Prohibition on the provision of services by trust offices to clients and their companies established in Russia and Belarus.
On 1 July 2023, the revised Supervision of Trust Offices Act 2018 (Wtt 2018) was further tightened.
INTRODUCTION
The direct reason was the imposition of significant and unprecedented sanctions by the EU against Russia, following Russia’s invasion of Ukraine on February 24, 2022 and the illegal annexation of the Ukrainian regions of Donetsk, Luhansk, Zaporizhzhia and Kherson.
The sanctions include targeted restrictive measures (individual sanctions), economic sanctions and visa measures. Since June 4, 2022, the EU has also prohibited the direct or indirect provision of services in the fields of accountancy, audits (including statutory audits), bookkeeping, tax advisory, business and management consulting or PR, to the Russian government and to legal persons or organizations established in Russia. Companies established in the EU, including subsidiaries of companies established in Russia, must comply with EU sanctions.
For the trust sector in the Netherlands, this concretely meant that on July 15, 2022, the Wtt 2018 was (partially) amended and the provision of services by trust offices to clients, target companies, UBOs of clients and target companies, who are resident in, or have their registered office in, the Russian Federation and the Republic of Belarus, was immediately prohibited.
The new Wtt 2018 as of July 1, 2023
Because the EU sanction measures increased rapidly during 2022 and 2023, and the promised report of an investigation by SEO, regarding the future of the trust sector in the Netherlands, had been completed and sent to Parliament on October 7 with an accompanying letter, the Ministry of Finance has, in my opinion, decided to revise the Trust Offices Supervision Act 2018 in several areas.
An important difference compared to previous amendments or tightenings of integrity legislation, such as the Wtt, is that previously institutions assessed risks per client and, after taking mitigating measures, could still proceed with providing services, whereas the current law no longer leaves room for individual consideration and trust services with a high integrity risk from “sanctioned countries” are by definition prohibited.
The most important amendments in the Wtt 2018 as of July 1, 2023:
The use of a conduit company for the benefit of a client by a trust office is prohibited. Simply explained, a company that belongs to the legal entities of a trust office may no longer be used to channel funds for the benefit of a client. (art. 3a Wtt).
Furthermore, it is once again explicitly confirmed, as already done in the repair legislation of 2022, that trust offices are prohibited from providing services to clients, UBOs of clients, and UBOs of target companies established or having their registered office in the Russian Federation and/or the Republic of Belarus. (art. 23.a.1. a and b Wtt).
In addition, services are prohibited to clients or target companies and their UBOs resident/established in states designated as high-risk countries by the European Commission in the context of the 4th anti-money laundering directive. (art. 23.a.1.c) and;
Services are prohibited to clients, UBOs and their target companies resident/established in states that are non-cooperative in tax matters. (art. 23.a.1.d)
Consequences of this legislative amendment for the trust sector in the Netherlands.
From the answers to parliamentary questions by the Minister of Finance regarding the submitted legislative proposal at the end of 2022, it appeared that the amendment of the legislative proposal with regard to point a will have a very limited impact on the sector as a whole. At the end of 2020, there were only 3 conduit companies registered as such with licensed trust offices.
At the end of 2022, only 16 business relationships (a total of 28 target companies) qualified as clients of all trust offices falling within the scope of art. 23a.
If you have any questions following this article or have questions about the sanction regulations in general or matters relating to your business operations in this regard, please feel free to contact us.
Frank van Buren.