Over the past years the Dutch trust sector has become a highly regulated sector. Trust offices in the Netherlands are under strict supervision. The reason for this is that the regulator has eventually understood and realised that trust offices are at great risk of becoming involved in money laundering or conducting business with fraudulent parties. In order to be able to supervise trust offices and to regulate the sector, the Dutch Trust office supervision act (Wtt) entered into force in 2004. On the basis of this law, trust offices have to meet several requirements in order to be able to conduct their activities. Recently yet another amendment to the Wtt was adopted, which came into force on January 1, 2019. This legislative amendment entails, among other things, that the definition of provider of domicile according to the Wtt has become broader. As a result of this amendment, more institutions fall within the scope of the Wtt, which can have major consequences for these institutions. In this article will be explained what the amendment of the Wtt entails with regard to the providing of domicile and what the practical consequences of the amendment are within this area.
1. The background of the Dutch Trust office supervision act
A trust office is a legal entity, company or natural person who, professionally or commercially, provides one or more trust services, with or without other legal entities or companies. As the name of the Wtt already indicates, trust offices are subject to supervision. The supervising authority is the Dutch Central Bank. Without a permit from the Dutch Central Bank, trust offices are not allowed to operate from an office in the Netherlands. The Wtt includes, among other subjects, the definition of a trust office and the requirements that trust offices in The Netherlands must meet in order to obtain a permit. The Wtt classifies five categories of trust services. Organizations that provide these services are defined as a trust office and require a permit according to the Wtt. This concerns the following services:
- being a director or partner of a legal person or company;
- providing an address or a postal address, together with providing additional services (providing of domicile plus);
- making use of a conduit company for the benefit of the client;
- selling or mediating in the sale of legal entities;
- acting as a trustee.
The Dutch authorities have had various reasons for introducing the Wtt. Prior to the introduction of the Wtt, the trust sector had not, or barely, been mapped, particularly with regard to the large group of smaller trust offices. By introducing supervision, a better view of the trust sector could be accomplished. The second reason for introducing the Wtt is that international organizations, such as the Financial Action Task Force, pointed out an increased risk for trust offices to become involved in, among other things, money laundering and fiscal evasion. According to these organizations, there was an integrity risk in the trust sector that had to be made manageable by means of regulation and supervision. These international institutions have also recommended measures, including the know-your-customer principle, which focusses on incorruptible business operations and where trust offices need to know with whom they conduct business. Intended is to prevent that business is conducted with fraudulent or criminal parties. The last reason for introducing the Wtt is that the self-regulation with regard to trust offices in the Netherlands was not considered to be sufficient. Not all trust offices were subject to the same rules, since not all offices were united in a branch or professional organization. Moreover, a supervisory authority that could ensure enforcement of the rules was missing.[1] The Wtt then ensured that clear regulation regarding trust offices was established and that the aforementioned problems were addressed.
2. The definition of providing of domicile plus service
Since the introduction of the Wtt in 2004, there have been regular amendments to this law. On November 6, 2018, the Dutch Senate adopted a new amendment to the Wtt. With the new Dutch Trust office supervision act 2018 (Wtt 2018), which entered into force on January 1, 2019, the requirements that trust offices have to meet have become stricter and the supervisory authority has more enforcement means available. This change has, among others, extended the concept of ‘providing of domicile plus’. Under the old Wtt the following service was considered a trust service: the provision of an address for a legal entity in combination with the performing of additional services. This is also called the provision of domicile plus.
First of all, it is important to understand what exactly the provision of domicile entails. According to the Wtt, the provision of domicile is the providing of a postal address or a visiting address, by order or a legal entity, company or natural person that does not belong to the same group as the provider of the address. If the entity that provides the address performs additional services in addition to this provision, we speak of the provision of domicile plus. Together, these activities are considered a trust service according to the Wtt. The following additional services were concerned under the old Wtt:
- giving advice or providing assistance in private law, with the exception of performing reception activities;
- giving tax advice or taking care of tax returns and related services;
- performing activities relating to the preparation, assessment or audit of the annual accounts or the conduct of administrations;
- recruiting a director for a legal entity or company;
- other additional activities that are designated by general administrative order.
The provision of domicile together with the performing of one of the additional services mentioned above is regarded a trust service under the old Wtt. Organizations that provide this combination of services must have a permit according to the Wtt.
Under the Wtt 2018, the additional services have been slightly modified. It now concerns the following activities:
- giving legal advice or providing assistance, with the exception of performing reception activities;
- taking care of tax declarations and related services;
- performing activities relating to the preparation, assessment or audit of the annual accounts or the conduct of administrations;
- recruiting a director for a legal entity or company;
- other additional activities that are designated by general administrative order.
It is clear that the additional services under the Wtt 2018 do not deviate much from the additional services under the old Wtt. The definition of giving advice under the first point is slightly expanded and the provision of tax advise is taken out of the definition, but otherwise it concerns almost the same additional services.
Nevertheless, when the Wtt 2018 is compared to the old Wtt, a great change with regard to the provision of domicile plus can be seen. Pursuant to article 3, paragraph 4, sub b Wtt 2018, it is prohibited to carry out activities without a permit on the basis of this law, that are aimed at both the provision of a postal address or a visiting address as referred to in section b of the definition of trust services, and at the performing of additional services as referred to in that part, for the benefit of one and the same natural person, legal entity or company.[2]
This prohibition arose because the provision of domicile and the performing of additional services are often separated in practise, which means that these services are not conducted by the same party. Instead, one party for example performs the additional services and then brings the client in contact with another party that provides domicile. Since the performing of additional services and the provision of domicile are not conducted by the same party, we do in principle not speak of a trust service according to the old Wtt. By separating these services, there is also no permit required according to the old Wtt and the obligation to obtain this permit is thus avoided. In order to prevent this separating of trust services in the future, a prohibition has been included in article 3, paragraph 4, sub b Wtt 2018.
3. Practical consequences of the prohibition of separating trust services
According to the old Wtt, the activities of service providers that separate the provision of domicile and the performing of additional activities, and have these services performed by different parties, do not fall within the definition of a trust service. However, with the prohibition from article 3, paragraph 4, sub b Wtt 2018, it is also prohibited for parties who separate trust services to conduct such activities without a permit. This entails that parties that wish to continue to perform their activities in this way, require a permit and therefore also fall under the supervision of the Dutch National Bank.
The prohibition entails that service providers provide a trust service according to the Wtt 2018 when they carry out activities that are aimed at both the provision of domicile and at the performing of additional services. A service provider is therefore not allowed to perform additional services and to subsequently bring his client in contact with another party that provides domicile, without having a permit according to the Wtt. Furthermore, a service provider is not allowed to act as an intermediary by bringing a client into contact with various parties that can provide domicile and perform additional services, without a permit.[3] This is even the case when this intermediary does not provide domicile itself, nor performs additional services.
4. Referring clients to specific providers of domicile
In practise, there are often parties that perform additional services and subsequently refer the client to a specific provider of domicile. In return for this referral, the provider of domicile often pays a commission to the party that referred the client. However, according to the Wtt 2018, it is no longer permitted that service providers cooperate and deliberately separate their services in order to avoid the Wtt. When an organization performs additional services for clients, it is not permitted to refer these clients to specific providers of domicile. This namely implies that there is a cooperation between parties that is aimed at avoiding the Wtt. Moreover, when a commission is received for referrals, it is apparent that there is a cooperation between parties in which trust services are separated.
The relevant article from the Wtt speaks about performing activities aimed at both providing a postal address or a visiting address and at performing additional services. The memorandum of amendment refers to bringing the client in contact with different parties.[4] The Wtt 2018 is a new law, so at this moment there are no judicial rulings with regard to this law. Furthermore, relevant literature only discusses the changes that this law entails. This means that, at this moment, it is not yet clear how the law will exactly work in practice. As a result, we do not know at this moment which actions exactly fall within the definitions of ‘aimed at’ and ‘bringing in contact with’. It is therefore currently not possible to say which actions fall exactly under the prohibition of article 3, paragraph 4, sub b Wtt 2018. However, it is certain that this is a sliding scale. The referring to specific providers of domicile and the receiving of a commission for these referrals is considered as bringing clients in contact with a provider of domicile. The recommending of specific providers of domicile with which one has good experiences poses a risk, although the client is in principle not directly referred to a provider of domicile. However, in this case a specific provider of domicile that the client can contact is mentioned. There is a good chance that this will be seen as ‘bringing the client in contact’ with a provider of domicile. After all, in this case the client does not have to make any effort himself to find a provider of domicile. It is still the question whether we speak of ‘bringing the client in contact with’ when a client is referred to a filled-in Google search page. This is because in doing so, no specific provider of domicile is recommended, but the institution does provide names of providers of domicile to the client. In order to clarify which actions exactly fall within the scope of the prohibition, the legal provision will have to be further developed in the case law.
5. Conclusion
It is clear that the Wtt 2018 can have major consequences for parties that perform additional services and at the same time refer their clients to another party that can provide domicile. Under the old Wtt, these institutions did not fall within the scope of the Wtt and therefore did not require a permit according to the Wtt. However, since the Wtt 2018 has entered into force, there is a prohibition on the so-called separating of trust services. From now on, institutions that perform activities that focus on both the provision of domicile and on the performing of additional services, fall within the scope of the Wtt and need to obtain a permit according to this law. In practise, there are many organizations that perform additional services and then refer their clients to a provider of domicile. For each client that they refer, they receive a commission from the provider of domicile. However, since the Wtt 2018 entered into force, it is no longer permitted for service providers to cooperate and to deliberately separate the services in order to avoid the Wtt. Organizations that work on this basis, should therefore take a critical look at their activities. These organizations have two options: they adjust their activities, or they fall within the scope of the Wtt and therefore require a permit and are subject to supervision of the Dutch Central Bank.
[1] K. Frielink, Toezicht Trustkantoren in Nederland, Deventer: Wolters Kluwer Nederland 2004.
[2] Kamerstukken II 2017/18, 34 910, 7 (Nota van Wijziging).
[3] Kamerstukken II 2017/18, 34 910, 7 (Nota van Wijziging).
[4] Kamerstukken II 2017/18, 34 910, 7 (Nota van Wijziging).
