Dutch Crypto Startups Brawl With Regulators Over Scope of EU Money Laundering Rule

Dutch crypto startups are crying foul as local regulators look to implement the EU 5th Anti-Money Laundering Directive ahead of a Jan. 10 deadline.

AccessTimeIconDec 2, 2019 at 12:00 p.m. UTC
Updated Dec 10, 2022 at 8:26 p.m. UTC
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The Takeaway

  • The European Union’s anti-money laundering directive, AMLD5, comes into law this January. EU states must decide how to implement the EU directive as it pertains to cryptocurrency.
  • The Dutch Ministry of Finance (FIN) and Dutch National Bank (DNB) have laid out their own interpretation. Critics say they could do irreparable damage to the young crypto industry.
  • Independent legal review says the proposed implementation purposefully misled the Dutch Parliament.

Dutch crypto startups are crying foul as regulators in the Netherlands look to implement the European Union’s 5th Anti-Money Laundering Directive (AMLD5) ahead of a Jan. 10 deadline.

The firms, which include exchanges and software developers, say authorities are subverting the democratic process and trying to right past wrongs that have nothing to do with the development of a native blockchain industry.

The Dutch Ministry of Finance (FIN) and Dutch National Bank (DNB) are pushing ahead with stringent additions to the EU’s AMLD5 legislation without disclosing them to the Dutch parliament, according to multiple Dutch crypto businesses and a former regulator. They say the authorities failed to pass the new regulations through the proper channels, which include an independent governmental body that reviews legislation before it heads to the Parliament. The Dutch Council of State rejected the new laws earlier this year.

Under the new rules, crypto firms are expected to pay for their own supervision costs and undergo a registration process. The firms see this as as illegal licensing, and point out that amendments to AMLD5 were pulled straight from legislation meant to address regulatory loopholes that were contributing factors in the 2008 banking crisis.

“We do not think it is appropriate to start as a new sector under a supervision financing model that has been explicitly adjusted and weighted up in response to the financial crisis,” crypto exchange Bitonic and crypto regulation body VBNL's Daan Kleiman said in a translated letterhttps://bitcoin.nl/img/posts/408/20191029%20-%20VBNL%20implementatiebesluit%20AMLD5%20v1.0.pdf sent to the Dutch parliament Oct. 30.

“Both the [FIN regulatory] letter and the spirit are at odds with the advice of the Council of State,” Kleiman added.

With less than two months until AMDL5 comes into force, the Dutch crypto community are caught arguing semantics with authorities, which claim to be following both the Council of State’s advice and AMDL5 to the tee.

Haunted by Big Banking

Banking compliance consultant Simon Lelieveldt, who has worked for the DNB and as a Dutch financial historian, said the two entities are trying to be proactive and not repeat past mistakes. Regulators are under pressure from critics who say lax oversight, particularly concerning the Netherlands largest bank, ING, led to the 2008 collapse. ING received a €10 billion government bailout, an amount it eventually paid back with interest.

“If you look at the AML directive in the Netherlands, we had this huge incident where ING was seen to be failing on anti-money laundering measures for about six years,” said Lelieveldt in a phone interview.

“So there's a huge tendency and trend for the central bank to make up for it. The last seven years the central bank is really heavy on integrity supervision because they want to make up for the errors of the past,” he said.

ING was fined $900 million in 2018 for failing to detect money laundering ongoing for years. As Reuters reported at the time, the amount laundered was actually incalculable.

FIN is under similar pressure, Lelieveldt said, as the fraud evaluation from the Financial Action Task Force (FATF) comes next year.

“They want to be seen as the best kid in class. So they're doing everything in their powers to come across as an entity that basically implements each FATF rule to the letter and beyond,” Lelieveldt said.

The crypto industry complains that regulators are instituting a licensing regime, when the EU directive only calls for registration, which carries less onerous validation requirements.

FIN says its implementation is registration and that its has made the necessary changes asked by the Council of State. “The draft bill does not include requirements that go beyond the scope of AMLD5,” said Hayat Eltalhaui, FIN’s spokesperson for the financial sector, in an email to CoinDesk.

The DNB did not return questions for comment by press time.

Lelieveldt, Kleiman and others beg to differ, calling the registration de facto licensing. In fact, Kleiman and the VBNL go as far to say it has the feel of domestic surveillance.

FIN, DNB, and Parliament

This past September, the DNB responded to AMDL5 with long awaited guidance, outlining a registration process ahead of the EU’s January 2020 deadline for enforcement. As CoinDesk reported at the time, the guidance was well received in the Netherlands, although hints of further restrictions were raised as the DNB singled out non-Dutch firms.

Multiple crypto businesses have expressed frustration at stringent add-ons which could lead to added operating costs. Lelieveldt estimated Dutch companies, many of them small firms, could have to pay €150,000 per year to meet the changes.

Under AMLD5, the EU’s 28 nation-states required to toughen up know your customer (KYC) and anti-money laundering (AML) procedures for crypto exchanges or custodial services.

While many EU nations, such as the U.K., have added onto the AMLD5 rules, the Netherlands claims to not have made any adjustments.

According to legal consultation firm Hart Advocaten N.V., FIN and DNB copy and pasted additions from the 2007 act into AMLD5 and then proceeded to deny such additions before Parliament, calling into question the ethics of financial regulation. The accusations were detailed in a letterhttps://bitcoin.nl/img/posts/408/Advies%20't%20Hart%20advocaten%20-%2004112019-%20implementatiewet%20witwassen%20-%20niet%20beleidsarm.pdf on behalf of Bitonic.

“They're basically thumbing their nose to the [Council of State], ignoring what they are saying,” said Lelieveldt. “They are claiming we're doing European implementation and that's it. That’s what rattles everyone. They're basically messing up the democratic system.”

Local businesses minding the gap

While nothing has passed Parliament yet, crypto firms in the Netherlands are taking a risk- averse approach, with many companies declining to speak to CoinDesk publicly out of fear of reprisals such as fines.

Deribit, an Amsterdam-based derivatives exchange, has even hinted at the possibility of exiting the Netherlands as AML/KYC requirements are placed on its exchange this coming January.

“If we continue to operate in the Netherlands, we will need to have those things implemented,” said CEO John Jansen in early October on the Flippening podcast on the coming Dutch interpretation of AMDL5.

Deribit did not return CoinDesk’s request for comment.

Earlier this month, the DNB, FIN, the Dutch IRS and the Financial Intelligence Unit sat down with the top crypto companies in the Netherlands for a five hour presentation on regulatory guidance.

Attendee PJ Datema, founder of Crypto2Cash, said while he believes the regulators are putting new wine in old bottles, he remains upbeat overall, particularly as baseline capital requirements to operate in the crypto field were not proposed at the meeting.

Most of the 150 or so participants at the roundtable were small shops offering single products, Datema said. Financial authorities that typically deal with traditional markets are still learning how to regulate crypto firms.

“[Regulators] kind of accept it but because you can’t ignore it anymore,” Datema said.

Arthur Stolk, managing director at Dutch cryptocurrency fund Icoinic who also attended the meeting, would prefer one unified EU framework so crypto companies can get one license for the whole EU, rather than applying in each state

“It’s a missed opportunity,” he said.


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