Public-private partnership, TBML and the automotive sector

By Tamara Pollard-Maijer

A number of years ago, the AMLC started to invite chain partners to tackle Trade Based Money Laundering. We quickly concluded that the information positions of all organizations involved were so fragmented that in order to combat TBML, we need to work together. The puzzle pieces need to be fitted together. At the end of 2019 this cooperation was intensified by positioning it under the flag of the Financial Expertise Center (FEC) Unit. Fertile cooperation arose based on sharing knowledge about phenomena, without the exchange of personal data. Because public-private cooperation is challenging enough in itself, it was jointly decided to delimit the cooperation to a subject we are confronted with in practice in the Netherlands: the integration of immense amounts of cash in the automotive industry. Among other things we cooperated with the four largest Dutch banks, the Dutch Tax Authorities, FIU-the Netherlands and the Public Prosecution Service (National Public Prosecutor's Office for Financial, Economic and Environmental Offences).

Traditionally, the automotive industry in the Netherlands has the image of being cash based. This image of the sector also appeared to prevail for a number of the partners we worked together. However, it is now 2020 and the Netherlands definitely does not have a cash based economy. We wondered: what today, in 2020, still legitimizes business to business cash payments in the Dutch automotive industry? Where does all this cash come from? What do we facilitate by accepting these cash payments? This is a typically Dutch phenomenon. However, the main objective of the cooperation was to obtain insight into the industry. To assess whether a customer is compliant you don’t just have to know the customer (Know Your Customer, KYC), you also need to be familiar with the industry in which the customer operates, Know Your Sector (KYS). Is it logical that a payment in a specific sector which was made in a certain country takes place in advance? Is it logical that a customer imports certain products from country X? Or would you expect the goods flow to be reversed?

But how do you obtain knowledge about the industry and how do you know what is usual in a specific industry? In order to determine this in the automotive industry we have adopted SBI-codes[1] as a basis upon which enterprises are registered in the Chamber of Commerce. The cooperating banks subsequently reviewed this study population. What is usual in relation to cash acceptance? What denominations are deposited? What is a usual amount of cash in respect of total sales? We furthermore looked at similarities between car dealers and buyers involved in suspicious transactions and based on these, drew up indicators. We also examined the arguments put forward to pay cash in the sector. Are these arguments sound? Besides these studies, the cooperating organizations took stock of where they could create barriers to reduce cash integration.

The most important conclusion appeared to be that the assumptions about the automotive industry were incorrect. Cash payments in the Dutch automotive industry appeared to be unusual. What is more, only 10-15% of the payments are made by cash. 50-80% of Dutch car dealers do not deposit any cash at all. Therefore, the sector turned out not to be cash based at all. When examining the problem together, we realized that KYS is at least as important as KYC. Once again, this is a Dutch case which should be viewed in a Dutch context, but globally, there are prejudices about lots of sectors that can only be analyzed or refuted through cooperation.

The conclusions have led to the cooperating banks taking measures in the sector. The precise measures naturally differ per bank, but examples are cash deposit limits for customers in the automotive industry, and less acceptance of large denominations. Furthermore, there is now more awareness; the sector is no longer labelled as cash intensive. Large amounts of cash form a reason to conduct an investigation.

We noticed something else too, namely the use of security transport companies. If entrepreneurs make use of security transport companies, the cash collected from these entrepreneurs is generally banked elsewhere than with the entrepreneur’s principal bank. The banks found it hard to make these cash deposits transparent. Through the cooperation, good agreements have now been made with the security transport companies.

In the Netherlands, a cash payment limit is currently being introduced. Countries in the close vicinity of the Netherlands, such as Belgium and France, have had such a limit for some time. In other countries such as Germany, the economy is still very cash based. The cash is now expected to be integrated elsewhere. After all, the cash proceeds, among other things from the trade in narcotics and human trafficking, have to be banked somewhere. Criminals are inventive and creative. Until the payment limit has entered into force, we expect the cash to be integrated in other sectors. Examples of these industries are those where cash payments are still assumed to be usual, other payment methods and transfers to other countries. Because we thought about this in advance, it’s now closely monitored by the banks.

Based on our experience in this area we also wish to show that cooperation is the key to successfully making progress in tackling financial-economic crime. We are keen to learn about other public-private partnerships and good practices. You can contact us by sending an e-mail to aml.centre_postbus@belastingdienst.nl

[1] SBI stands for Standard Business Indicator. Each business that registers in the Trade Register is awarded one or more SBI-codes. This code consists of 4 or 5 figures and indicates a business’s activity.