent effort against financial crime calls for leadership. Indeed, a recent Deloitte survey reveals that 55% of leaders across the AML chain strongly support the appointment by the government of a National AML Coordinator. In our view, this coordinator could constitue an additional, activating and steering layer above the already operational AML chain. We recognise that the formal positioning can be complex, but at the same time the operational need for this function is beyond question.

The national AML Coordinator could fall under the Finance and Justice Ministries, but with an independent mandate to steer the fight against financial crime. A person (or institute) with a network and expertise spanning the entire AML ecosystem, from financial and legal to tax and criminal investigation. A person (or institute), also, with the natural authority and credibility to determine directions and set priorities.

The core task of this Coordinator would be to take the lead in formulating the national AML strategy, to coordinate the execution of this strategy, and to make strategic and task-oriented collaboration the default across the AML chain. Coordination like this can mould and upscale all the scattered initiatives into a connected, effective AML defence system.

The national AML Coordinator would also be in charge of the evaluation of the national AML strategy as outlined above. This would include the publication of an annual report that looks back on AML outcomes in the past year, compares them to targets and objectives, and communicates changes to the strategy for the year ahead. 

Let’s get clear

Under a national anti money laundering strategy and with a national AML coordinator, gatekeepers in particular will still need more clarity on three tactical topics. First of all regarding the legal basis for data sharing. Room for manoeuvre within the existing legal frameworks, and the shape that new legislation should take, are being hotly debated between privacy and AML experts. But the only road to resolution is to work together on the design of balanced solutions, rather than oppose each other on principles. More clarity on the conditions to data sharing will be paramount for a more coherent and effective fight against financial crime.

Secondly, clarity is needed on the application of AI models in AML. As a recent Deloitte survey revealed, it is widely recognised that, to really bump up the effectiveness of the AML effort, a transition is required from rule-based monitoring to models using artificial intelligence. Regulator DNB, too, has cautiously but clearly opened the door to the application of AI within AML. However, a breakthrough towards model-driven AML will only happen if parties have more clarity on conditions and the mitigation of model risks. Last year, we already described our thoughts on a holistic AML model risk framework. More formal clarity on such a framework will be needed to reach the tipping point in the transition to AML by models.

Finally, clarity is also needed on the unintended consequences of AML efforts. Within society, there is widespread concern about industries and groups of persons being excluded from financial services or heavily frustrated in doing business because of AML screening. Banks themselves, also unhappy about this, are investigating possible resolutions. As long as the culture regarding AML legal requirements remains punitive, it will be hard to structurally reduce such problems. More clarity for gatekeepers about the conditions under which they can continue to serve higher-risk client groups will soften the negative impact of AML controls for such groups. 

Let’s get going

The Netherlands is praised internationally as a front runner in the anti money laundering space. At the same time, there is also a lot of concern and frustration on the current ineffectiveness of AML screening and the consequences of the heavy focus on AML. We think both optimisation and fundamental change of the AML system will be needed to move to more effectiveness. Though fundamental change is typically complex and sensitive, the time is now to push ahead with it and consolidate our country’s leading position in the fight against financial crime.