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Germany’s Fight Against Money Laundering and Terrorist Financing: Progress Made, but Challenges Remain
Berlin - Germany has made significant strides in implementing anti-money laundering (AML) and counter-terrorist financing (CFT) measures, but the country still faces challenges in certain areas, according to a recent evaluation.
Technical Compliance
The report highlights Germany’s strong technical compliance with international standards, particularly its effective cooperation with international partners through mutual legal assistance and extradition. However, the country’s decentralized system of government poses challenges for centralized case management and tracking, an area that requires improvement.
Challenges in Centralized Case Management and Tracking
Germany’s lack of available data across federal and state governments to measure the effectiveness of AML/CFT measures is a major concern. The need to apply new technologies to enhance the use of data to combat money laundering and terrorist financing has also been identified as a priority.
Vulnerabilities in the Financial Sector
Germany’s large economy, cash-intensive nature, and international interconnectedness make it vulnerable to money laundering and terrorist financing risks. The country’s financial sector is particularly exposed, with six high-risk major banks subject to sanctions by Germany’s financial regulator, BaFin, in 2019-2020.
High-Risk Areas for Money Laundering
Germany’s lack of cash transaction limits and its strong social attachment to cash contribute to the risk of money laundering. Additionally, the country’s real estate sector is considered a high-risk area for money laundering and terrorist financing.
Recent Reforms and Initiatives
Despite these challenges, Germany has taken steps to improve its AML/CFT regime, including reforms to asset recovery and the introduction of a Transparency Register. However, some initiatives have only recently been implemented and require time to show their effectiveness.
Unaddressed Concern: Bearer Shares and Nominee Shareholders
One area that has received little attention in Germany’s AML/CFT regime is the use of bearer shares and nominee shareholders. Bearer shares are shares held in a company or entity without being registered in the name of the owner, making it difficult to trace the beneficial ownership of assets.
- Nominee shareholders are individuals or entities that hold shares on behalf of others, often without disclosing their true identity.
- The use of bearer shares and nominee shareholders can facilitate money laundering and terrorist financing activities by allowing criminals to conceal their involvement in financial transactions.
The Need for Regulation
Germany’s AML/CFT regime does not currently require the disclosure of beneficial ownership information for bearer shares and nominee shareholders, making it challenging to track the flow of funds through these structures. It is essential that Germany addresses this issue to prevent the misuse of these structures for illicit activities.
Conclusion
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While Germany has made significant progress in implementing AML/CFT measures, the country still faces challenges in addressing money laundering and terrorist financing risks. The use of bearer shares and nominee shareholders is an area that requires attention and regulation to prevent the misuse of these structures for illicit activities.