Note: This op-ed originally appeared on The Sentry’s Medium and was written by Michelle Kendler-Kretsch, Investigator at The Sentry.
Corruption in Central Africa Risks Contaminating the Dutch Financial Sector
Trillions of dollars in foreign money flows through the Netherlands each year. With a business-friendly tax and regulatory system, the country is a destination of choice for corporations looking to protect their investments and minimize their tax obligations. But they aren’t the only parties interested. Nefarious business operators exploiting the same advantages may be exposing the Dutch financial sector to illicit financial flows that represent the proceeds of corruption, violence, and predatory enterprises from around the world.
A study by The Sentry evaluated the risks to the Dutch financial sector generated by potential connections to corruption in Africa’s Great Lakes region, which includes Burundi, the Democratic Republic of Congo (DRC), Kenya, Malawi, Rwanda, Tanzania, and Uganda. Commissioned by the Dutch Ministry of Foreign Affairs, the study identified several risk factors for money laundering and corruption, including the use of secrecy jurisdictions. It also found numerous connections between Dutch nationals and companies and politically connected people in the Great Lakes region, signaling possible risks of bribery and corruption. Additionally, it found that dozens of the top companies involved in the high-risk extractives industry — precious metals, oil, and other valuable resources — have Netherlands-based companies in their corporate structures.
Take, for example, Israeli businessman Dan Gertler. Like thousands of other businessmen, Gertler controls companies incorporated in the Netherlands. He is also subject to US sanctions after profiting from hundreds of millions of dollars’ worth of opaque and corrupt mining deals in the DRC. According to the US Treasury Department, in a single two-year period, companies under Gertler’s control bought underpriced assets from the DRC that resulted in the country losing over $1.36 billion (€1.16 billion) in revenue. Today, as the DRC fights the COVID-19 epidemic with limited resources and medical equipment, that revenue is sorely missed. And some of it may have flowed through the Netherlands, even though Gertler’s name is nowhere on Dutch corporate records.
In order to protect the Dutch financial sector from illicit financial activity, the gatekeeper role is critical. The new bill to tackle money laundering that was approved by the Dutch Council of Ministers in September 2020 and will be discussed by Parliament in 2021 offers an opportunity for the Netherlands to not only protect its financial sector, but also prevent corrupt actors and entities from looting public coffers and maximizing their profits with impunity.
The bill — Plan van aanpak witwassen — was published in June 2019 and aims to raise barriers for criminals using the financial system for money laundering. The plan prohibits providing trust services involving high-risk countries. It also increases the avenues for investigating money laundering by offering legal options for joint transaction monitoring by banks and by easing hurdles for financial institutions sharing data.
Complex corporate structures are designed to be opaque and convoluted, and information sharing decreases the knowledge gap that corrupt actors exploit. The improved information sharing between financial institutions established by the Transactie Monitoring Nederland (TMNL) and further enabled by the new bill will reveal the full extent of financial activities, exposing unusual patterns more efficiently than banks acting alone.
But there is still more that can be done. Given the Netherlands’ strategic position, the Dutch government and banking sector can obtain unique insights into opaque corporate structures and activities through enhanced due diligence exercises. While banking due diligence requirements may be focused on beneficial owners, they should also include anyone who benefits financially from business operations with or exposure to politically connected people. The Dutch government should use its leverage as an attractive jurisdiction to require corporations to provide sufficient information to conduct necessary due diligence on all activities conducted by Netherlands-based companies and their subsidiaries.
If the Netherlands wants to maintain its competitive tax regime without putting the system at undue risk, it must also take on the responsibility of monitoring, investigating, and prosecuting cases of corruption, money laundering, and looting that pass through its jurisdiction. These actions will protect the foreign direct investment the Netherlands values while weeding out illicit actors. Additionally, when corrupt actors are identified, the Dutch government can activate its solid public-private partnerships and turn the investigations into prosecutions, creating consequences for those who often believe they can get away with it all.
By taking on cases that involve Netherlands-based companies and their subsidiaries, the Netherlands can assist countries in the Great Lakes and elsewhere that are struggling to sufficiently combat the illicit financial activity that fuels violence and conflict. As a leader on human rights, the Dutch government should not hesitate to invest the financial resources necessary. Specifically, the government should continue to increase investigative resources for the Dutch Prosecution Office and Financial Intelligence Unit and to encourage robust public-private solutions to fighting illicit financial flows.
Corruption perpetuates a cycle that enables human rights violators and war profiteers, and the Netherlands is at the heart of the international criminal justice system. The Dutch promotion of international rule of law, explicitly enshrined in its constitution, calls for those war criminals who have committed the most heinous crimes to be held to account. Now is the chance for the country to uphold this standard and bring a similar sense of justice to international financial crimes. If the bill is approved by Parliament, the Netherlands will have the leverage, access, and an improved plan of action to make that happen.
Michelle Kendler-Kretsch is an Investigator at The Sentry, an investigative team that tracks dirty money linked to war and mass atrocities. Now based in the US, she grew up in the Netherlands.