EU AML Package and targeted financial sanctions

In June 2021, the European Commission published the so-called EU AML Package: a set of four legislative proposals aimed at making the European anti-money laundering and countering the financing of terrorism (AML/CTF) policy more effective. The core of the legislative proposals is the creation of a harmonized framework for the prevention of money laundering and terrorist financing, as well as the establishment of a European supervisory authority, the Anti-Money Laundering Authority.

A lot has already been said about the European proposals, which are currently in the trilogue phase between the European Commission, Council, and Parliament. One aspect that has received less attention in these discussions is the scope creep of the European AML/CTF policy. While the policy used to focus exclusively on money laundering and was expanded to include terrorist financing after 9/11, the current proposals further expand the scope of the European AML/CTF policy to include targeted financial sanctions. 

This raises interesting questions about the relationship between AML/CTF policy and sanctions regulations. In the Netherlands, the AML/CTF policy is set out in the Money Laundering and Terrorist Financing  (Prevention) Act (Wwft), while the sanctions regulations are stipulated in the Sanctions Act 1977. Sanctions can include targeted financial sanctions (the freezing of assets and the prohibition on providing funds or services – directly or indirectly – to or  for the benefit of sanctioned persons and entities), but also trade restrictions, arms embargoes, as well as travel and visa restrictions. For a specific group of financial institutions, including banks, insurance companies and trust companies, specific requirements based on the Sanctions Act 1977 (Supervision) Regulation (RtSw 1977) apply with respect to their administrative organization, internal controls, and the reporting of ‘sanction hits’. The Dutch Central Bank (DNB) and the Dutch Authority for the Financial Markets (AFM) supervise this group of financial institutions in accordance with the Sanctions Act. In practice, the Sanctions Act is often considered in conjunction with the Wwft in the broader context of combating financial-economic crime and protecting the integrity of the financial system. As a result of the overlapping obligations, many obliged entities integrate their sanctions controls as much as possible into the Wwft screening of business relationships. 

The use of sanctions has increased significantly in recent years, and the war in Ukraine has recently led to an unprecedented growth in sanctions against Russia and Belarus. With the expectation that sanctions will become more important and complex, the Dutch government announced last year its work on modernizing the sanctions regime.

The inclusion of obligations related to targeted financial sanctions within the scope of the AML/CTF policy, as proposed in the EU AML Package, raises several important questions: 

The proposals in the EU AML Package mention the targeted financial sanctions, but some provisions focus exclusively on targeted financial sanctions related to proliferation financing (financing of weapons of mass destruction). An example of a more limited scope is the obligation to perform a risk assessment, which is restricted to the risks of non-implementation or evasion of targeted financial sanctions related to proliferation financing (Article 7 AMLR (draft)). Currently, targeted financial sanctions related to proliferation financing apply only to North Korea and Iran, excluding targeted financial sanctions that are not related to proliferation financing imposed on countries such as Russia (war in Ukraine), Afghanistan, and Myanmar (political situation/oppression of civilian population). Does this mean that there is a differentiation between various types of targeted financial sanctions, and is this a deliberate choice? And how does the inclusion of targeted financial sanctions in the European AML/CTF policy relate to the broader scope of application of the sanctions regulations? 

The European proposals create a system of European and national supervision for all entities falling within the scope of the European AML/CTF policy. Currently, supervision under the RtSw 1977 is limited to a group of (financial) institutions. Does this mean that other AML/CTF supervisors will also be assigned supervisory tasks related to targeted financial sanctions? Another question is how this relates to the intended modernization of the Dutch sanctions regime, in which the government announced its intention to establish administrative sanction supervision for notaries, lawyers and auditors, and to ‘further examine’ this for other parties. A final point of uncertainty is what this will mean for businesses that fall under the RtSw 1977, but not under the current Wwft, such as non-life insurers and (notarial) pension funds.

The proposals in the EU AML Package regarding targeted financial sanctions focus primarily on requirements related to the risk assessment and internal policies. It is not clear whether other sanctions obligations, such as the reporting of sanction hits to supervisors, will remain and, if so, how they will co-exist with the reporting obligations under the AML/CTF policy. 

Unfortunately, the above questions cannot be answered at this point in time. The European proposals are pending in the trilogue phase and the consultation phase for the modernization of the Dutch sanctions regime is expected to start in July 2023.

At KPMG Forensic, we are closely monitoring these developments. If you would like to learn more about the developments in the sanctions regulations, their potential impact on your organization, or what you can do to prepare, we would be pleased to assist you!

Melissa van den Broek 
Senior Manager, Forensic Integrity & Compliance
KPMG Netherlands

Kay de Vries
Senior Consultant, Forensic Integrity & Compliance
KPMG Netherlands