Client due diligence and reporting obligation

The government has policies aimed at preventing the laundering of criminal money and the financing of terrorism. This also includes all forms of fraud (such as bankruptcy fraud and tax fraud) and bribes (corruption). Therefore, almost all service providers, including us as notaries, are legally required to carry out “client due diligence,” to “monitor” clients during certain services, to investigate the origin of the funds used, and to report “unusual transactions” to a national reporting point. These obligations are set out in the Wwft (Money Laundering and Terrorist Financing (Prevention) Act (Wet ter voorkoming van witwassen en financieren van terrorisme)). This law is based on a European directive, meaning that approximately the same rules apply throughout the European Union.

1. Which services fall under the Wwft?

Not all of our services fall under the Wwft. The Wwft states that the law applies when we:
“[…] provide advice or assistance in:

1. the purchase or sale of real estate;
2. the management of money, securities, coins, banknotes, precious metals, gemstones or other valuables;
3. the incorporation or management of companies, legal entities, or similar bodies […] or the organization of the capital contributions required for their incorporation, operation, or management;
4. the purchase or sale of shares in, or the full or partial purchase, sale, or acquisition of businesses, companies, legal entities, or similar bodies […];
5. activities in the tax field comparable to the activities of […] [tax advisors];
6. the creation of a mortgage right on registered property; or

[…] acting in the name and on behalf of a client in any financial or real estate transaction.”

This statutory text must be interpreted on a case‑by‑case basis. In general, the Wwft applies to services relating to real estate and corporate law. It may also apply in personal and family law matters, for example if tax advice is also provided.

Exemptions

There are, however, exemptions. First, the Wwft does not apply to our work aimed at determining the client’s legal position. This is also known as the exploratory phase, for example an initial meeting. In this phase, no substantive legal work is performed. Once substantive work begins, the Wwft immediately applies.

Second, there is the so‑called “litigation exemption.” The Wwft does not apply if we perform work to represent a client in legal proceedings, provide advice in the context of legal proceedings, or advise on initiating or avoiding legal proceedings.

These exemptions also apply even if our services relate to one of the Wwft‑service categories listed above.

2. What does client due diligence involve?

If the services requested fall under the Wwft, we are legally obliged to carry out client due diligence. The extent of this due diligence depends on the level of risk of money laundering or terrorist financing. This risk depends on various factors established in legislation, by the government, and by supervisory authorities. Examples include the nature of the services, geographical risk factors, the industry in which the client operates, and the manner in which the transaction is financed.

The Wwft prohibits us from carrying out substantive work in a Wwft matter before client due diligence is largely completed. The due diligence into the origin of funds (financing), which is part of client due diligence (see below), may in most cases be completed during our services.

Client due diligence requires us to investigate at least the following:

If the client is a natural person:

• the identity of the client and any representative;
• the purpose and intended nature of the business relationship;
• the authority of anyone acting on behalf of the client;
• whether the client is acting on their own behalf or for someone else;
• whether the client is a politically exposed person (a “PEP”);
• the origin of the funds (e.g., money) used in the transaction.

If the client is a legal entity:

• who the ultimate beneficial owner (“UBO”) or pseudo‑UBO is;
• the identity of the client, any representative, and the UBO or pseudo‑UBO;
• the purpose and intended nature of the business relationship;
• the ownership and control structure of the legal entity;
• the authority of anyone acting on behalf of the client;
• whether the client is acting on their own behalf or for someone else;
• whether the UBO or pseudo‑UBO is a politically exposed person;
• the origin of the funds used in the transaction.

Enhanced due diligence

Additional measures must be taken in situations with higher risks. Enhanced due diligence is required, for example, when:

• the client, UBO, or pseudo‑UBO is a politically exposed person (PEP); and/or
• the transaction involves a high‑risk country (based on mandatory screening lists).

A combination of factors can also lead to increased risk and thus require enhanced due diligence. Such factors include the industry in which the client operates, how a purchase price is determined, how financing occurs, or a structure that appears complex relative to business activities.

3. What is a UBO (or pseudo‑UBO)?

A UBO (ultimate beneficial owner) is a natural person who is the ultimate owner of or has control over a legal entity or company. As part of Wwft client due diligence, we are required to determine who the UBO’s are. The law defines a UBO as any natural person who ultimately owns or controls a legal entity. A UBO is therefore always a natural person. A legal entity may have one or more UBO’s (or pseudo‑UBO’s). Who qualifies as a UBO depends on the type of legal entity (see below).

If there is no UBO or it is unclear whether the identified person truly qualifies as the UBO, one or more pseudo‑UBO’s must be designated. These are natural persons belonging to the “senior managing officials.” Who qualifies as such depends on the type of legal entity (see below). Pseudo‑UBO’s are a fallback option: they are rare in companies, but more common in foundations and associations.

UBO of a BV or NV (non‑listed companies)

Any natural person who:

• directly or indirectly holds more than 25% of the shares (regardless of voting or profit rights attached to them);
• directly or indirectly holds more than 25% of the voting rights (regardless of share ownership);
• directly or indirectly holds more than 25% of the ownership interest (regardless of shares, meaning certificate holders can be UBO’s) (‘ownership interest’ means the entitlement to the equity of the company, such as the entitlement to profits, reserves or a liquidation surplus);
• has ultimate ownership or control through other means than shares, voting rights or ownership interest (e.g., a shareholder/natural person with veto rights regarding board appointments);
• otherwise exercises (dominant) factual control (the ultimate decision‑maker).

Pseudo‑UBO (fallback): each statutory director. If a statutory director is a legal entity, the natural persons who are statutory directors of that legal entity are considered pseudo‑UBO’s.

UBO of a foundation, association, cooperative, or mutual insurance society

Any natural person who:

• directly or indirectly holds more than 25% of the ownership interest (‘ownership interest’ means the entitlement to the equity of the entity, such as the entitlement to profits, reserves or a liquidation surplus);
• directly or indirectly holds more than 25% of votes concerning an amendment to the articles of association;
• otherwise exercises (dominant) factual control (ultimate decision‑maker).

Pseudo‑UBO (fallback): each statutory director. If a statutory director is a legal entity, the natural persons who are statutory directors of that legal entity are considered pseudo‑UBO’s.

UBO of a partnership (VOF, CV, maatschap) and shipping company (rederij)

Any natural person who:

• directly or indirectly holds more than 25% of the ownership interest (‘ownership interest’ means the entitlement to the equity of the partnership, such as the entitlement to profits, reserves or a liquidation surplus);
• directly or indirectly holds more than 25% of votes concerning amendments to the partnership agreement;
• directly or indirectly holds more than 25% of votes in executing the partnership agreement (other than acts of management);
• otherwise exercises (dominant) factual control (ultimate decision‑maker).

Pseudo‑UBO (fallback): each partner, except limited partners in a CV. If a partner is a legal entity, the natural persons who are statutory directors of that legal entity are considered pseudo‑UBO’s.

UBO of a religious organization (kerkgenootschap)

Any natural person designated in the statutes as successor upon dissolution.

Pseudo‑UBO (fallback): the persons listed as board members in the statutes or organizational documents.

4. What is the UBO register and what is the ‘feedback obligation’?

As part of Wwft client due diligence, we must consult the UBO register, verify whether the client’s UBO’s are registered, and store an extract from the register.

If UBO’s are registered, we see: their names, month and year of birth, nationality, country of residence and the nature and extent of their interest.

If there is a discrepancy between the registered information and the information we have, we must report this to the Chamber of Commerce. This is our “feedback obligation.” Our duty of confidentiality is overridden for this purpose. If no UBO information is registered, the feedback obligation does not apply.

What is the UBO register?

The UBO register is part of the Dutch trade register in which almost all Dutch legal entities and partnerships must register their ultimate beneficial owners. The UBO register forms part of the trade register held by the Chamber of Commerce. Part of the data is public.

What is the purpose of the UBO register?

The purpose of the UBO register is to combat financial‑economic crime such as money laundering, corruption, tax evasion, fraud, and terrorist financing, by making the ultimate beneficial owner of a business visible. In such way persons and organizations (such as lawyers and notaries) are better informed of the persons who they intent to enter into a business relationship.

Who is responsible for registration in the UBO register?

The legal entity or company subject to registration is responsible for the accurate and timely reporting of all UBO’s. The UBO’s do have a legal obligation to cooperate.

Which organizations must register their UBO’s?

Almost all Dutch entities fall within the scope of the UBO register. The obligation to register applies to:

• BV (non‑listed);
• non‑listed NV;
• foundation (including STAK and ANBI);
• associations with full legal capacity or those operating a business (owners association (VVE) are exempted);
• partnerships (VOF, CV, maatschap);
• mutual insurance societies;
• cooperative;
• European NV, European CV, European economic partnerships having their registered seat in the Netherlands;
• shipping company (rederij);
• religious organization (kerkgenootschap).

Exempted from the registration in the UBO register are:

• Listed companies and their 100% subsidiaries (the 100% interest may also be indirectly);
• sole proprietorship (eenmanszaak);
• owner association (VVE);
• certain associations without legal personality and without a business;
• public bodies

Foreign legal entities are also not required to register in the Netherlands, but they may be subject to registration requirements for the UBO register in their country of origin. Like the Wwft, the UBO register is based on European directives, so all Member States of the European Union are required to maintain such a register from 2020 onwards.

When must registration of the UBO’s occur?

Legal entities and companies that were already registered with the Chamber of Commerce on 27 September 2020 have until 27 March 2022 to register their UBO’s (eighteen months from the date on which the registration requirement came into force).

Legal entities and companies that were not yet registered with the Chamber of Commerce on 27 September 2020 must register their UBO’s immediately (as part of their registration in the trade register of the Chamber of Commerce).

If the registered UBO’s change, legal entities and companies must update this in the UBO register within one week.

Which information is public?

Some of the information about UBO’s will be made public. This includes:
who is registered as a UBO and, for each UBO:

• first and last name;
• month and year of birth;
• nationality;
• country of residence;
• nature and extent of the UBO's economic interest (indicated in the following ranges: > 25% – 50%, >50% – 75%, >75% -100%).

Which information is not public?

The following information about UBO’s is not public and can only be accessed by competent authorities and the Financial Intelligence Unit (FIU):

• citizen service number (BSN) or foreign tax identification number (TIN);
• date of birth;
• country and place of birth;
• residential address;
• copy of valid identity document;
• copy of documents demonstrating the nature and extent of the economic interest.

How is privacy protected?

Not all data is public (see above) and there are protection options, but these are limited (see below).

Another measure is that those consulting the UBO register must register and identify themselves before they are allowed to view the UBO register. This data is stored, among other things, so that the UBO can request information about how often its data has been consulted.

Furthermore, searches can only be performed by the name of the legal entity and not by the name of the UBO (the FIU-Netherlands and competent authorities can do so).

Finally, according to our fee overview, a fee will be charged for access to the UBO register, for research (tracker) into the UBO, for registration with the Chamber of Commerce in the UBO register and for requesting and sending an extract from the UBO register.

What protection options are available?

However, the protection options are limited. As with the Land Registry, protection is only possible in the following cases:

• minors;
• guardianship or administration;
• police protection

What happens if the obligations for the UBO register are not complied with?

Non-compliance with the obligations for the UBO register can be sanctioned under both administrative and criminal law. This applies to:

• legal entities or companies subject to registration that are involved in non-registration, incorrect registration or incomplete registration;
• UBO’s who have not complied with the obligation to cooperate;
• Wwft institutions that have not complied with the reporting obligation.

5. What is a PEP?

A PEP (politically exposed person) is a politically prominent person. As part of the Wwft client screening process, we are required to check whether the client, a UBO or pseudo-UBO is a PEP. If so, we must conduct enhanced client screening.

A PEP is, in any case, someone who holds, has held in the past year, or will soon hold one or more of the positions listed below. Some family members of such a person are also PEPs. These include a parent, spouse (or equivalent), or child or spouse of a child (or equivalent). The same applies to persons who are known to have a close business relationship with a person holding a PEP position.

Examples of PEP functions:

• head of state, head of government, minister, deputy minister or state secretary;
• member of parliament or member of a similar legislative body (such as the House of Commons or House of Lords);
• member of the executive committee of a political party;
• member of a supreme court, constitutional court or other high court of law which issues judgments that, except in exceptional circumstances, are not subject to appeal (such as the Supreme Court, the Council of State and the Trade and Industry Appeals Tribunal);
• member of a court of auditors or of the board of directors of a central bank;
• ambassador, chargé d'affaires or senior officer of the armed forces;
• member of the management body, supervisory body or administrative body of a state-owned enterprise;
• director, deputy director, member of the board of directors or holder of an equivalent position at an international organisation (such as the International Court of Justice, the United Nations, the institutions of the European Union, the North Atlantic Treaty Organisation and the World Trade Organisation);
• any other position comparable to the above-mentioned positions

Middle or lower-level officials are not included in the above positions. The government has compiled a list of positions that are considered “politically prominent” in the Netherlands (PEP positions). PEP positions can also be foreign positions.

6. How does identification work?

Part of the client screening process for Wwft services is that we are obliged to identify the client, any representative and any (pseudo-)UBO. We must then investigate and establish (“verify”) the identity provided. In consultation with the lawyer or civil law notary, the identity can also be established by another professional.

Natural person

The identity of a natural person is established on the basis of a valid and original identity document, such as a national passport, a Dutch identity card or a Dutch driving licence. In consultation with the lawyer or civil law notary, it can be examined whether another form of identification can be used. However, if the natural person has another nationality in addition to the Dutch nationality, they are obliged to always identify themselves in the Netherlands with a Dutch identity document.

Dutch legal entity, company or branch

The identity of a Dutch legal entity, company or branch is established on the basis of:

• an online extract from the Chamber of Commerce that we have requested ourselves;
• a digitally certified extract from the Chamber of Commerce;
• a deed or statement drawn up or issued by a lawyer, (deputy) civil law notary or similar independent legal practitioner established in the Netherlands or another European Member State

Foreign legal entity or company

The identity of a foreign legal entity or company is established – depending on the country and the risk – on the basis of, for example:

• an extract from the foreign public commercial register;
• a statement from a foreign lawyer or civil law notary (or similar professional);
• a memorandum of association.

7. When may we rely on client due diligence performed by another service provider?

It may happen that a client is introduced to us by another service provider who has already conducted a client due diligence. Under the Wwft, we may only adopt the results of such client due diligence if it was conducted by:

• a lawyer or civil law notary in the EU;
• an accountant or tax adviser in the EU;
• Dutch trust office;
• regulated financial institution (with the exception of a money transfer office (currency exchange office)) in the EU.

Such a referring service provider must confirm to us that the client due diligence has been carried out in accordance with the Wwft. In addition, such service provider must provide us with all identification and verification data and other data concerning the identity of the client, any representative and any UBO. Under privacy legislation, the referring service provider requires your express consent for this.

Once we have received all the data, we will check whether the client due diligence has been carried out in accordance with the Wwft and our office policy. If this is not the case, we are obliged to take additional measures ourselves.

8. What if the client due diligence cannot be completed?

The Wwft prohibits us from performing substantive work in a Wwft case before the client due diligence has been largely completed. In most cases, the due diligence into the origin of the funds (financing), which is part of the client due diligence, may be completed during the provision of our services. We are then legally obliged to terminate our services if:

• the due diligence into the origin of the funds cannot be completed;
• new information means that the other parts of the client due diligence cannot be completed after all

This may happen, for example, if the client does not respond to an additional question or a request for additional information. If the client due diligence cannot be completed and there are indications of money laundering or terrorist financing, we are obliged to report this to the Financial Intelligence Unit-Netherlands.

9. What does the reporting obligation involve?

We are legally obliged to report “unusual transactions” to the Financial Intelligence Unit-Netherlands in connection with Wwft services. In short, a transaction or intended transaction is “unusual” if it could be related to money laundering or terrorist financing. If we make a report, we are not allowed to inform the client about this (even if requested to do so on the basis of privacy legislation). This “tipping off prohibition” is laid down in the Wwft. The reporting obligation takes effect as soon as we actually perform substantive work for the client.

If the client due diligence cannot be completed and there are indications of money laundering or terrorist financing, we are also obliged to report this.

10. How does the reporting obligation relate to the duty of confidentiality of lawyers and civil law notaries?

Lawyers and civil law notaries have a legal duty of confidentiality. For lawyers, this duty of confidentiality is laid down in the Lawyers Act, and for civil law notaries in the Notaries Act. The Wwft states that lawyers and civil law notaries are not bound by their duty of confidentiality if they report an unusual transaction under the Wwft and, in that context, are obliged to provide (additional) information to the Financial Intelligence Unit-Netherlands and the BFT (Financial Supervision Office). Our duty of confidentiality is therefore breached by the Wwft reporting obligation.

The reporting obligation does not apply during the exploratory meeting. Clients are free to consult with a lawyer or civil law notary at any time to determine their legal position, as long as no substantive work (advice) has yet been performed.

11. What is ‘monitoring’?

Once we have accepted a Wwft assignment, we are obliged to continue to monitor the nature and background of the client and keep this information up to date. This is referred to as ‘monitoring’. If new information or changed circumstances arise, we may need to reassess the risks, conduct a new client due diligence and/or conduct an enhanced client due diligence. Significant changes in circumstances include changes in management, activities, organisational structure, transaction patterns, place of business, transparency and financial behaviour.

12. What does the ‘origin of funds’ due diligence involve?

For financial transactions that fall under the Wwft, we are obliged to investigate the origin of the funds used in such transactions. This obligation to investigate applies not only to payments made via our third-party account, but also to payments between the parties themselves.

In addition, this obligation to investigate also applies if the transaction is financed by means other than money (settlement, acknowledgement of debt, shares or other assets). The starting point is what the client declares. We must be able to investigate this declaration. Therefore, the origin of the funds must also be substantiated and demonstrated with documents, such as bank statements or annual accounts. The exact information required depends, among other things, on the origin of the funds. The intensity of the due diligence depends on the degree of risk associated with the client or the transaction.

13. How are personal data protected?

We process personal data in order to comply with our legal obligations under the Wwft. Our privacy statement explains how we handle personal data. The following applies to the personal data we collect under the Wwft.

The personal data we collect under the Wwft is only processed for the purposes of the Wwft. We are required to retain this personal data for five years after the termination of the business relationship with the client or after the execution of the transaction for the client. If we have made a report under the Wwft, the retention period for the personal data relating to that report is five years after the report was made.

14. Our questionnaires

Our real estate and corporate law questionnaires provide questions for the client to answer about UBO’s and PEP’s. Prior to completion, clients must sign a document confirming that all information they have provided in the questionnaire is complete and correct to the best of their knowledge and that they cannot provide us with any additional relevant information, with an indemnity for us in the event that the information is incorrect or incomplete.