Germany’s Banking Sector Faces Money Laundering and Terrorist Financing Risks

Introduction

Germany is home to one of the largest banking sectors in the world, with total assets of approximately €7.85 trillion at the end of 2014. However, this sector faces significant money laundering and terrorist financing risks.

High-Risk Correspondent Banking Relationships

Two major commercial banks, Deutsche Bank and Commerzbank, account for the majority of Germany’s correspondent banking relationships with high-risk countries. These banks have been subject to enforcement actions from overseas regulators and BaFin, Germany’s financial regulatory authority.

Cash-Intensive Economy and International Interconnectedness

Germany’s cash-intensive nature and international interconnectedness pose significant money laundering and terrorist financing risks. A recent study suggests that up to 30% of criminal proceeds in Germany are laundered through the non-financial sector.

Key Risks Facing Germany’s Financial System

The report highlights several key risks facing Germany’s financial system, including:

• International money laundering and terrorist financing risks from foreign predicates
• Cash-based transactions
• The misuse of legal persons and arrangements

Areas for Improvement in Anti-Money Laundering (AML) and Counter-Terrorism Financing (CFT) Measures

While Germany has taken steps to improve its AML/CFT measures, there are still areas that require improvement. Some reforms have been implemented too recently to be fully effective, while others may require a longer period of time to show results.

Conclusion

Germany’s banking sector faces significant AML/CFT risks, and further efforts are needed to:

• Improve risk assessment
• Enhance coordination between regulatory agencies
• Strengthen policy setting

The German government and financial institutions must work together to address these risks and ensure the stability and integrity of the country’s financial system.