Germany’s Banking Sector Confronts Challenges in Combating Financial Crime

The Complexity of Financial Crime in Germany

Germany, the world’s fourth-largest economy and largest in the EU, has implemented significant reforms to combat money laundering and terrorist financing. However, despite these efforts, the country still faces substantial risks due to its high level of global interconnectivity.

Key Vulnerabilities

• High use of cash and informal Money Value Transfer Services (MVTS): Contributing to illicit financial flows
• Domestic coordination challenges: 16 states and various supervisory authorities pose a challenge to consistency and effectiveness in combating financial crime

Enhancing Asset Confiscation and Financial Intelligence

While asset confiscation has been a strong feature of Germany’s regime, with the introduction of non-conviction based asset confiscation laws leading to significant seizures, more needs to be done to enhance the collection, analysis, dissemination, and use of financial intelligence.

Key Recommendations

• Further prioritization of Financial Intelligence Unit (FIU) implementation: Ensure effective operational level utilization
• Enhanced proactive use of targeted financial sanctions: To freeze terrorist assets more effectively

Regulatory Framework and Supervision

The regulatory framework for the financial sector in Germany is robust and comprehensive. However, ensuring that over 300 supervisors are adequately resourced and employing a consistent risk-based approach is essential.

Key Initiatives

• Introduction of a Transparency Register: Positive step, but priority needs to be given to adequate resourcing when it transitions to a full register in 2022

Conclusion

As the German banking sector continues to grapple with these challenges, it is clear that sustained reform efforts are necessary to ensure effective combat against money laundering and terrorist financing.