Financial Crime World

Financial Institutions Face Consequences for Violations

A recent report has revealed that several financial institutions in Germany have been found guilty of violating their organisational duties, including the duty to implement risk-management processes and procedures.

The Importance of Organisational Duties

According to Section 54a of the German Banking Act (KWG), financial institutions are required to establish and maintain effective risk management systems. However, it appears that some institutions have failed to meet this obligation, leading to a range of consequences.

The Process for Assessment and Collection of Sanctions

The process for assessing and collecting sanctions for violations by financial institutions is outlined in the German Code of Administrative Offences (OWiG). The process typically begins with an investigation by the responsible public authority, which may result in a warning fine or other administrative sanction.

  • If the institution challenges the decision, it can request a court decision.
  • In some cases, the institution may also be required to pay confiscation.

Anti-Money Laundering Requirements

Financial institutions and designated businesses are subject to anti-money laundering requirements under the German Money Laundering Act (GWG). The requirements include:

  • Implementing procedures for customer due diligence
  • Reporting suspicious transactions
  • Maintaining records of large currency transactions

The GWG also requires financial institutions to establish effective risk management systems, which includes identifying and mitigating money-laundering risks.

Cryptocurrency Industry

The German government has taken a proactive approach to regulating the cryptocurrency industry. Financial institutions are required to:

  • Implement procedures for customer due diligence
  • Report suspicious transactions related to cryptocurrencies

Recordkeeping and Reporting

Financial institutions are required to maintain records of large currency transactions, including:

  • Cash transactions exceeding EUR 1,000
  • All other transactions exceeding EUR 15,000

The institution must also report any suspicious transactions to the authorities. In addition, financial institutions are required to file reports with the Federal Bank of Germany for cross-border transactions exceeding EUR 12,500.

Consequences for Non-Compliance

The consequences for non-compliance with anti-money laundering and counter-terrorism financing regulations can be severe. Financial institutions that fail to meet their obligations may face:

  • Fines
  • Confiscation
  • Revocation of licence

In light of these findings, it is clear that financial institutions must take their organisational duties seriously and implement effective risk management systems to prevent violations.