Germany’s Financial Crime Risk Assessment: Progress Made, But More Needs to Be Done

Germany has made significant strides in recent years to strengthen its anti-money laundering and counter-terrorism financing regime, but more needs to be done to ensure the country remains effective in combating illicit financial flows.

High-Risk Profile

As the world’s fourth largest economy, Germany is particularly vulnerable to money laundering and terrorist financing risks due to its global connections. Despite some challenges, German authorities have demonstrated a good understanding of these risks and cooperate constructively with international counterparts.

Domestic Coordination Challenges

One area where improvement is needed is domestic coordination across Germany’s 16 states (Länder). There is room for improvement in terms of consistency between supervisory and law enforcement agencies. The use of cash remains widespread in Germany, and the country also relies heavily on informal money transfer services, presenting significant risks that need to be mitigated through targeted efforts.

Asset Confiscation and Financial Intelligence

Germany excels in asset confiscation, with non-conviction based laws resulting in the seizure of substantial criminal proceeds. However, more needs to be done to prioritize the implementation of financial intelligence reforms at the operational level and to enhance the collection, analysis, dissemination, and use of this information.

• Transition to an administrative Financial Intelligence Unit (FIU) model has been a positive step forward
• Challenges remain in proactively investigating and prosecuting money laundering activity in line with Germany’s risk profile

Combating Terrorism Financing

Germany faces significant terrorist financing risks and has a good track record of investigating, prosecuting, and disrupting financing activities as part of a comprehensive approach to combating terrorism. However, the country could be more proactive in using its targeted financial sanctions regime as a preventive measure to freeze terrorist assets.

Regulatory Framework and Supervision

Germany has a robust framework in place for regulating and supervising the financial and non-financial sectors, but more needs to be done to resource the over 300 supervisors and ensure a consistent risk-based approach is taken. The introduction of a Transparency Register has been a positive development, but ensuring it is adequately resourced as it transitions to a full register in 2022 will be crucial.

Conclusion

While Germany has made progress in recent years, there is still much work to be done to ensure the country remains effective in combating financial crime and terrorist financing. Prioritizing resources and operationalization of reforms will be key to success.