Germany’s War on Financial Crime: Efforts to Strengthen AML/CFT Framework Yield Results, But More Work Needed

Introduction

Germany’s efforts to combat money laundering and terrorist financing have yielded significant results in the past five years, with reforms aimed at strengthening its system bearing fruit. However, experts warn that more work is needed to ensure the country’s financial sector remains resilient against illicit financial flows.

Challenges and Risks

As the world’s fourth-largest economy and largest in the European Union, Germany’s financial markets are a magnet for criminal activity, with the country facing significant risks of money laundering and terrorist financing. German authorities have demonstrated good cooperation with international partners to tackle these threats, but domestic coordination across its 16 states remains a challenge.

Widespread Use of Cash and Informal Money Transfer Services

The use of cash and informal money transfer services (MVTS) is widespread in Germany, making it essential that authorities prioritize mitigating these risks. The country’s asset confiscation regime has been a strong feature, with the introduction of non-conviction based laws resulting in significant seizures of criminal proceeds.

Financial Intelligence Unit (FIU)

Germany’s transition to an administrative FIU model in 2017 has also been a positive step forward, improving the collection and use of financial intelligence. However, challenges persist in implementing these reforms at the operational level and ensuring that authorities proactively investigate and prosecute money laundering activity.

Terrorist Financing

Terrorist financing is another significant risk facing Germany, with the country having a good track record of investigating and disrupting financing activity as part of a holistic approach to combating terrorism. However, experts argue that more could be done to use targeted financial sanctions as a preventive measure to freeze terrorist assets.

Regulatory Framework and Supervision

Despite a robust framework for regulating and supervising the financial and non-financial sector, concerns remain about the resourcing of over 300 supervisors, with a need for a consistent risk-based approach. The introduction of a Transparency Register has been welcomed, but priority must be given to ensuring it is adequately resourced as it transitions to a full register in 2022.

Conclusion

As Germany continues its efforts to strengthen its AML/CFT framework, it is clear that more work is needed to ensure the country’s financial sector remains resilient against illicit financial flows. The government and authorities must prioritize resourcing and coordination at all levels to effectively combat money laundering and terrorist financing threats.

Key Recommendations

Prioritize resourcing and coordination across different levels of authority
Implement a consistent risk-based approach for supervisors
Ensure adequate resources are allocated to the Transparency Register as it transitions to a full register in 2022
Proactively investigate and prosecute money laundering activity
Use targeted financial sanctions as a preventive measure to freeze terrorist assets