Germany´s regulators calls non-financial sector on AML duties

German adaptation of money laundering law to the EU Money Laundering Directive

What has happened?
In January 2020, the 5th EU Money Laundering Directive (EU 2018/843) was enacted which increased the auditing and due diligence requirements for non-financial sectors. As a result, Germany has adapted its money laundering legislation accordingly.

The highlight in the Money Laundering Act: all transactions must be reported if money laundering or terrorist financing is suspected.

The German National Risk Analysis of combating money laundering and terrorist financing must be supported by the obligated parties of the Money Laundering Act. The findings must be recognized when drawing up their own risk analysis (§ 5 Abs. 1 Satz 2 GWG).

The German regulators targeted the non-financial sector in this law and Bafin published an interesting conclusion last October:

1. “Key risk areas result from Germany’s high economic attractiveness, the cash-intensive nature of the country’s economic system and the international interconnectedness of its economy.”
2. “Germany as a financial center has a medium-high risk of being abused for money laundering and terrorist financing, which corresponds to level 4 on a five-point scale from low to high.”[1]

Who is affected?
In detail, the following industries and sectors are affected by the extension of the scope of the AMLD amendment:

CRYPTOCURRENCY – Exchanges and Wallet providers

• NEW Reporting obligations in case of suspicion to the central office (FIU)
• require authorization from German Authority BaFin since being classified as a financial institution under the German Banking Act (KWG)
• included are Crypto exchange services as well as payment and investment

BANKING – Pre-Paid Service Providers

• The threshold above which customer identification is required for the use of prepaid e-money cards will be lowered from EUR 250 to EUR 150. In Germany, a threshold value of only 100 euros already applies.
• However, the difficulty arises when tracking several transactions per month.

REAL ESTATE- Real Estate Industry

• Lease, rental contract mediation was added into the AMLD V scope.  Therefore, not only the mediation of real estate purchases but also the renting of real estate are included in the new AML regulation.
• For example, estate agents require an effective risk management system if they broker leases with a monthly rent of more than 10,000 Euros, and similar to the goods dealer, customer due diligence must be completed.
• Real Estate share deal advisers are advised to pay high attention as the AML risk is considered high.

AUCTIONEERS / GOLD / ART DEALERS

• Who sells works of art, watches of other high-value goods in excess of €10,000 or precious metals in excess of €2,000 must complete due diligence requirements.

Improved is:

Since 2020 the exchange of information is granted between the authorities responsible for money laundering and solvency supervision, including the European Central Bank.

In addition, access to the so-called transparency register of legal entities and other companies, which contains information on the beneficial owner, must in future be publicly accessible. However, this does not apply to certain types of trust or special cases.

This is triggered by:

The wider customer-related duties of care are basically triggered by the following events:

• Brokerage transactions with politically exposed persons (PEP),
• Facing Customers with high-risk transactions with third countries, or
• in the event of discrepancies with beneficial owners, e.g. trustees acting on behalf of trusts, foundations or partnerships or unusual business transactions.
• The increased documentation needs result in a significant tightening of the previous requirements. Triggers are breaches of limits of above €10 000 for anonymous cash transactions or €2 000 for Gold or precious metals.

In summary, the strengthened due diligence obligations are mandatory for increased transaction partners with increased risks, such as politically exposed persons (PEPs), high-risk third countries or unclear economic beneficiaries.

As a conclusion, an increase in AML screening needs is expected for nonfinancial sectors. This trend is reflected in Q1 2020 already. The luxury watch and art segment or luxury car dealer seem to enter conversations with screening data providers for the first time. It seems that on-premise AML screening could be an additional tool to obligated parties of the Money Laundering Act when drawing up their own risk analysis.

Non-Financial Sector:

Some common challenges for the non-financial sector are for example:

• High unit costs for a given “low” number of screenings.
• Differentiation of data quality, for example, a missing “local” PEP filter for different regions can cause a higher number of false positives hits. Latter might result in a higher cost per screening as the manual resolution effort increases, too.
• The induction of a risk-based approach offers many chances but is often only considered as a burden for business operations

Overall it may be said that anti-money laundering commissioner´s role might change in the future. This is not only true because of the current challenges triggered by the 5th EU Money Laundering Directive.

Another proposal for a law in Germany is the “Verbandssanktionengesetz “which will factor in whether a compliance–management–system is in place when determining the size of fines.

In conclusion, the role of an anti-money officer becomes more than just implementing a set of rules but becomes more of a corporate culture change agent.

Disclaimer

The author disclaims any and all liability arising from the use of this document and does not guarantee that any information contained herein is accurate or complete.  The opinions expressed in this publication are those of the authors. They do not purport to reflect the opinions or views of the employer.

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Sources

Cmp.: N.A., Bundesministerium der Finanzen Referat L C 3 Öffentlichkeitsarbeit (10/2019) Erste Nationale Risikoanalyse Bekämpfung von Geldwäsche und Terrorismusfinanzierung 2018/2019. Online access Feb. 22^nd 2020 https://www.bundesfinanzministerium.de/Content/DE/Downloads/Broschueren_Bestellservice/2019-10-19-erste-nationale-risikoanalyse_2018-2019.pdf?__blob=publicationFile&v=7

Cmp.: N.A., Caution x6 – In what areas are the financial sector and the non-financial sector vulnerable to money laundering and terrorist financing? BaFin presents six risk areas. (10/2019) Online access Feb. 22nd 2020 https://www.bafin.de/SharedDocs/Veroeffentlichungen/EN/Fachartikel/2019/fa_191021_NRA_en.html

Cmp.: B.Scheben, KPMG (Jan 2020) Das „Gesetz zur Umsetzung der Änderungsrichtlinie zur Vierten EU-Geldwäscherichtlinie“ ist in Kraft getreten. Online access Feb. 21^st 2020  https://home.kpmg/de/de/home/themen/2019/05/neues-geldwaeschegesetz-zum-1-januar-2020.html

Cmp.: D.Zwink, Betriebsrat.de (N.A.)  Entwurf des Verbandssanktionengesetzes (VerSanG-RefE) führt zu erheblichem Bedeutungsgewinn von Compliance. Online access Feb. 20^st 2020 https://www.betriebsrat.de/arbeitnehmervertreter-im-aufsichtsrat/regeln-und-gesetze/verbandssanktionengesetz-staerkt-compliance-in-unternehmen.html

Cmp. Reuters Pictures (2010 – 2020) various