27 July 2021
Anti-Money Laundering In Germany
Germany is the European Union’s largest economy and attracts wealth and investment interests from around the world. Unfortunately, as a business hub, Germany is also a popular target for criminals who seek to exploit its financial system to launder illegal money or fund terrorist activities. The fight against money laundering in Germany has become a priority for government and law enforcement authorities: research suggests that around €100 billion is laundered in Germany every year, with a record-breaking spike of almost 115,000 suspected money laundering cases in 2019 – a jump almost 50% from the previous year.
To address the threat posed by money laundering, German authorities have introduced a range of strict anti-money laundering regulations, tightening internal laws and implementing AML/CFT legislation mandated by the EU. Accordingly, banks, financial institutions, and other financial service providers must understand their obligations under AML/CFT law in Germany and how to ensure ongoing compliance. What is Bafin?Germany’s primary financial regulator is the Federal Financial Services Authority (BaFin). Under the authority of the Federal Ministry of Finance, Bafin works to ensure that banks and financial institutions comply with Germany’s AML/CFT regulations. Bafin is also responsible for issuing operational licenses, and conducting investigations when compliance violations are found. Bafin also plays a part in international financial regulation, working with organizations such as the Financial Action Task Force (FATF) and the Basel Committee on Banking Supervision (BCBS) to promote international AML/CFT standards.
The German Anti-Money Laundering Act, known in Germany as Geldwäschegesetz (GWG) is Germany’s main anti-money laundering regulation. GWG codifies the relevant legal requirements for AML compliance in Germany, and sets out the following important information:
- Definitions of the crime of money laundering, obliged entities, and beneficial ownership.
- Risk assessment and risk management requirements.
- Customer due diligence requirements.
- Transparency requirements.
- The role of the German Financial Intelligence Unit (FIU).
- Suspicious activity reporting requirements.
As a member of the EU, Germany must implement the European Parliament’s Anti-Money Laundering Directives (AMLD). In October 2020, the German government passed the Draft Act for the Effective Prosecution of Money Laundering (Gesetz zur Verbesserung der strafrechtlichen Bekämpfung der Geldwäsche) in order to implement the regulatory changes mandated by the Sixth Anti-Money Laundering Directive. The key highlights of 6AMLD include the harmonization of money laundering predicate offenses, an expansion of the scope of the money laundering offence, an expansion of criminal liability to legal persons, and tougher punishments.
Germany’s Draft Act goes beyond the AML/CFT requirements mandated by 6AMLD by removing the concept of ‘predicate offenses’ and instead designates any profits derived from any type of criminal activity under the scope of the money laundering offense.
Following FATF recommendations, BaFin requires firms in Germany to implement risk-based compliance programs, deploying an AML/CFT response proportional to the level of risk they face. In practice, this means that firms operating in Germany must conduct risk assessments of their customers in order to build a risk profile, and implement the following AML measures and controls:
- Customer due diligence: Firms must establish and verify the identities of their customers via suitable due diligence measures in order to understand who they are doing business with. Customers that pose a higher AML risk should be subject to enhanced due diligence measures.
- Transaction monitoring: Firms should monitor their customers’ transactions for unusual activity that does not match their risk profile. Where suspicious activity is detected, firms must submit a suspicious activity report to BaFin quickly and efficiently.
- Sanctions screening: Customers that are subject to international sanctions pose a high compliance risk. Accordingly, firms in Germany must screen their customers against the relevant sanctions and watch lists, including the EU Consolidated List and the UNSC Consolidated List.
- Politically Exposed Persons: Government officials and politicians pose an elevated money laundering risk and qualify as politically exposed persons (PEP). Firms must monitor their customers to establish their PEP status and adjust risk profiles accordingly.
- Adverse media: News stories can be good indicators that customers are involved in financial crime: With that in mind, firms in Germany should monitor for adverse media that involves their customers by checking screen, print, and online news sources.
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