In a recent case that captured public attention, a worker at the Port of Amsterdam received a six-year prison term for abusing their crucial position to facilitate drug imports. Such illicit activity often serves as a precursor to money laundering, as criminals seek to disguise the proceeds from drug trafficking as legitimate income. This incident underscores the extensive challenge of criminals exploiting legitimate multinational businesses for money laundering and associated predicate offenses. Such illicit activities significantly impact the operations of multinational entities, affecting their financial integrity and operational stability.

This article was written by Sefa Gecikli and Kristi Rutgers. Sefa ([email protected]) and Kristi ([email protected]) are part of RSM Netherlands Business Consulting Services with a strong focus on International Trade matters.

Consider a scenario where a container leasing company is required to cease business activities due to an ongoing criminal investigation. This directly results in a loss of revenue, adversely affecting the company's financial health. Disruptions of business activities due to criminal investigations extend beyond mere financial loss, potentially tarnishing the company's reputation. Acknowledging the critical implications, this article examines the complex challenges multinational entities face in preventing money laundering and adhering AML obligations amidst a landscape with criminal exploitation.  

While the vast majority of multinational companies are committed to conducting their international activities within the bounds of the law and with the highest ethical standards, they can sometimes become unwitting participants in criminal activities due to the sophisticated methods used by organized crime. These illicit activities, known as predicate offenses, can range from drug trafficking and human trafficking to terrorism financing, fraud, corruption, evasion of sanctions and export controls, and environmental crimes. Such activities are often designed to launder the proceeds of crime, with criminal groups using these funds to finance their operations while avoiding detection by law enforcement. In this context, criminals may exploit the multinational companies to conceal the origins of these funds, inadvertently involving these companies in their activities. For example, in several instances, legitimate global shipping and logistics companies have discovered their services were being used to transport illegal goods, such as narcotics, counterfeit items, or wildlife, hidden within legitimate cargo. The "facilitators” shipping company, unaware of the illicit contents, transports these goods across borders. The same criminals might use the shipping company to move goods that appear legitimate but are actually part of a scheme to launder money. They could over-invoice or under-invoice shipments to move money across borders.  

Europol also identifies these risks in their report regarding organized crime threat assessment 2021. The report included an example from the Netherlands. In 2020, the Dutch Police arrested six men suspected of planning kidnappings. The police discovered a warehouse containing seven maritime shipping containers that had been converted into cells. Moreover, EU Commission, in its communication on Strategy to tackle Organised Crime 2021-2025, states that criminal organisations orchestrating the supply chains in international criminal markets cooperate with smaller groups specialised in certain activities such as document fraud, legal advice, encrypted communications or transportation. Europol's investigations and the EU Commission's communications underscore the critical role of multinational enterprises in either facilitating or obstructing criminal activities. 

Regulatory efforts 

Due to the high risks of multinational entities being involved in predicate offenses, regulatory bodies have intensified their efforts to address these risks. While some of these regulatory measures focus on various specific issues, they also play a crucial role in uncovering money laundering schemes. 

Multinational entities in Germany already face these regulatory consequences because of the German Supply Chain Due Diligence Act (Lieferkettensorgfaltspflichtengesetz). This Act aims to improve the conditions regarding human rights and the environment by enforcing a responsible management of supply chains. Parties within the supply chain are for example: the importer, supplier, factory, distribution center, retail and the customer. The Act covers all activities related to manufacturing, processing of products, and provision of services, irrespective of whether these take place in Germany or abroad.

The Germany supply chain Act obligates multinational entities to manage their risks by investigating their supply chain. To comply, these multinational entities must create a strong risk management policy. These policies should assign specific individuals to oversee this process and establish regular evaluations of potential risks. Furthermore, multinational entities are required to take proactive and corrective steps to address human rights and environmental concerns, set up a system for handling complaints, and maintain detailed records and reports to manage risks effectively and ensure regulatory compliance. Furthermore, multinational entities are required to take proactive and corrective steps to address human rights and environmental concerns, they should set up a system for handling complaints, and maintain detailed records and reports to manage risks effectively and ensure regulatory compliance.Although the due diligence mandated by the German Supply Chain Due Diligence Act differs from the due diligence processes typically found in AML frameworks, both are geared towards the overarching objective of fostering ethical and responsible business conduct. In this respect, the findings from supply chain due diligence should direct entities to investigate potential money laundering aspects as well. While the primary focus of supply chain due diligence might be to assess and mitigate risks related to human rights, environmental standards, and compliance with relevant laws, the process can uncover indicators of financial crimes.
While the Netherlands lacks an equivalent law to Germany's for supply chain scrutiny, the German Supply Chain Act is an important example of how to manage the risks relating to predicate offences within supply chains. 

Although the Netherlands does not have a similar law, the  Dutch government embedded facilitating money laundering and underlying predicate offenses in the Dutch Penal Code. In article 420quater of the Dutch Penal Code, ‘schuldwitwassen’ or culpable money laundering is addressed, highlighting the low threshold for legal action. A mere suspicion, based on inadequate explanations for the origin of funds or any peculiarities, may suffice for allegations of money laundering. In addition, as stated in the ‘aanpak ondermijnende criminaliteit’ (approach to undermining criminality) the Dutch government is raising attention to the problem of predicate offences in Multinational Companies, by counteracting companies and administrators who facilitate predicate offences.  

The Dutch government also expects multinational entities to guarantee a responsible business strategy, with encourages companies to be more responsible with their international business by using the framework called the 'Corporate Social Responsibility passport'. This CSR approach is all about making sure companies act ethically everywhere they do business, which helps fight against illegal activities like money laundering by stopping the bad practices that make it possible. By mandating a thorough assessment and addressing risks related to corruption and unethical practices, these aspects can indirectly target money laundering. This approach aims to curtail illicit financial activities by eliminating the shadowy practices that facilitate these flows.

According to the CSR passport, the first steps to developing a policy on international CSR is to consider: 

  • What is the political and human rights situation in the country where you are doing or want to do business? 
  • What environmental issues are at play locally? '
  • How can you combat corruption? 
  • How can you make sure child labor is not involved in your production processes? 
  • Are workers in your supply chain earning a living wage?

As seen, the concerted efforts by regulatory bodies signify a growing commitment to combating predicate offenses and their potential to fuel money laundering.

Forward thinking 

In an era where money laundering and underlying predicate offenses are becoming increasingly sophisticated, the future demands a shift in how multinational entities approach these risks. In this regard, multinational entities need to anticipate a more integrated approach to compliance practices with AML and supply chain due diligence, not only for a good and responsible business conduct but also for the expectations of the stakeholders within the supply chain. 

The stakeholders of multinational entities have a vested interest in ensuring that the business activities of multinational entities are ethically, legally and in a manner that prevents the misuse of their platform for illicit purposes. Stakeholders, such as investors and business partners want to protect their reputational integrity and prevent any financial damage by associations with criminal activities. Moreover, society counts on businesses like multinational entities and their stakeholders to actively contribute to economic and social well-being without facilitating illegal activities. To achieve this goal, entities could take following initial steps:

  • Entities shall initiate evaluations with a comprehensive assessment of the partner's responsible business conduct policies.
  • Entities shall ensure the clear communication of the essential elements of their responsible business conduct policies to all suppliers and relevant business associates.
  • Entities shall ensure the clear communication of the essential elements of their responsible business conduct policies to all suppliers and relevant business associates.
  • Responsible business conduct-related conditions and expectations shall be integrated into contracts or written agreements with suppliers and business partners as a mandatory step.
  • Entities shall develop and implement pre-qualification procedures that incorporate due diligence for suppliers and business relationships, specifically tailored to mitigate the risks associated with each individual partnership.

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