Reinier advises national and international companies
reinier.russell@russell.nl +31 20 301 55 55Niek is an expert in corporate and financial law
niek.vandergraaf@russell.nl +31 20 301 55 55Under the Money Laundering and Terrorist Financing (Prevention) Act (Wwft), banks may be obliged to refuse a customer or terminate their relationship with them. This can also happen to charities. When is a bank permitted to terminate the relationship? And must a customer cooperate with a bank’s investigation?
Banks may terminate a customer relationship following an investigation into the risk of money laundering or terrorist financing. This will mainly occur when the bank lacks sufficient insight into the customer’s cash flows, spending purposes or policies. This is often the case with civil society organisations operating in countries designated by the EU as high-risk third countries. In such cases, transparency and accountability on the part of the charity in question are crucial for the bank to comply with the Money Laundering and Terrorist Financing (Prevention) Act (Wwft).
The Wwft requires banks to continuously monitor customers and investigate suspicious transactions (known as Client Due Diligence, CDD). This applies not only to private customers but also to civil society organisations such as foundations and associations. Banks’ investigation into the origin of funds involves gathering information about the customer, such as tax returns, corporate structures and the ultimate beneficial owners of foundations or associations. Banks must determine whether the customer is involved in high-risk activities, such as money laundering or terrorist financing.
Banks not only carry out checks prior to opening an account, but also remain vigilant for suspicious transactions throughout the customer relationship. For example, if a foundation receives large cash donations or makes payments to high-risk countries, the bank may decide to conduct further checks into the origin and destination of these funds. High-risk countries are those where the risks of money laundering or terrorist financing are considered high.
Customer due diligence can be a lengthy process, during which the bank requests increasingly detailed information. If, as a result of this investigation, the bank has doubts about the origin or destination of the funds, or if the investigation cannot be fully completed, the bank is legally obliged to terminate the customer relationship. The Wwft leaves no room for discretion in this situation. The bank must terminate the relationship if the due diligence cannot demonstrate that no high-risk activities are taking place.
One of the main reasons why foundations and associations in the Netherlands are increasingly facing reluctance from banks is aid work in high-risk third countries. Consider, for example, charities raising funds for aid projects in conflict zones, or foundations working in regions that are politically or economically unstable.
When a foundation raises money in the Netherlands and sends it to a country classified as high-risk by the European Commission, the bank must be particularly vigilant. This is because banks must ensure that the money they process is not used for money laundering or the financing of terrorism. This can be problematic for the bank, which cannot always be certain that the money actually benefits the intended project. It is difficult to ascertain whether the funds are actually being used to build a school, provide medical aid or offer food aid, or whether they end up elsewhere via complex networks.
Due to the risk of substantial fines from regulators, banks are becoming increasingly strict in their compliance with laws and regulations. Last year, for example, Bunq and Volksbank were fined several million euros by De Nederlandsche Bank (DNB).
Banks are finding it increasingly difficult to manage these risks, as it involves costs to carefully investigate and verify every customer file. This process is time-consuming and costly for the banks, which, if they have doubts about the origin of the funds or the risks associated with a customer, would rather terminate the relationship than risk incurring heavy fines or reputational damage.
This far-reaching measure is often challenged in court proceedings. However, the court often rules in the bank’s favour. At the end of last year, for example, the Amsterdam Court of Appeal ruled that ABN AMRO was entitled to terminate its banking relationship with an aid organisation operating in high-risk countries.
The bank conducted an investigation into the foundation but was unable to gain clarity regarding the flow of funds and the purposes for which they were spent. The foundation’s structure lacked sufficient transparency, and there was a lack of documentation regarding its policies. As a result, the bank was unable to verify whether the funds were actually being used for the intended purposes. The foundation objected to the termination, but despite its cooperation with the investigation, the court ruled that the bank was entitled to terminate the customer relationship.
In another court case, the Amsterdam District Court took a similar line. In this case too, the bank was permitted to terminate the customer relationship because it had not gained sufficient insight into the foundation’s spending objectives and risk policy. The foundation argued that it was not possible to work with written agreements and invoices for the projects, meaning that this would not change in the future either.
Because customer due diligence is costly and time-consuming, and a bank can only terminate a relationship as a last resort following such an investigation, banks would rather be rid of potentially difficult customers than keep them. As a result of the strict regulations surrounding the Wwft, it is therefore becoming increasingly difficult for foundations and associations to open a bank account. As many as 52% of foundations and associations in the Netherlands are facing problems with their bank accounts. They encounter significant difficulties in obtaining an account or are constantly required to explain the origin of their funds and the objectives of their activities, according to a survey by the radio programme Argos.
It is important that foundations and associations cooperate fully with their bank’s customer due diligence. This means you must provide the requested documents and information promptly and in full. However, it is important to note that the bank cannot request information without justification. There must always be a clear reason for requesting specific data, and the bank may not collect information without a legitimate reason. So-called ‘fishing expeditions’ are therefore prohibited.
Keep the bank informed of any changes in your organisation, such as changes to its structure, activities or significant cash flows. This can help prevent the bank from unexpectedly deciding to investigate your account. Also be transparent about the origin of your funds, especially if they come from high-risk countries or via cash donations. Bear in mind that the General Banking Terms and Conditions, which in many cases apply to your banking relationship, require you to notify your bank of any changes.
It is crucial to maintain internal records that provide insight into your transactions, cash flows and the origin of funds received. This not only helps you comply with legal requirements but also ensures you can respond quickly if the bank requests additional information.
Ensure your organisation has clear, well-documented processes for recording financial data, particularly when dealing with large cash flows to high-risk countries. This makes it easier for the bank to verify the legitimacy of your activities and prevents unexpected investigations or even the termination of the banking relationship. Good documentation is also vital for complying with other obligations, such as those for obtaining and retaining ANBI status.
Our experts in the non-profit sector can help you navigate the strict Wwft requirements and ensure that communication with the bank runs smoothly. We can also assist with restructuring business processes so that the bank considers your organisation to be less risky. Legal support can also help resolve conflicts with the bank or prevent the termination of the customer relationship.
Are you experiencing problems with your bank (or bank account) and would you like to know what your options are? Do you have questions about the Wwft or other regulations for non-profits? Our specialists are happy to assist you. Please contact us:
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