Financial Crime World

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Money Laundering Detection Methods in Germany: BaFin Takes Charge

In the financial sector, preventing transactions with criminal backgrounds and combating terrorist financing activities is crucial to maintain the integrity and stability of the entire market. The German Federal Financial Supervisory Authority (BaFin) plays a vital role in this effort, ensuring that companies and individuals under its supervision implement statutory obligations to prevent money laundering and terrorist financing.

Department for the Prevention of Money Laundering

To achieve this goal, BaFin has established a Department for the Prevention of Money Laundering, which is responsible for supervising all institutions, companies, and persons specified under Section 50 of the Money Laundering Act. The department also oversees the implementation of regulations to prevent other criminal offenses within the meaning of Section 25h of the Banking Act.

Risk-Oriented Supervision

To simplify this process, BaFin has bundled all responsibilities related to money laundering supervision under one department, which carries out risk-oriented supervision of financial institutions and companies using specific precautions.

Transparency in Business Relationships

Transparency is key in business relationships and financial transactions. Obliged parties must have a risk management system that includes:

  • A risk analysis
  • Internal risk measures

They must also comply with customer due diligence duties, identifying:

  • Customers
  • Persons acting on their behalf
  • Beneficial owners
  • Beneficiaries

Information on the purpose and type of business relationship must be obtained and evaluated.

Reporting Suspicious Transactions

Obliged parties are required to follow up on suspicious transactions or business relationships. If they discover facts indicating that an asset related to a business relationship or transaction originates from a criminal act, they must notify the Central Customs Authority’s Financial Intelligence Unit.

Simplified and Enhanced Due Diligence Measures

Simplified and enhanced due diligence measures can be applied depending on the risk level. Obliged parties can apply:

  • Simplified measures if they determine there is only a low risk of money laundering or terrorist financing in certain areas
  • Enhanced due diligence measures if they determine there is a higher risk of these activities

Electronic Account Retrieval System

BaFin’s Department for the Prevention of Money Laundering is also responsible for the Electronic Account Retrieval System, which allows for automated account information access under certain conditions. This enables the identification and freezing of accounts belonging to suspected terrorists or other criminals with credit institutions registered in Germany.

International Cooperation

International cooperation is crucial in combating money laundering and terrorist financing. BaFin represents Germany in various international and European bodies, such as:

  • The Financial Action Task Force on Money Laundering (FATF)
  • The Sub-Committee on Anti-Money Laundering (AMLC)