BaFin

Topic Anti-money laundering Re.: FATF Public Statement and Information Report of 28 October 20Re.: FATF Public Statement and Information Report of 28 October 2011 and BaFin Circular 12/2011 (GW) of 09 December 2011 as well as BaFin Circulars 2/2010 of 22 March 2010, 7/2008 of 30 July 2008 and 10/2010 of 12 November 201011 and BaFin Circular 12/2011 (GW) of 09 December 2011 as well as BaFin Circulars 2/2010 of 22 March 2010, 7/2008 of 30 July 2008 and 10/2010 of 12 November 2010

Circular 2/2012 (GW)

Reference number GW 1-GW 2001-2008/0003Date: 21.03.2012

I. New FATF International Standards

The Financial Action Task Force (FATF) has revised its 40 + 9 Recommendations, integrating, among other things, the recommendations on combating terrorist financing into the Forty Recommendations and adding a new recommendation on the financing of proliferation of weapons of mass destruction. On 16 February 2012, the FATF published the revised Forty Recommendations on the occasion of its plenary meeting. These Recommendations (English version only) are available for download at the FATF's website.

II. FATF Public Statement of 16 February 2012 regarding Iran, the Democratic People's Republic of Korea (North Korea) and other countries

During its Plenary Meeting held in Paris on 16 February 2012, the FATF also released an updated Public Statement and an updated Information Report.

The Statement issued by the FATF on 16 February 2012 (Annex 1) concerns jurisdictions for which substantial deficiencies have been identified regarding measures to combat money laundering and terrorist financing.

1) Jurisdictions subject to a FATF call on its members and other jurisdictions to apply counter-measures to protect the international financial system from the on-going and substantial money laundering and terrorist financing (ML/TF) risks emanating from the jurisdictions

This category still includes Iran and the Democratic People's Republic of Korea (North Korea).
The FATF's Public Statement of 28 October 2011 and BaFin Circular 12/2011 (GW) continue to apply to both countries. Please refer to BaFin Circular 2/2010 (GW) for information on the measures that still have to be taken.

2) Jurisdictions with strategic AML/CFT deficiencies that have not made sufficient progress in addressing the deficiencies or have not committed to an action plan developed with the FATF to address the deficiencies. The FATF calls on its members to consider the risks arising from the deficiencies associated with each jurisdiction, as described below.

This category now includes Bolivia, Ethiopia, Ghana, Indonesia, Kenya, Myanmar, Nigeria, Pakistan, Sao Tomé and Príncipe, Sri Lanka, Syria, Tanzania, Thailand and Turkey (jurisdictions that have not made sufficient progress) as well as Cuba (jurisdiction that has not committed to an action plan).

Business relationships with these countries or with business partners who reside in these countries and transactions from or to these countries require enhanced due diligence and organisational requirements in order to combat the increased risks identified by the FATF. Moreover, the results of any security and review measures taken in this respect are to be clearly documented for the internal audit function, the audit of annual financial statements and any special audits. These measures correspond to those specified in BaFin Circular 2/2010 (GW).

III. FATF Information Report of 16 February 2012 regarding countries under supervision

In the ongoing review of countries by the FATF and the FATF-style regional bodies (FSRBs), certain countries have continued to show deficiencies with regard to the FATF's key recommendations.
For details, please refer to the translated FATF information report dated 16 February 2012 (Annex 2). Those countries for which the FATF had not seen sufficient progress during the period it had specified, but for which it does not wish to take any further action at this time, are listed separately at the end.
Although there is no direct obligation to take action and no requirement to apply enhanced due diligence and organisational requirements appropriate for the increased risk with respect to these countries, the situation in these countries must be taken into consideration when assessing the risks of these countries or persons from these countries in the context of preventing money laundering and terrorist financing.
Argentina is still included in the Information Report. In his report on the Plenary Meeting of 15 to 17 February 2012, the President of the FATF no longer expressed any particular concern about the situation in Argentina in light of the fact that further progress had been achieved, especially in penal legislation on terrorist financing. Although he appreciated Argentina's progress, he also emphasised the major deficiencies yet to be eliminated. Given this backdrop, the aforementioned principles apply to Argentina as well, thus replacing the Argentina-specific advice contained in BaFin Circular 10/2010 of 12 November 2010.

IV. Countries and jurisdictions with similar requirements for the prevention of money laundering and terrorist financing; changes to the list of equivalent third countries

The Third EU Money Laundering Directive (2005/60/EC) contains several provisions that allow for privileged relations with third countries, provided that these third countries meet prevention requirements equivalent to the those of the Third Money Laundering Directive; accordingly, the Money Laundering Act (Geldwäschegesetz – GwG) also contains provisions that make reference to such third countries (cf. in particular section 1 (6a) of the GwG).

As the Commission of the European Union is not mandated to draw up an official EU list of third countries with equivalent standards, member states of the EU meeting in Brussels as the Committee on the Prevention of Money Laundering and Terrorist Financing (CPMLTF) have used stipulated fixed criteria to draw up a list of third countries they presume to be equivalent to the respective prevention standards.
This list, last amended in June 2011, was amended again on 8 February 2012. Since no agreement was reached regarding the Russian Federation to remain on the list, the Russian Federation was removed from the list.
The following countries and one special administrative region are now included in the list agreed by the member states (as of 8 February 2012):

  • Australia
  • Brazil
  • People's Republic of China Hong Kong, Special Administrative Region
  • India
  • Japan
  • Canada
  • Mexico
  • Republic of Korea (South Korea)
  • Switzerland
  • Singapore
  • South Africa
  • United States of America

The Member States of the EU and of the European Economic Area (EEA) are not required to demonstrate equivalence as they have implemented the Third Money Laundering Directive. The requirements of French overseas territories (Mayotte, New Caledonia, French Polynesia, Saint Pierre and Miquelon, Wallis and Futuna) as well as of Aruba, Bonaire, Curaçao, Sint Eustatius, Sint Maarten and Saba are also deemed equivalent. Although these overseas territories and countries do not belong to the EU or the EEA, they are deemed part of France or the Kingdom of the Netherlands for the purposes of the FAFT.
BaFin has published the list on its website.

Alternatively, the list can be accessed on the website of the European Commission.

In BaFin Circular 10/2011 of 28 July 2011, the UK Crown Dependencies (Jersey, Guernsey, Isle of Man) were for the first time recognised as equivalent jurisdictions within the meaning of Directive 2005/60/EC. The status assigned to them by exercising the option granted in the list is maintained.
In this respect, please pay express attention to section 5 (1) sentence 1 of the GwG, which entered into force on 29 December 2011 and according to which the third country equivalence list is merely an indicator of whether or not a financial sector institution or company from that specified country is applying due diligence that meets the requirements of the European Union. The current details of each individual circumstance are always to be taken into account when deciding whether simplified due diligence measures can be adopted.

V. Act on Optimising the Prevention of Money Laundering (Gesetz zur Optimierung der Geldwäscheprävention – GwOptG)

On 29 December 2011 and 1 March 2012, the Act on Optimising the Prevention of Money Laundering (Gesetz zur Optimierung der Geldwäscheprävention – GwOptG) entered into force. In this respect, please note the following:

  1. In BaFin Circular 14/2009 of 29 July 2009, it was clarified that the due diligence requirement in connection with politically exposed persons (PEPs) pursuant to section 6 (2) no. 1 (b) of the GwG applied not only to the establishment of a business relationship but also, according to the wording of section 6 (2) no. 1 (b), to transactions outside an existing business relationship within the meaning of section 3 (2) no. 2 of the GwG.
    The Act on Optimising the Prevention of Money Laundering required, among other things, that section 3 (2) no. 2 of the GwG be amended by adding a second sentence. The provision now stipulates a reduced threshold of EUR 1,000 for a transfer of funds within the meaning of the Regulation on information on the payer accompanying transfers of funds (Regulation (EC) No 1781/2006) occurring outside an existing business relationship. PEP checks appear to be unnecessary for such low-volume transactions in light of the minimal risk such transactions entail. However, they must still be carried out with regard to individual transactions exceeding EUR 15,000. Please note that my statement published in BaFin Circular 14/2009 thus relates to section 3 (2) no. 2 sentence 1 of the GwG (as amended).
    Section 25f (3) of the Banking Act (Kreditwesengesetz – KWG) does not apply in this respect.
  2. The new or revised provisions set forth in the Act on Optimising the Prevention of Money Laundering in general apply as from the dates stipulated in Article 12 of the GwOptG.
    In cases, however, where BaFin or external auditors identify contraventions of provisions amended or introduced by the Act on Optimising the Prevention of Money Laundering (e.g. section 3 (2) sentence 1 no. 2 of the GwG (thresholds applying to the transfer of funds) and section 6 (2) of the GwG (identification of PEPs)), BaFin will refrain from imposing any supervisory sanctions until 31 December 2012.
    With regard to section 6 (2) of the GwG, it is deemed sufficient for an institution to determine whether the contracting party is a PEP within the meaning of the Act after the respective person has opened an account. This decision is to be based on the information the contracting party provides about his/her exercising prominent public functions. It is deemed sufficient for the institution to determine whether a beneficial owner is a PEP by researching the beneficial owner's name in publicly available media (e.g. the Internet) for information on such beneficial owner.
    The European Commission might stipulate other requirements for determining whether existing customers are PEPs in the planned Fourth EU Money Laundering Directive. In this case, BaFin and the Federal Ministry of Finance will consider prolonging of the aforementioned grace period.

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