Financial Crime World

Germany’s Anti-Money Laundering Efforts Receive Mixed Review

A recent review by a reputable financial institution has highlighted both the strengths and weaknesses of Germany’s anti-money laundering (AML) and counter-terrorist financing (CFT) efforts.

Financial Institutions’ AML/CFT Awareness

All financial institutions (FIs) and designated non-financial businesses and professions (DNFBPs) in Germany are required to apply AML and CFT preventive measures. The review found that larger FIs, including major banks and VASPs, have a good understanding of money laundering/terrorist financing risks and obligations. However:

  • Smaller FIs showed a less sophisticated awareness of risks and mitigation measures.
  • DNFBP sectors’ risk understanding is mixed, with larger and better-supervised entities taking a risk-based approach, while smaller ones face challenges in applying preventive measures.

Suspicious Transaction Reporting

The review highlighted shortcomings in suspicious transaction reporting (STRs). While FIs have seen an exponential increase in STR reports:

  • The number of reports from non-bank FIs and DNFBPs is low.
  • Factors contributing to this include lower awareness, uncertainty regarding reporting thresholds, and issues implementing preventive measures.

Supervision

The report praised BaFin’s evolution towards a more risk-based approach and its efforts to prevent criminals and associates from entering the market. However:

  • There is still a lack of data, making it difficult to form a definitive conclusion on the effectiveness of supervisory measures.
  • Concerns over the low level of independent supervisory activity in some higher-risk non-bank sectors were also noted.

Local Supervisors’ Challenges

The 337 local supervisors in Germany face significant challenges in ensuring all supervised entities have a consistent risk understanding and take an effective risk-based approach to supervision. Specifically:

  • Risk-based supervision varies considerably.
  • Concerns over the lack of resources and the vast size of the supervised population exist.

Conclusion

Overall, the report concludes that while Germany has made progress in its AML/CFT efforts, there is still much work to be done to ensure a consistent and effective approach across all sectors.