ABN AMRO pays EUR 480 million on account of serious shortcomings in money laundering prevention
ABN AMRO Bank NV (ABN AMRO) has accepted a settlement of EUR 480 million offered by the Netherlands Public Prosecution Service (Openbaar Ministerie, hereinafter referred to as: NPPS). The NPPS has accused ABN AMRO of having violated the Anti-Money Laundering and Counter Terrorism Financing Act (Wet ter voorkoming van witwassen en financieren van terrorisme, hereinafter referred to as the AML/CTF Act) for a number of years and on a structural basis in its activities in The Netherlands. This happened in such a way that the bank is also accused of culpable money laundering. According to the NPPS, with this settlement, ABN AMRO is taking accountability for the criminal acts identified by the NPPS. The criminal investigation into natural persons is continuing. Three natural persons have now been identified as suspects effectively responsible for violation of the AML/CTF Act by ABN AMRO. They are former members of ABN AMRO’s Board of Directors.
ABN AMRO is one of the three largest banks in the Netherlands. The Dutch Central Bank (De Nederlandsche Bank N.V., hereinafter referred to as DNB) also qualifies ABN AMRO as one of the systemically important banks in the Netherlands.
Systemic banks are essential to the financial system and thus to the functioning of the economy and society. ABN AMRO has millions of account holders in the Netherlands and processes more than a billion transactions per year. As a major Dutch bank, ABN AMRO runs real risks of involvement in money laundering and terrorism financing because of its business profile and market share.
The criminal investigation revealed that over a number of years, ABN AMRO fell seriously short of compliance with the AML/CTF Act. The AML/CTF Act seeks to prevent financial crimes such as money laundering and terrorism financing, as far as possible. Tackling money laundering is a government priority because of its vital importance in effectively combatting all sorts of serious crime. Disguising the criminal origin of the proceeds of crime enables offenders to remain below the radar and beyond the reach of investigating bodies, and to benefit from the accumulated assets, undisturbed. Service providers like banks have a role to play as gatekeepers in protecting the financial system against money laundering. On the basis of the AML/CTF Act, gatekeepers are among other things required to report unusual transactions to the Financial Intelligence Unit (FIU).
Because ABN AMRO fell seriously short of compliance with the AML/CTF Act, various clients engaged in criminal activities were able to abuse bank accounts and services of ABN AMRO for a long time. According to the NPPS, ABN AMRO should have observed that certain flows of money through bank accounts held at ABN AMRO possibly originated from crime. The bank failed to act upon this sufficiently. The NPPS reproaches the bank of violating the AML/CTF Act and culpable money laundering.
Start of the investigation
As part of its supervisory duties, DNB has conducted a number of investigations into ABN AMRO’s compliance with the AML/CTF Act and has found several violations of the AML/CTF Act. These violations were found to be serious and culpable, and on several occasions, DNB took enforcement action. In addition, the Dutch Fiscal Information and Investigation Service (Fiscale Inlichtingen- en Opsporingsdienst, hereinafter referred to as FIOD) had received concrete signals and indications about dozens of clients of ABN AMRO that with regard to those clients, ABN AMRO may have been falling short in fulfilling its gatekeeper function. Further to these findings, a criminal investigation was started by the FIOD in the second half of 2019, under the direction of the National Office for Serious Fraud, Environmental Crime and Asset Confiscation (Functioneel Parket) and the National Office (Landelijk Parket).
Structural and serious AML/CTF Act violations
On the basis of the criminal investigation, the NPPS is of the opinion that ABN AMRO had serious shortcomings in its compliance with the AML/CTF Act. With regard to each of the four Business Lines, it was for example determined that client data or documents were missing, or that the source of data in client files was unclear.
The criminal investigation also revealed that in several Business Lines, ABN AMRO did not properly conduct client due diligence. A key element of client due diligence is the risk assessment and the resulting risk classification. The investigation revealed that ABN AMRO assigned risk classifications to a considerable part of its clients in an incorrect manner. It emerged for example that in respect of around 5.5 million Mass Retail clients, ABN AMRO failed to comply with the key provisions from the AML/CTF Act. The clients from the Mass Retail group were in fact classified in the lowest risk category ‘00 neutral’, on the basis of an automated analysis of identity data - in other words without adequate risk analysis - which means that for these clients, ABN AMRO structurally failed to carry out client due diligence in sufficient depth.
Moreover, the criminal investigation revealed that the expected use of cash - which carries a high integrity risk - was not sufficiently taken into account when determining the risk profile and risk classification of the majority of clients of ABN AMRO.
The NPPS further found that ABN AMRO insufficiently executed ongoing monitoring of its clients. It is important that a bank periodically reassesses or reviews whether the client still meets its risk profile and risk classification. In addition, a reassessment must also be carried out in response to certain developments or events (event-driven reviews). ABN AMRO fell short in the reassessments of its clients. At various times during the relevant period, each of the four Business Lines of the bank experienced large work stocks in the execution of these periodic and event driven reviews. In addition, for its Mass Retail and Private Banking clients, due to the classification ‘00 neutral’ or ‘neutral’, only event-driven reviews were carried out by ABN AMRO. By not performing periodic reviews of clients, ABN AMRO ran the risk of not detecting information that had been incorrectly submitted and/or of not timely becoming aware of changes relating to the client or its activities, which could potentially influence the client’s risk assessment and risk classification.
ABN AMRO also fell short in processing the alerts generated by its transaction monitoring system. This concerns the assessment and processing of the alerts by analysts/handlers, and reporting of unusual transactions found by those alerts to the FIU without delay. The transaction monitoring system structurally generated more alerts than the staff were able to handle. As a result, for several years ABN AMRO struggled with a backlog in handling alerts. There were several instances of late reporting to the FIU.
Finally, there were shortcomings in ABN AMRO’s exit process, as a result of which it could happen that ABN AMRO did not terminate or did not timely terminate relationships with clients with an ‘unacceptable’ risk classification, or that clients that had been exited were nonetheless able to become clients, once again.
Scope and consequences of ABN AMRO’s shortcomings
As a result of the shortcomings in compliance with the AML/CTF Act, ABN AMRO must have missed numerous signals of money laundering and other forms of financial-economic crime over a number of years. Precisely how many signals remains unknown. However, in view of the number of ABN AMRO clients and the number of transactions performed, it can be assumed that the number of AML/CTF Act violations and missed signals of money laundering and other forms of financial-economic crime must have been quite substantial during the relevant period. On the basis of the investigation it is justified to assume that there has been a large number of unusual transactions that were not (timely) identified by ABN AMRO.
Culpable money laundering
The NPPS is of the opinion that ABN AMRO should have reasonably suspected that certain money flows passing through the bank accounts of its clients originated from crime. ABN AMRO received various signals about specific clients that should have led the bank to a suspicion of money laundering. Examples include unusual transactions that do not fit the nature of the business, unclear statements regarding the origin of funds, money laundering signals with regard to clients from public sources, alerts from the transaction monitoring system and high cash deposits. ABN AMRO repeatedly proved unable to effectively combine these signals and to respond upon them adequately. These circumstances lead to the accusation of ABN AMRO of culpable money laundering by the NPPS.
Before and during the criminal investigation, the FIOD received specific signals and indications regarding dozens of clients of ABN AMRO that ABN AMRO had possibly fallen short in fulfilling its gatekeeper function with regard to those clients. A number of these signals were extensively investigated by the FIOD, revealing that various shortcomings had actually led to abuse of accounts and other services of ABN AMRO.
One client of ABN AMRO, who had been allocated the lowest risk classification, had opened a total of 192 bank accounts with ABN AMRO for 49 of their companies, between 2014 and 2018. These accounts were mostly inactive. This client committed fiscal fraud, receiving almost EUR 200,000 from the Tax Authorities on its business accounts.
Following transfer to their private accounts with ABN AMRO, most of this money was spent or withdrawn in cash by the client. Despite the various signals and doubts that existed within ABN AMRO regarding this client, the risk classification remained low. The bank did not report unusual transactions to the FIU until the start of the criminal investigation into the client.
Another client of ABN AMRO, also with a low risk classification, was employed in the financial department of a wholesaler. The client had a gambling addiction, had debts, and his account was constantly overdrawn. ABN AMRO was aware of these problems. The client adjusted the details of the funds of his employer’s debtors, which resulted in these funds being transferred to his own bank account at ABN AMRO. Over a nine-month period, an amount in excess of EUR 4.3 million was transferred to the personal bank account of the client. That money was then almost entirely spent gambling away. ABN AMRO hardly performed client due diligence on this client, the client file turned out to be incomplete and the deviations from the usual transaction pattern did not generate any alerts in the transaction monitoring system.
Another example relates to two Dutch companies that held bank accounts with ABN AMRO. In the period 2010 through to 2017, payments passed via the accounts of these two companies totalling several tens of millions. A corruption case in which these companies were supposedly involved was widely covered in national and international media since 2015. Nonetheless, it took ABN AMRO until March 2019 to first report to the FIU. It was also found that there were shortcomings in the client due diligence regarding these two companies.
Another Dutch company had been a client of ABN AMRO since April 2016, and was given a low risk classification. This company is suspected of being involved in international VAT carrousel fraud, and the Dutch company’s bank account at ABN AMRO had been credited mainly by other international industry-related companies since 2016. For example, between September 2016 and August 2018 in total almost EUR 17.5 million was withdrawn from the bank account, with 17 bankcards. ABN AMRO first reported an unusual transaction. On 5 November 2016, the FIU then classified these transactions as suspicious, and duly informed ABN AMRO. This information did not prompt ABN AMRO perform event driven reviews and/or to adjust the risk profile of the company. In the subsequent period, ABN AMRO did not report unusual transactions either.
From another client it emerged that since 1995, this person had been known within ABN AMRO to be involved in fraud. In 2014, the client was able to open a bank account with ABN AMRO again and was assigned a low risk classification. Over EUR 2.2 million was transferred through the bank accounts of the private limited liability companies of this client and the transactions on the bank accounts of the companies did not fit the business activities as registered with the Chamber of Commerce. In addition, cash deposits were made in €500 notes - the use of €500 notes is an indicator for money laundering. The client is suspected by the police and the NPPS of involvement in money laundering for criminal groups related to drug crime, involving the use of among other things the accounts of his companies at ABN AMRO.
The NPPS considers these examples illustrative. In addition to these investigated cases, the FIOD also has access to several comparable signals of non-compliance with the AML/CTF Act. In the opinion of the NPPS, ABN AMRO has missed more money laundering signals, due to the serious shortcomings in its compliance with the AML/CTF Act in the years from 2014 to 2020.
For a detailed description of the (criminal) acts, see the Statement of Facts (link to statement of facts).
Legal person/Natural persons
The NPPS attributes these offences to the organisation as a whole. Furthermore, the criminal investigation has to date revealed that three natural persons presumably are effectively responsible for the violation of the AML/CTF Act by ABN AMRO. These three former members of the Board of Directors have now been identified as suspects. This does not necessarily entail that they will be prosecuted by the NPPS. The NPPS will be investigating further whether there is sufficient evidence that they actually committed criminal offices. Once that investigation is finalised, a decision will be taken as to whether there is sufficient evidence and as to the way in which the investigation into these persons should be concluded.
Appropriate conclusion of the criminal case
The NPPS sees the payment of a total of EUR 480 million by ABN AMRO as an appropriate and effective conclusion of the criminal case. This amount consists of a fine of EUR 300 million and a disgorgement of unlawfully obtained gains in the amount of EUR 180 million.
According to the NPPS, these structural and serious offences were committed over a period of several years. ABN AMRO has fallen short in its role as gatekeeper and consequently did not sufficiently enable investigative authorities to act in response to unusual transactions.
As a state owned systemic bank, ABN AMRO bears a great responsibility, a responsibility that goes beyond clients or shareholders. It shares responsibility for the reliability of our financial system and can and should make an important contribution to its integrity. ABN AMRO can therefore be expected to act in a socially responsible manner and uphold integrity. In addition, ABN AMRO, a bank in which the majority of shares are held by the Dutch State, has a good reputation. Once a payment is processed through an ABN AMRO account, the payment is likely to be viewed as approved, and in national and international trade people generally rely on it.
The NPPS considers the fine of EUR 300 million to be appropriate, given the seriousness, extent and duration of the offences, the cooperative attitude and the insight demonstrated by ABN AMRO and the bank’s financial capacity. The amount of the fine also reflects that as a result of the serious shortcomings, certain clients that engaged in criminal in criminal activities were able to abuse bank accounts and other services of ABN AMRO for a longer period of time. The repeated warnings and signals issued by DNB, Compliance, Audit and the Supervisory Board have also been taken into account. The fact that ABN AMRO has cooperated with the criminal investigation has also been considered. Finally, consideration has been given to the fact that ABN AMRO, under strict supervision by DNB, has developed and is implementing a remediation programme covering, among other things, the remediation of existing client files and the improvement of its client and transaction monitoring processes, the improvement of its compliance function and changing its internal governance and culture to prevent further violations of the AML/CTF Act. In doing so, ABN AMRO must structurally ensure that it is effectively fulfilling its role as gatekeeper. Throughout the criminal investigation, ABN AMRO provided insight into the progress of this remediation programme to the NPPS.
Given these circumstances, the NPPS considers a settlement to be more effective than court proceedings.
The NPPS considers the fine of EUR 300 million as appropriate. This amount will have an impact on the suspect and does justice to the structural violations of the law.
Part of the settlement is the payment of a EUR 180 million disgorgement of unlawfully obtained gains.
In order to arrive at an appropriate disgorgement amount, the NPPS took as its starting point the personnel costs that ABN AMRO would have incurred in order to sufficiently comply with the AML/CTF Act, compared to the actually incurred personnel costs.
The amount that ABN AMRO wrongfully saved in this way, has been set by the NPPS at EUR 180 million.