Topic Anti-money laundering Prevention of money laundering

All companies in the financial sector are expected to have formal business policies to prevent transactions with a criminal background and to work towards detecting and combating such transactions. This is of particular relevance to transactions that support money laundering or terrorist financing and other criminal offences that may jeopardise the assets of an institution. Such criminal activities may not only threaten the reputation and financial strength of an institution that is abused for these purposes, but may also endanger the integrity and stability of the whole financial market.

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Prevention of money laundering, terrorist financing and other criminal offences

For this reason, the first EEC Money Laundering Directive of 1991 was directed not only at credit institutions but also at financial services institutions and insurance undertakings. The application of the two subsequent Money Laundering Directives in 2001 and 2005 was extended to cover other professions outside the financial sector, including insurance intermediaries, the legal profession and certain commercial traders.

Bodies in the financial sector subject to the money laundering supervision of BaFin include not just credit institutions, financial services institutions and payment institutions, but also life insurance undertakings, German asset management companies (Kapitalverwaltungsgesellschaften) and persons and companies that sell or convert e-money.

The abuse of financial enterprises for the purpose of money laundering often arises from the financing of terrorist organisations or other criminal offences. The related risks do not just put the abused institution at risk but the whole financial centre, so it is especially important that institutions, companies and persons subject to BaFin supervision do all they can to prevent such offences.

Transparency helps to avoid risks

The main aim is to ensure transparency in business relationships and financial transactions using specific precautions on a risk-oriented basis. This includes what is known as customer due diligence. In addition to establishing the identity of the customer and any other beneficial owner, where possible checks should also be made on the background of the business relationship and such relationships should be monitored on an ongoing basis. These measures enable the tracking of money flows and permit the identification of unusual or suspicious transactions or business relationships.

Persons and companies subject to money laundering provisions are required to make checks on such transactions or business relationships. If there is reason to suspect that assets connected with a transaction or business relationship result from an unlawful money laundering offence pursuant to section 261 of the German Criminal Code (StrafgesetzbuchStGB), or if the assets are connected to terrorist financing, such suspicions must be notified to the Financial Intelligence Unit (FIU) of the Federal Criminal Police Office (BundeskriminalamtBKA) and to responsible law enforcement agencies.

BaFin’s role in preventing money laundering, terrorist financing and other criminal offences

BaFin seeks to prevent any misuse of the financial system for the purposes of money laundering, terrorist financing and other criminal offences that might jeopardise the assets of an institution. BaFin ensures that the companies and persons under its supervision implement any statutory obligations adopted for this purpose. These obligations are derived from the Money Laundering Act (GeldwäschegesetzGwG), the Banking Act (KreditwesengesetzKWG), the Insurance Supervision Act (VersicherungsaufsichtsgesetzVAG), the Payment Services Supervision Act (ZahlungsdiensteaufsichtsgesetzZAG) and the Investment Code (KapitalanlagegesetzbuchKAGB).

Department for the prevention of money laundering

In order to simplify this process, since 2003 BaFin has grouped all responsibilities relating to these tasks under a Department for the Prevention of Money Laundering, which carries out money laundering supervision of all institutions, companies and persons specified under section 16 (2) no. 2 of the GwG.

The department is also responsible for supervision of the implementation of statutory regulations to prevent the commission of other criminal offences within the meaning of section 25c (1) of the KWG. It is also responsible for the ongoing technical supervision of financial services institutions, engaged in leasing, factoring or dealing in foreign banknotes and coins, and payment institutions, particularly those providing financial transfer services.

Parallel to the ongoing supervision, the department is also responsible for taking action against the unauthorised provision of financial transfer services (so-called underground banking).

Cooperation with law enforcement agencies

Finally, the Department for the Prevention of Money Laundering is also responsible for automated account information access pursuant to section 24c of the KWG. Under certain conditions, this allows for the accounts of suspected terrorists or other criminals with credit institutions registered in Germany to be identified and for information to be passed on to the corresponding agency making the request (particularly law enforcement agencies).

If accounts are uncovered belonging to (alleged) terrorists resident in the European Union, the Department for the Prevention of Money Laundering may freeze such accounts and prohibit the corresponding bank from making any transactions with respect to such accounts.

The Department for the Prevention of Money Laundering also represents BaFin's supervisory interests in various international and European bodies, such as the Financial Action Task Force on Money Laundering (FATF) and the Sub-Committee on Anti Money Laundering (AMLC), a sub-committee of the Joint Committee of the European Supervisory Authorities.

Financial Action Task Force on Money Laundering

The Financial Action Task Force on Money Laundering (FATF), which was set up in 1989 by the G7 countries and is based in Paris, is the world's leading standard-setter in the field of combating money laundering and – in the wake of the attacks of 11 September 2001 – of terrorist financing. Its 36 current members include 34 countries, including Germany, along with the European Commission and the Gulf Cooperation Council.

The FATF drew up the 40 + 9 Recommendations for combating money laundering in 1992, and terrorist financing in 2001, and has continued to develop these recommendations since that time. The International Monetary Fund (IMF) and the World Bank have recognised these recommendations and, like the FATF, use them as the basis for their country evaluations.

updated on 01.04.2016

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Publications on this topic

The Risk Fac­tors Guide­lines

Joint Guidelines under Articles 17 and 18(4) of Directive (EU) 2015/849 on simplified and enhanced customer due diligence and the factors credit and financial institutions should consider when assessing the money laundering and terrorist financing risk associated with individual business relationships and occasional transactions

Miss­ing or in­com­plete in­for­ma­tion: Guide­lines for pay­ment ser­vice providers

Joint Guidelines under Article 25 of Regulation (EU) 2015/847 on the measures payment service providers should take to detect missing or incomplete information on the payer or the payee, and the procedures they should put in place to manage a transfer of funds lacking the required information

Cir­cu­lar 3/2017 (GW) - video iden­ti­fi­ca­tion pro­ce­dures

Requirements for the use of video identification procedures (Reference: Circular 1/2014, item III of 5 March 2014)

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