Germany responds to FATF concerns with the establishment of a new Federal Financial Crime Agency
The Financial Action Task Force (“FATF”), the principal international standard setter for combating money laundering and terrorist financing, regularly reviews the effective implementation of its standards in the jurisdictions it monitors. As part of this comprehensive evaluation, both legal and regulatory requirements and the effectiveness of anti-money laundering measures are examined. Following on-site visits to Germany in November 2021, in June 2022 the FATF published its preliminary Mutual Evaluation Report (“MER”) setting out its findings. Although the report confirms significant progress in anti-money laundering effectiveness in Germany, it considered that essential improvements are still needed, as set out below.
- Supervision of the non-financial sector
Because of the federal structure of authorities in Germany, supervision of the country’s non-financial sector is widely fragmented. In fact, there are about 300 authorities charged with supervising the non-financial sector, which leads to inefficiencies and uncertainties as to where responsibility lies. Moreover, there is a lack of resources as some of these authorities need to supervise 10,000 companies with a very limited number of staff.
- Availability of information about beneficial owners
This point of criticism is addressed in particular to the transparency register, which is currently being converted from a catch-all register to a full register. From the perspective of money laundering prevention, the previous regulations relating to the so-called “notification fiction” are worthy of criticism, as they stood in the way of the establishment of a complete register with information on beneficial owners, even if this spared the German economy from numerous double entries appearing in both the commercial register and transparency register. In addition, retrieving data from the transparency register is time-consuming and can still only be done manually. A digital interface that at least enables obligated parties from the financial sector and notaries to retrieve information directly from the transparency register will not be operational before 2023.
- Improved development and usage of financial information
This point mainly addresses the coordination and data investigation between individual authorities which, the FATF found, should be improved nationally and internationally. In particular, the exchange between Financial Intelligence Unit (“FIU”) and the prosecutors’ offices was identified as needing improvement. In addition, there is a considerable lack of meaningful information and data in Germany that enable the structured analysis of complex money laundering and illicit financial flows.
- Prioritisation of money laundering investigations
Finally, the FATF considered that money laundering investigations and prosecutions in Germany should be prioritised more strongly. This point of criticism relates to the FIU in particular, as well as the prosecution. The FIU has been criticised for some years for acting inefficiently and too slowly in processing suspicious cases and corresponding investigations. Processing of suspicious cases does not always take place and suspicious activity reports are not forwarded to the responsible prosecutor’s office in a timely manner, if at all. In addition, the low number of convictions for money laundering offences has been criticised.
To address the deficits revealed in the preliminary MER, the German Finance Ministry has published a proposal containing three main measures to improve the effectiveness of Germany’s fight against money laundering and financial crime:
- New German Federal Financial Crime Agency
The powers to investigate and tackle money laundering will be combined in a new federal financial crime agency. This new federal financial crime agency will have both investigative and supervisory functions. It will consist of a federal financial crime police office, a new FIU, and a central office for money laundering supervision.
- The new federal financial crime police will be tasked with the investigation of cases of complex illegal financial flows with a “follow-the-money” approach.
- The new FIU will closely cooperate with the new federal financial crime police but remain an independent analysis unit. It shall adopt a risk-based approach, prioritising the most complex and international cases.
- The central office for money laundering supervision shall have a coordinating role with regard to the authorities in the respective federal states of Germany. In addition, it will set guidelines and standards and act as point of contact for the upcoming European Money Laundering Supervisory Authority.
- Improve the training and education of the investigators
Moreover, Germany has set itself the goal of training the best financial investigators by bringing together the necessary expertise, improving mandatory training and building up the necessary expertise where needed.
- Digitalisation and cross-linking of registries
Finally, Germany will seek to improve the efficiency of checking the ownership structure and beneficial ownership by digitally cross-linking all relevant registries. As such digitalisation takes time, interim measures which can more easily be achieved shall be implemented as soon as possible.