What Dutch banks need to understand about TMNL and AML

Listen to TMNL 101: How Dutch Banks Can Lead AML from the Front (9 mins):

When the Transaction Monitoring Netherlands (TMNL) launches in the Netherlands, it will usher in a new era of information-sharing among participating Dutch banks. Here’s what TMNL will mean for the Netherlands financial services sector. 

What is TMNL?

TMNL is a joint intelligence-sharing initiative of five major Netherlands-based banks: ABN AMRO, ING, Rabobank, Triodos Bank, and de Volksbank. Under TMNL, the five Dutch banks have agreed to collectively monitor activity across their institutions that appears connected to serious crimes such as money laundering and terrorist financing. The joint monitoring effort officially kicked off last year. A private limited company, TMNL B.V., has also been established to oversee the effort.

What TMNL Means for Dutch Banks

TMNL allows the five founding banks to jointly monitor and report unusual transactions that occur on their systems. The initiative aims to prevent and stop money laundering activities in the Netherlands and the criminal activity that it finances. This includes crimes like terrorism, illegal arms dealings, illegal drugs, and human trafficking, to name just a few. If the banks identify “unusual” patterns, they will report them to the Financial Intelligence Unit (FIU). It will start with all commercial payments of entities with Dutch bank accounts.

TMNL is arguably one of the most ambitious national AML initiatives to date. Preventing financial crime requires banks to do more than just look at AML in institutional silos. It requires collaboration with other FIs at both the national and international levels. TMNL is a real opportunity to test, learn from, and grow banks’ collective understanding of what the data is teaching us.

The State of Dutch AML Efforts

The banks launched TMNL to address the serious problem of money laundering in the Netherlands’ financial system. According to the Dutch Banking Association (NVB) an estimated 16 billion euros ($18 billion) is laundered through the Netherlands financial services system each year. NVB also estimates roughly 8,000 bank employees in the Netherlands work directly on AML efforts. That figure is on track to increase as monitoring activity picks up.

Regulators in the Netherlands have stepped up enforcement of AML laws in recent years. This has resulted in heavy fines for banks found in violation of the law. ING, for example, was fined $900 million in 2018 for failing to prevent money laundering activities on its system. Earlier this year, ABN AMRO agreed to pay $575 million to settle money laundering charges.

The Tip of the AML Iceberg

TMNL is designed to enhance information-sharing across the participating banks and shed light on criminals’ illegal activities. However, there is more to be done, and TMNL is likely just the starting point.

The full scope of the Dutch money laundering problem is broader. Under the Money Laundering and Terrorism Financing Prevention Act, (known as the Wet ter voorkoming van witwassen en financieren van terrorisme (Wwft), Dutch banks are required to implement several measures as part of their AML strategies. These measures include customer due diligence (CDD), transaction monitoring, sanctions and politically exposed persons (PEP) screening, and adverse media monitoring. 

Long-term aspects of money laundering for the Dutch banking collaboration must still be addressed. TMNL starts with addressing the transaction monitoring piece of Wwft. It’s unclear if the objective is to expand to Wwft’s full range of requirements. What’s more, the initiative currently applies to business and corporate payments made at the participating five FIs. If successful, they will add the retail banking segment before other Dutch banks can join the initiative in the future. That’s when the real impact of TMNL can be assessed.  

Tips for Banks to Address TMNL Requirements

TMNL might not cover the full range of AML strategies covered under the Wwft. But with money laundering activity expected to rise, regulators will inevitably intensify their pressure and scrutiny. 

TMNL is the beginning of the AML journey for Dutch banks. Here are some tips to stay on top of emerging changes.

Break down data silos

The drive to combine fraud and AML forces – an initiative known as FRAML – is driven by the real world of financial crime, as criminals operate across both these areas. Having a platform that can seamlessly handle both fraud and AML compliance data is part of a long-term solution.

Deploy understandable solutions

Whatever requirements TMNL implements to curb money laundering activities, banks must understand how the solution reached its decision. This holds for both rules-based and machine learning systems. Whichever option they employ, investigators will need to have as much context as possible. This is crucial to understanding how criminals operate and ensuring legitimate customers can transact without experiencing unnecessary friction. 

Invest in responsible solutions

The lack of regulation in Responsible AI has created a worldwide problem that is expected to grow substantially over the next few years if industry leaders and governments don’t act quickly. To stay ahead of the issue, initiatives like TMNL should invest in solutions that address AI Bias in their framework.

Implement nimble solutions

As noted earlier, the AML regulation landscape is constantly changing. That’s why investing in AML solutions can’t be seen as a one-and-done fix. The solution banks implement to address todays’ money laundering activities must also be flexible enough to address tomorrow’s unknown challenges. It’s essential that banks invest in transaction monitoring solutions that respond quickly and efficiently to new customer behaviors and regulatory requirements.

Allow for comprehensive risk view 

TMNL requires participating banks to fulfill Wwft’s transaction monitoring requirements. Regulators will very likely require participating FIs to focus their joint compliance efforts on additional areas of Wwft, including CDD, sanctions and PEP screening, and more. To create the most comprehensive view of risk, initiatives like TMNL must implement solutions that cover these additional requirements instead of focusing solely on transaction monitoring.

TMNL appears to be the first step among Dutch banks to more aggressively address money laundering in the nation’s financial services sector. If Dutch banks are to fulfill their role as “gatekeepers”  that prevent criminals from accessing legitimate banking systems, as NVB has suggested, they will need to focus on solutions that are flexible and responsive to future needs. While the regulatory landscape is in flux, it’s essential to focus on forward-looking solutions.

The EU’s payments landscape promises to look very different when the European Payments Initiative goes live. Download our eBook, The European Payments Initiative: A Guide for EU Banks to learn how to prepare.