A Guide to Anti-Money Laundering for Crypto Firms
The criminal offense of money laundering (Section 261 of the German Criminal Code) was profoundly restructured by the “Act to Improve Criminal Law Combating Money Laundering” (Money Laundering Act) which came into effect on March 18th 2021. This new regulation helped Germany to implement the European Union’s (EU) Sixth Anti-Money Laundering Directive (6AMLD). However, a closer look at the regulation shows that it goes beyond a mere implementation of the Directive and has significantly tightened AML regulation in several respects.
The legal consequences of tightening Section 261 are not limited to criminal law alone. Rather, there are direct implications for the application of the Money Laundering Act. The definition of money laundering in Section 1 of the Money Laundering Act is linked to Section 261 of the Criminal Code, so any extension of the criminal offense also impacts how the Money Laundering Act is applied.
A move away from ‘catalogue predicate offenses’
According to the previous version of Section 261, money laundering had to be traceable back to one of a number of ‘catalogue predicate offenses’. These were primarily crimes and serious misdemeanors committed by gangs, or on a commercial basis.
The new version of the Act removes the need to connect money laundering to a predefined criminal offense. According to the version of Section 261 now in force, if money laundering originates from any “unlawful act”, that is sufficient for the offense to have been committed. This means that assets derived from a petty offense such as shoplifting can now also be considered to be the object of a criminal money laundering offense.
This legislative shift has changed the way money laundering is conceptualized in Germany, moving away from the original intention to trace “profits from serious criminal offenses.” EU directives do not require member states to broaden their definition of money laundering in this way, suggesting the move is based on domestic political calculations.
Prosecutors gain the upper hand
Until now, a conviction for money laundering required the perpetrator to prove a connection to a specific criminal offense. Now, this threshold of proof has been significantly lowered. Even if the person who committed the predicate offense, the place where the predicate offense took place or the manner in which it was committed cannot be established, a conviction for money laundering is still possible.
The deliberate vagueness that the legislation introduces continues in the area of intent. According to the new version of Section 261, the intentional commission of money laundering no longer requires that the perpetrator had a concrete idea of what the preceding predicate offense was. If the perpetrator considers the origin of the asset to be from an illegal act of any kind, then that is sufficient grounds for a money laundering charge.
A conviction for money laundering is also possible if a court is convinced that the perpetrator did not recognize the origin of the assets to be from an unlawful act, but still grossly violated their duty of care when checking the origin of the funds. This so-called ‘frivolous money laundering’ charge is punishable by imprisonment of up to two years or a fine.
Finally, if the perpetrator is an ‘obligated person’ under Section 2 of the Money Laundering Act, the law provides for a prison sentence of at least three months. Obligated persons include credit institutions, insurance companies and other firms belonging to sectors relevant to money laundering.
Predicate offenses committed abroad
German law already stated that it was irrelevant whether the predicate offense was committed in Germany or overseas. However, in the case of offenses committed abroad, it was necessary to ensure the predicate offense was punishable where it took place. To bring Germany into line with 6AMLD, the legislation now states that criminal liability at the place an offense is committed is no longer relevant in many cases. It makes use of the referral technique by pointing to certain directives and framework decisions of the European Union. This change in the law could be of practical significance above all in the case of bribery in the area of private law, which – unlike bribery of public officials – is not yet punishable in many states.
A tough new approach for Germany
The new version of Section 261 of the German Criminal Code, which came into force in has significantly tightened the offense of money laundering. The imposition of higher penalties while reducing the burden of proof required for a conviction codifies this tough new approach.
The number of suspicious activity reports filed under the Money Laundering Act will also increase significantly, due to the elimination of the catalogue of predicate offenses and the inclusion of petty offenses among the possible predicate offenses.
All in all, it is clear that for the companies mentioned in Section 2 of the Act, the compliance effort, but also the duty of care for employees working in areas relevant to money laundering, is increasing significantly.
Originally published September 20, 2021, updated November 18, 2021
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