Anti-money laundering checks have serious consequences for citizens, result in high costs for banks (€1.6 billion in 2024), but insight into their effectiveness is poor. Money laundering has to be tackled effectively and on the basis of risk. In other words, the approach should be based on clear risk analyses so that innocent citizens and businesses are not unnecessarily inconvenienced. An audit by the Netherlands Court of Audit has found that the anti-money laundering approach has serious consequences for citizens and businesses and there are indications of discrimination. Yet little is known about the approach’s effectiveness.
Growing number of unusual transaction reports
The number of unusual transaction reported by banks has increased from nearly 250,000 in 2020 to more than 530,000 in 2024. Under the Money Laundering and Terrorist Financing (Prevention) Act (WWFT), banks are required to report unusual transactions, including possible money laundering, to Financial Intelligence Unit-The Netherlands (FIU-NL). De Nederlandsche Bank (DNB, the Duch national bank) supervises compliance with this requirement.
Serious consequences
The Court of Audit looked at how the anti-money laundering approach in the banking sector worked in practice for three groups: politically exposed persons (PEPs, for this audit chiefly former politicians and former judges), religious institutions and hospitality businesses. PEPs and religious institutions (particularly mosques and migrant churches) say they often undergo far-reaching due diligence checks. In some cases they were unable to open bank accounts, their accounts were closed or they could not transfer money to family or businesses abroad. Interviewees said the checks were too rigorous because, for instance, their family members were also checked. Most hospitality businesses, by contrast, did not perceive the checks to be so rigorous, even though this is also a high-risk sector for money laundering.
90% of the politically exposed persons (PEPs) who completed the questionnaire said they had been checked by their banks
A relatively high number of the unusual transactions that banks reported to FIU-NL (61.8% of the those examined by the Court of Audit) concerned people with a foreign-sounding surname. This is disproportionate to the number of people with a migration background in the Netherlands. This could be a sign of discrimination, but it need not necessarily be so. Labour migrants, for instance, might be victims more often of labour exploitation. Our audit was unable to explain the overrepresentation of foreign-sounding names.
Our audit of religious institutions found that mosques in particular were asked about the purpose and source of their transactions, also when the transactions did not involve cash deposits or foreign transfers. This was not the case for catholic and protestant churches we interviewed. The Court of Audit believes this may be indicative of discrimination. The Minister of Finance received signals of discrimination in the banking sector in 2022 and has since been monitoring the situation annually. DNB’s investigations also find indications of discrimination in the banking sector.
If it can be demonstrated that the anti-money laundering approach works and is risk based, a distinction between groups of citizens and businesses may be justifiable. However, there is no insight into the effectiveness of the approach and it accordingly cannot be said that the distinction is justified.
No insight into effectiveness
It is not clear whether the increase in bank checks actually contributes to the prevention and detection of money laundering. In several areas, the parties concerned do not have the necessary insight. The ministers and DNB, for instance, do not evaluate the approach’s results. It cannot be said from FIU-NL’s investigations how many of the total number of reports relate to money laundering or how much money is actually involved. It is in any case very difficult to prove that money laundering is being prevented.
Clear and comprehensive bank reports contribute to the detection of money laundering. To gain an insight into the effectiveness of anti-money laundering checks, the Court of Audit looked at the quality of the banks’ reports. It differs from bank to bank. FIU-NL, however, does not check for quality and DNB’s banking supervision does not consider the quality of reports.
Cost to banks increasing
Not only citizens bear the burden of the anti-money laundering approach. Banks said the cost of compliance with the WWFT amounted to €1.16 billion in 2021, rising to about €1.6 billion in 2024. The 9 banks interviewed for this audit deployed 13,000 FTEs to combat money laundering in 2024. DNB does not share information on the cost to banks with the Minister of Finance. The minister receives no other information on the cost of compliance with the WWFT.
The cost of the Money Laundering and Terrorist Financing (Prevention) Act (WFFT) is increasing
Considerations for DNB and FIU-NL
A joint approach involving all links in the chain should be taken to prevent possible discrimination and improve insight into the results of the anti-money laundering policy. Only when it is known what works in practice and there is a good insight into risk groups can launderers be apprehended and other people will not be unnecessarily burdened. The Minister of Finance and the Minister of Justice write in their response to our audit that they are seeking to make the results of the anti-money laundering approach more transparent. This is not a new ambition. What is needed after 3 successive money laundering action plans since 2019 and a series of investigations into possible discrimination are concrete measures that produce results in the immediate future. The ministers refer in their response to the responsibilities of the various parties concerned and note that the Minister of Finance has deliberately been positioned at some- distance from DNB. This makes us wonder whether there is a sufficient sense of urgency to work jointly with all links in the chain to prevent possible discrimination and improve insight into results.