Financial Crime World

Preventing Financial Crimes with Internal Controls in Germany

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Germany has implemented strict regulations to combat financial crimes, including money laundering and terrorist financing. In this article, we will explore the measures that German companies must take to prevent these crimes and maintain the integrity and stability of the financial market.

The Role of BaFin

The BaFin (Federal Financial Supervisory Authority) plays a crucial role in preventing the misuse of the financial system for money laundering, terrorist financing, and other criminal activities. The agency is responsible for supervising all entities subject to its oversight, including:

  • Credit institutions
  • Financial services institutions
  • Payment institutions
  • Life insurance undertakings
  • German asset management companies
  • Individuals and companies that sell or convert e-money

Statutory Obligations

To achieve its goal of preventing financial crimes, BaFin ensures that the companies under its supervision implement statutory obligations derived from various laws, including:

  • Money Laundering Act
  • Banking Act
  • Insurance Supervision Act
  • Payment Services Supervision Act
  • Investment Code

Risk-Oriented Precautions

One of the key measures is to ensure transparency in business relationships and financial transactions by implementing risk-oriented precautions. This includes:

  • Conducting a risk analysis
  • Identifying customers and beneficial owners
  • Determining whether they are politically exposed persons or known close associates
  • Obtaining information on the purpose and type of business relationship

Customer Due Diligence

Obliged parties must also comply with customer due diligence duties, which involve:

  • Continuous monitoring of business relationships and transactions to detect any suspicious activities
  • Reporting any suspicious activities to the Central Customs Authority’s Financial Intelligence Unit

Simplified and Enhanced Due Diligence Measures

To simplify this process, BaFin has established a department dedicated to preventing money laundering. Obliged parties can apply simplified due diligence measures if they determine that there is only a low risk of money laundering or terrorist financing. However, if they identify a higher risk, they must implement enhanced due diligence measures.

Automated Account Information Access and Freezing Accounts

The Department for the Prevention of Money Laundering is also responsible for:

  • Automated account information access
  • Freezing accounts belonging to suspected terrorists or other criminals

International Cooperation

BaFin represents Germany in various international and European bodies aimed at combating financial crimes.

Conclusion

By implementing these internal controls and measures, German companies can effectively prevent financial crimes and maintain the integrity and stability of the financial market.