Banks face severe legal, financial and reputational risks when their clients engage in tax evasion or tax avoidance. Management of tax integrity risks by banking clients is therefore a key topic for banks operating in the Netherlands.
Under the Dutch Financial Supervision Act, banks are required to take preventive measures to reduce the risk of their clients being involved in Financial Economic Crimes (FEC) and they should guarantee the integrity of the financial system. The Dutch Central Bank (DNB), as supervisory authority, assesses whether banks are adequately equipped to recognize and manage such risks. As pillars of the financial system, banks also face strong political and societal pressure to avoid relationships with clients that are considered socially unacceptable. All this should be balanced with the bank’s commercial objectives: categorically excluding groups of clients is commercially undesirable. But banking revenues from highrisk clients may not outweigh the heavy cost of compliance either, which is aggravated by the shortages on the KYC/CDD labour market. Through BDO’s approach, banks can find the optimum between these competing interests.
In July, the DNB published an important document on good practices for banks when managing tax integrity risks by their clients (Good practices fiscale integriteitsrisico’s bij cliënten van banken). DNB considers it a good practice that banks take the following four steps:
- Scan of the client portfolio;
- Formulate an Integrity Risk Appetite
- Perform individual Client Due Diligence (CDD)
- Transaction monitoring and employee training.
BDO’s approach is fully embedded in these four steps
Read the full report here