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Germany’s Anti-Money Laundering and Counter-Terrorist Financing Measures Under Scrutiny

Mixed Bag of Successes and Challenges

BERLIN, GERMANY - The country’s anti-money laundering (AML) and counter-terrorist financing (CFT) measures have come under the microscope, with experts pointing to a mixed bag of successes and challenges.

Increase in Suspicious Transaction Reporting

According to a recent report, Germany has seen an increase in suspicious transaction reporting (STR) from financial institutions (FIs), but the overall level remains low. The jump is attributed to improved awareness among FIs and changes to the STR regime, although some have questioned whether defensive reporting practices may also be playing a role.

Factors Contributing to Low Reporting Levels

Experts point out that several factors contribute to the low level of STR reporting in certain sectors, including:

• Lower awareness
• Uncertainty regarding reporting thresholds
• Confusion surrounding professional secrecy obligations

Supervision Challenges

The report also criticizes the country’s supervision approach, citing a lack of consistency among supervisors at the state level. With approximately 337 supervisors overseeing a vast number of obliged entities - including financial institutions and non-financial businesses and professions (DNFBPs) - resources are stretched thin, making it difficult to ensure effective risk-based supervision.

BaFin’s Evolving Approach

While BaFin, Germany’s main supervisor of FIs, has seen an evolution in its approach to AML/CFT supervision and implemented regular reforms, the report notes that there is a lack of data to form a definitive conclusion on the effectiveness of these measures. Additionally, BaFin could take a more proactive approach to unlicensed money value transfer service (MVTS) providers, particularly hawala operators.

Sanctions and Enforcement

The report also highlights concerns around sanctions and enforcement in certain sectors. While there are some positive indications, sanctions remain infrequent and not always proportionate. The report notes that measures to identify unlicensed providers are largely reactive, and guidance for obliged DNFBP entities could be more practical and consistent.

Progress Made and Challenges Ahead

Despite these challenges, the report acknowledges that Germany has made progress in recent years. BaFin’s risk-based approach and regular reforms demonstrate a commitment to improving AML/CFT supervision and enforcement. However, there is still much work to be done to ensure that Germany’s anti-money laundering and counter-terrorist financing measures are effective and robust.

Recommendations for Improvement

The report makes several recommendations for improvement, including:

• Improving awareness and understanding among obliged entities regarding STR reporting thresholds and obligations
• Enhancing resources and coordination among state-level supervisors
• Increasing transparency around sanctions and enforcement practices
• Developing more practical guidance for obliged DNFBP entities