Financial Crime World

German Commercial Banks Face Money Laundering Risks Amidst International Interconnectedness

Berlin, Germany - German commercial banks, some with significant presence abroad, are facing mounting money laundering risks amid the country’s strong economy, cash-intensive nature, and international connections.

According to a recent report by the International Monetary Fund (IMF), Germany’s correspondent banking relationships, including those with high-risk countries, pose significant risks. One of the major German banks has been subject to enforcement actions from overseas regulators, as well as BaFin, Germany’s financial regulatory authority.

A Strong Banking Sector

Germany’s banking sector is the largest in the euro area, with total assets of approximately EUR 7.85 trillion at the end of 2014. The country is also home to the sixth-largest stock exchange in the world, the Frankfurt Stock Exchange.

Cash-Intensive Economy and International Connections

However, Germany’s economic strength is largely driven by its many small and medium-sized enterprises (SMEs), which has led to a significant number of obligated entities in the non-financial sector. A study suggests that 20-30% of crime proceeds in Germany are laundered in this sector.

  • Cash remains a dominant form of transaction in Germany, with 75% of transactions taking place in cash.
  • Unlike some other EU countries, Germany does not have cash transaction limits.
  • Germany’s strategic location at the center of the Schengen zone and its large number of international migrants (11 million) also increase its money laundering risks.

Main Money Laundering/Risk Risks

The main money laundering/terrorist financing (ML/TF) risks faced by Germany include:

  • International ML/TF risks from foreign predicates
  • Cash-based ML/TF
  • Laundering through the real estate sector
  • Misuse of legal persons/arrangements
  • Emerging risks from virtual assets
  • A range of legally or illegally obtained sources of funds for terrorist financing

Compliance with Anti-Money Laundering (AML) and Combating the Financing of Terrorism (CFT) Measures

In terms of compliance with anti-money laundering (AML) and combating the financing of terrorism (CFT) measures, Germany has strong technical compliance with the Financial Action Task Force (FATF) standards. However, effectiveness remains an area of concern.

Conclusion

The report concludes that Germany has taken a range of steps to increase its national ML/TF risk understanding, including the publication of its first National Risk Assessment (NRA) in 2019. However, more work is needed to address the country’s money laundering risks and improve its AML/CFT framework.

Recommendations

The report highlights that Germany needs to:

  • Improve DNFBP supervision
  • Enhance coordination with and across the Länder (federal states)
  • Make changes to the ML law
  • Continue to focus on counter-terrorism and related CFT measures and international cooperation