Germany’s Struggle Against Financial Crime Takes Center Stage as Economy Faces Significant Risks

Despite significant reforms implemented over the past five years, Germany continues to grapple with the impact of financial crime on its economy. As the world’s fourth-largest economy and largest in the EU, Germany faces a plethora of money laundering and terrorist financing risks due to its high number of global interconnections.

Challenges Persist

However, challenges persist, particularly at the domestic level where coordination between Germany’s 16 states (Länder) is often lacking. Supervisory and law enforcement authorities must work together more effectively to mitigate the risks associated with Germany’s high use of cash and informal money transfer services.

Positive Developments

On a positive note, asset confiscation has been a strong feature of Germany’s regime, resulting in significant seizures of criminal proceeds since the introduction of non-conviction based asset confiscation laws. The country’s transition to an administrative Financial Intelligence Unit (FIU) model in 2017 has also improved the collection and use of financial intelligence.

Areas for Improvement

However, more needs to be done to proactively investigate and prosecute money laundering activity in line with Germany’s risk profile. Additionally, the authorities could do more to utilize targeted financial sanctions as a preventive measure to freeze terrorist assets.

Regulatory Framework

Germany’s regulatory framework for anti-money laundering and combating the financing of terrorism (AML/CFT) is robust and comprehensive, but resourcing the over 300 supervisors and ensuring a consistent risk-based approach are critical areas that require attention. The introduction of a Transparency Register has been a positive step, but priority must be given to ensuring it is adequately resourced when it transitions to a full register in 2022.

Future Directions

Germany’s continued commitment to reforming its system and prioritizing operational-level efforts will be crucial in mitigating the impact of financial crime on its economy. To achieve this, Germany must:

• Improve coordination between supervisory and law enforcement authorities at the domestic level
• Increase resource allocation for supervisors and ensure a consistent risk-based approach
• Enhance proactive investigation and prosecution of money laundering activity
• Utilize targeted financial sanctions as a preventive measure to freeze terrorist assets
• Prioritize ensuring adequate resources for the Transparency Register when it transitions to a full register in 2022