by Finn Zeidler and Ralf van Ermingen-Marbach
Germany’s AML framework has already been described as insufficient by the FATF (Financial Action Task Force) in the past. Since the collapse of payment service provider Wirecard, the prevention of money laundering has been placed even higher on the German government’s agenda.
The implementation of the 5th EU Money Laundering Directive on January 1, 2020 already exceeded the EU’s requirements. Furthermore, the German government adopted a “National Strategy Package” and—in direct conjunction with the Wirecard collapse—a “16-Points Action Plan” at the beginning and in the middle of last year.
Additional amendments to the German Criminal Code (Strafgesetzbuch) and the German Anti Money Laundering Act (Geldwäschegesetz), plus new structures to be implemented in law enforcement agencies, all of which we describe below, shall bring further improvements in combating money laundering in Germany more effectively.
Broadening Criminal Provisions
The new Act to Improve Combating Money Laundering under Criminal Law[1] (Gesetz zur Verbesserung der strafrechtlichen Bekämpfung der Geldwäsche), which implements the 6th EU Money Laundering Directive (effective December 3, 2020), fundamentally revises the German criminal law on money laundering (Section 261 of the German Criminal Code). Under the previous legal regime, only a limited set of serious crimes constituted predicate offenses for money laundering. In the interest of effective law enforcement, the criminal provision now applies to any predicate offense without distinguishing between felonies and misdemeanours. Importantly, criminal acts committed abroad serve as predicate offenses for money laundering as well. The amendments extend the range of predicate offenses to acts that are criminal under EU law in the member states, regardless of whether such an act is in fact punishable in the place of commission. In addition, the criminal offense grossly negligent money laundering is upheld without further justification, although it had been removed from an earlier draft bill to avoid excessive criminal liability.
Subjecting Economic Players to New or Enhanced AML Obligations
In addition to enacting a stricter criminal law provision, the German government decided to subject numerous economic players to new or partially enhanced AML requirements, including private financial institutions, cryptocurrency traders, real estate agencies and notaries, who are now obligated to report clients and customers suspected of money laundering. These measures are reflected, inter alia, in an ordinance to the German Anti Money Laundering Act in the field of real estate, which establishes obligations to disclose AML-related concerns (Verordnung zu den nach dem Geldwäschegesetz meldepflichtigen Sachverhalten im Immobilienbereich).
Strengthening Law Enforcement
To more effectively enforce AML regulations, key German law enforcement institutions recently were strengthened by increasing resources. The staff of the Financial Intelligence Unit (FIU) has nearly doubled, a high-level panel of German federal and state authorities has been established, and FIU’s data access rights have been expanded.
The Federal Financial Supervisory Authority (BaFin) was not only urged by the Federal Ministry of Finance to ensure that the subjects under its supervision fully comply with the statutory AML regime, and therefore given additional supervisory powers. In the course of a heated political debate about the effectiveness of BaFin, even the head of the authority was replaced.
With regard to the German transparency register, which applies to all companies with business activities in or related to Germany and which contains key information including the ultimate beneficial owner of any registered company, disclosure requirements have been extended by amendments to the German Money Laundering Act. Furthermore, the transparency register is publicly accessible as of last year.
Final Thoughts: Understanding Risks and Getting Prepared
AML compliance requirements have been profoundly revised in Germany and this trend towards stricter regulation may continue in the foreseeable future. Companies operating in Germany should therefore ensure they are adequately informed and prepared for the recently expanded regulatory framework. In particular, relevant risk factors, including those arising from new business models such as cryptocurrency trading, must be evaluated as a first step to complying with the new regulations.
Footnotes
[1] Gesetz zur Verbesserung der strafrechtlichen Bekämpfung der Geldwäsche, passed March 5, 2021.
Finn Zeidler is a partner in the Frankfurt office, and Ralf van Ermingen-Marbach is of counsel in the Munich office, of Gibson, Dunn & Crutcher.
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