Financial Institutions Must Monitor Internal Safeguards to Combat Money Laundering and Terrorist Financing

Germany’s anti-money laundering (AML) law requires financial institutions to regularly monitor and update their internal safeguards to combat money laundering and terrorist financing. This is a crucial step in strengthening measures against these illegal activities.

Establishing Internal Principles, Procedures, and Controls

According to Section 6 of the AML law, obliged entities must establish internal principles, procedures, and controls to deal with risks associated with money laundering and terrorist financing. These measures include:

• Developing strategies to prevent the abuse of new products and technologies
• Screening employees for reliability
• Providing ongoing training to staff on AML typologies and methods
• Conducting regular reviews of their safeguards

Appointing a Money Laundering Reporting Officer (MLRO)

The law mandates that obliged entities appoint a MLRO at senior management level and a deputy. The MLRO is responsible for ensuring compliance with AML provisions and must be directly subordinate to top management.

• The supervisory authority may exempt certain financial institutions from the obligation to appoint an MLRO if they can demonstrate that there is no risk of information loss or deficits due to separation of duties in their company structure.
• However, the authority may order the appointment of an MLRO if it deems it necessary to prevent business relationships and transactions related to money laundering and terrorist financing.

Notification Requirements

Financial institutions must notify the supervisory authority prior to appointing or dismissing an MLRO or their deputy. The authority has the power to revoke the appointment if the individual does not meet the requirements for qualification or reliability.

Confidential Reporting and Information Sharing

Obliged entities must make arrangements to enable employees and persons in a comparable position to report contraventions of AML provisions to appropriate bodies while ensuring confidentiality. They must also ensure that they are able to provide information to competent authorities, such as the German Financial Intelligence Unit, if requested.

Supervisory Authority’s Powers

In individual cases, the supervisory authority may issue orders to financial institutions to implement necessary internal safeguards. The law gives the authority the power to prohibit third-party implementation of internal safeguards if it deems it necessary to ensure effective supervision.

Conclusion

The measures outlined in Section 6 of the AML law are designed to enhance the effectiveness of internal controls and prevent money laundering and terrorist financing activities. Financial institutions must comply with these requirements to avoid potential penalties and reputational damage.