24/08/21

NETHERLANDS: Finance minister considering ban on trust offices with many hiding under the radar.

As published on nltimes.nl, Tuesday 24 August, 2021.

Minister of Finance Wopke Hoekstra stated in a letter to the Tweede Kamer he is considering banning trust offices because he “doubts the added value of a sector that poses a high risk to integrity and has large difficulty following legislation.”

Foreign companies use trust offices for administrative purposes. They can be meant to ensure that illegal cash flows do not enter the Netherlands. Trust offices also manage letterbox companies, can sell businesses, and operate as a trustee, according to the Dutch Central Bank.

In the past, trust offices have been linked to money laundering and tax avoidance or tax evasion, the Panama Papers revealed. To avoid being labeled as a trust office, some companies offer their services separate from each other.

A study from the research center SEO showed that around one-third of all trust offices were not being monitored, the Financieele Dagblad reported. Yet because illegal trust offices operate under the radar, they make up only around 15 percent of the entire sector. “These estimates show that possibly illegal activity in the sector is substantial”, Hoekstra wrote.

The supervision of trust offices was intensified in 2019 but the Netherlands is still considered a global tax haven. Only the British Virgin Islands, the Cayman Islands and Bermuda had a larger cash flow in and out of the country last year than the Netherlands.

Martin Wörsdörfer, a former MP for the VVD and now the chair of trust office association Holland Quaestor, said a ban on trust offices will not solve the problem. “There is the risk that with a complete ban, everything will disappear into illegality”, Wörsdörfer said.

Lawyer Melis van der Wulp from Libertas Advocaten agreed: “There is no reason for that. The minister does not seem to differentiate between licensed trust offices that are supervised and illegal offices which, in some cases, consciously evade everything.”

Hoekstra has also been contemplating heavier fines for trust offices that do not follow the law. Currently, the Dutch Central Bank is allowed to issue fines of up to five million euros and courts can hand out prison sentences of up to two years for violations.