Financial Crime World

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Anti-Money Laundering (AML) and Counter-Terrorist Financing (CTF) Measures in Germany

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Awareness and Reporting

In recent times, there has been a concerning trend of low suspicious transaction reporting (STR) in certain sectors, including designated non-financial business and professions (DNFBPs).

Key Factors Contributing to Low STR

  • Lower awareness: There is a lack of understanding among DNFBPs about the importance of STR and their obligations under AML/CTF regulations.
  • Uncertainty about reporting thresholds: The unclear guidelines on when to report suspicious transactions have led to confusion and hesitation among DNFBPs.
  • Issues implementing preventative measures: Many DNFBPs face difficulties in implementing effective anti-money laundering measures, making it challenging for them to identify and report suspicious transactions.
  • Confusion surrounding professional secrecy obligations: The complex rules governing professional secrecy have created uncertainty among DNFBPs about their reporting responsibilities.

Positive Development: Mandatory Rules-Based Reporting in Real Estate Transactions

However, there is a positive development in Germany’s efforts to improve STR. The introduction of mandatory rules-based reporting in real estate transactions has had a positive effect on reporting from notaries.

Supervision

In Germany, all financial institutions (FIs) and DNFBP sectors are supervised for AML/CFT compliance.

Key Developments in Supervision

  • Evolution of BaFin’s approach: The main supervisor of FIs, BaFin, has seen an evolution in its approach to AML/CFT supervision. It has implemented regular reforms in response to changing risks and instances of non-compliance.
  • Lack of data on measures to prevent criminals and associates from entering the market: There is a lack of data on measures to prevent criminals and associates from entering the market, making it difficult to form a definitive conclusion.
  • Targeting unlicensed virtual asset service providers (VASPs): BaFin targets unlicensed VASPs but could take a more proactive approach to unlicensed money value transfer service (MVTS) providers, especially hawala operators.

Supervisory Effectiveness

The report raises concerns about the effectiveness of supervisory measures in some higher-risk non-bank sectors.

Key Issues

  • Range of remedial measures and sanctions: BaFin applies a range of remedial measures and sanctions but may not always ensure prompt remediation or prevent repeated breaches.
  • Consideration of all options from its range of sanctions: The report suggests that BaFin could consider all options from its range of sanctions to address repeated breaches and ensure prompt remediation.

Local Supervisors

There are approximately 337 local supervisors at the Länder or district-level to supervise DNFBPs and other FIs.

Key Developments

  • Positive shift towards a risk-based approach: Since 2017, there has been a positive shift towards a risk-based approach by many of these supervisors, informed by Länder risk assessments.
  • Challenges in ensuring consistent risk understanding and effective supervision: However, the number of supervisors, lack of resources, and vast size of the supervised population create difficulties in ensuring all supervisors have a consistent risk understanding and take an effective risk-based approach to supervision.