BaFin

Topic Anti-money laundering Circular 01/2014 (GW) - suspicious transaction report in accordance with sections 11, 14 of the GwG

Reference number GW 1-GW 2001-2008/0003Date: 05.03.2014, updated on: 10.11.2014

This circular is intended for: credit institutions, financial services institutions, payment institutions, e-money institutions, agents pursuant to section 1 (7) of the Payment Services Supervision Act (Zahlungsdiensteaufsichtsgesetz – ZAG), e-money agents pursuant to section 1a (6) of the ZAG, enterprises and persons pursuant to section 2 (1) no. 2c of the Money Laundering Act (Geldwäschegesetz – GwG), Investment management companies (Kapitalverwaltungsgesellschaften), branches of EU management companies and foreign AIF management companies, foreign AIF management companies for which the Federal Republic of Germany is a reference Member State and which are supervised by the Federal Financial Supervisory Authority (Bundesanstalt für Finanzdienstleistungsaufsicht – BaFin) pursuant to section 57 (1) sentence 3 of the Capital Investment Code (Kapitalanlagegesetzbuch – KAGB), insurance undertakings offering life insurance contracts or accident insurance contracts with premium refunds, as well as financial holding companies and mixed financial holding companies in the Federal Republic of Germany.

I. Administrative practice in relation to section 11 of the GwG and addresses of the competent authorities for a suspicious transaction report, in accordance with sections 11, 14 of the GwG

The Federal Ministry of Finance (Bundesministerium der Finanzen – BMF) has prepared guidance notes on notification of suspicion in the area of anti-money laundering measures pursuant to section 11 of the GwG and has already published this guidance on its website (as the Federal Criminal Police Office (Bundeskriminalamt – BKA) has also done). The Federal Ministry of Finance has asked BaFin to incorporate these guidance notes in BaFin’s administrative practice and to accordingly notify obligated parties supervised by BaFin in relation to money laundering.
BaFin will also publish the following guidance notes on its website.

Introduction

otification of circumstances which give rise to a suspicion of money laundering or terrorist financing is one of the key obligations under the Money Laundering Act. Violations of this notification obligation will incur fines in accordance with section 17 (1) no. 14 of the GwG. In individual cases, this may also be punishable due to the obligated party’s involvement in the crime of money laundering (section 261 of the Criminal Code (Strafgesetzbuch – StGB)).

Preconditions for the reporting obligation under section 11 (1) sentence 1 of the GwG

The obligation to provide suspicious transaction reportunder section 11 (1) sentence 1 of the GwG was revised through the Act Optimizing Money Laundering Prevention (Gesetz zur Optimierung der Geldwäscheprävention – GWOptG) of 22 December 2011, in order to stipulate in concrete terms for obligated parties the threshold of suspicion triggering this reporting obligation. This has clarified that this reporting obligation is essentially tied to limited preconditions.

Section 11 (1) sentence 1 of the GwG is worded as follows:

” Whenever factual circumstances exist that indicate that the assets or property connected with a transaction or business relationship are the product of an offence under section 261 of the Criminal Code or are related to terrorist financing, obliged entities shall promptly report such transaction, irrespective of the amount involved, or such business relationship to the Financial Intelligence Unit of the Federal Criminal Police Office and the competent prosecution authorities orally, by telephone, fax or via electronic data transmission.”

Grounds for suspicion may arise in any business relationship or transaction, regardless of whether they fall under the scope of the customer due diligence obligations under the Money Laundering Act. A transaction within the meaning of section 1 (4) of the GwG need not necessarily be a financial transaction. Any act which is intended to bring about, or which effects, a financial transaction or other transfer of assets may constitute a point of reference.

This includes the following types of transactions:

  • non-cash transactions, including electronically executed transactions
  • cash transactions, irrespective of a specific amount
  • other transfers of assets, such as trade-ins of valuables, transfers by way of security, gifts.

This notification obligation may also include any impending, current, refused or not yet executed transactions.

In principle, this also applies for transactions which have already been executed. Such transactions must also be notified immediately if the obligated party subsequently learns of a suspected case through its own investigation of its clients or of transactions executed by it or through an investigation initiated by the supervisory or criminal prosecution authorities.

The same applies for business relationships: It is not necessary for a business relationship to have already been established; the initiation of a business relationship within the meaning of section 1 (3) of the GwG is sufficient, if the other preconditions laid down in section 11 (1) sentence 1 of the GwG are also fulfilled.

It is by no means necessary for the obligated party and the employees acting on its behalf to be certain regarding the link between a transaction or a business relationship and money laundering, a specific predicate offence or terrorist financing. For a reportable suspicion, it is already sufficient if facts point to the existence of a business relationship or a transaction which promotes terrorist financing or through which illegal funds are to be removed from the reach of the criminal prosecution authorities or the original of illegal assets is to be concealed. In such cases, a criminal context for terrorist financing or pursuant to section 261 of the StGB cannot be ruled out.

In regard to the question of whether the transaction, business or person-related facts within the meaning of section 11 (1) of the GwG learned of are suspicious, the obligated party and the employees acting on its behalf have a degree of discretion, since according to the wording of this law this also depends on the subjective assessment of the obligated party in a given situation.

The applicability of facts and the outcome of the assessment – which (if no report is made) must always be clearly recorded – may be retrospectively examined by the competent supervisory authority and the obligated party’s internal audit department (insofar as the obligated party has such a department or this is required by law). This check will cover the issue of whether the assessment was made on the basis of inappropriate considerations or evidently incorrect facts or whether generally valid assessment criteria have been applied.

The legislator has expressly waived the requirement for the party obligated to provide a report pursuant to section 11 (1) of the GwG to verify the applicability of all of the criteria specified in section 261 of the StGB – including the predicate offence for money laundering – or terrorist financing or to “investigate” this case. The obligated party is not required to legally subsume this case in the relevant criminal offences. The important point is that the party obligated to provide a report is not required to verify whether the legal preconditions for an offence under section 261 of the StGB or terrorist financing apply but must assess a case in accordance with its general experience and its employees’ professional expertise, in relation to the unusual and conspicuous character of these circumstances in the relevant business context. If money laundering or terrorist financing appears plausible on the basis of such experience or if circumstances point to this conclusion, a reporting obligation will already apply. Nonetheless, the obligated party must have sufficiently clear indications; a “shot in the dark” will not trigger the reporting obligation.

The purpose of this check is to be able to assess the respective business relationship or transaction. This scope of this assessment will depend on the individual case in question. In regard to the requirement to provide immediate reporting, the prior internal report provided by employees must be assessed as quickly as possible.

Except in case of occasional clients, the obligated party must consult all of the information available for a business relationship in its assessment of whether the preconditions for the reporting obligation are fulfilled. In this respect, relevant criteria include the following:

  • the purpose and nature of the transaction,
  • details of the identity of the customer or the beneficial owner,
  • the financial and business background of the customer and
  • the origin of assets already deposited or notified for deposit.

In particular, increased vigilance is required on the part of the obligated party if

  • no economic context is apparent for the transaction or business relationship or its circumstances or the details disclosed in this respect are opaque or difficult to verify; the latter relates, in particular, to the identity of the parties involved in the transaction or the business relationship and its purpose;
  • the nature and value and the origin of the assets or the beneficiary of the transaction are not otherwise consistent with the personal circumstances or business activities of the customer, to the best of the obligated party’s knowledge;
  • the transaction is to be handled through circuitous routes or transaction paths are chosen which are cost-intensive and/or which appear economically pointless.

The preconditions stipulated in section 11 (1) sentence 1 of the GwG may normally be assumed to apply if known indications of money laundering or terrorist financing are fulfilled. This also applies if the obligated party is unable to clarify or to resolve doubts or unusual circumstances even after an assessment and it therefore cannot be ruled out that the assets in question have resulted from a criminal offence under section 261 of the StGB or are associated with terrorist financing.

The methods of “money launderers” and “terrorist financers” are constantly changing, not least in response to security precautions implemented by the obligated parties. The lists of indications produced by the Financial Intelligence Unit, FIU, which obligated parties may access on the protected area of the FIU’s website provide information for their mandatory case-by-case review of whether grounds for suspicion apply. These documents provide separate lists of past indications in the areas of “money laundering” and “terrorist financing”. These indications are not exhaustive. Besides internal reports from employees of the obligated party, external reports such as press releases, typology documents produced by the Financial Action Task Force (FATF: www.fatf-gafi.org) and reports from the competent authorities under section 16 (2) of the GwG or the criminal prosecution authorities are also relevant as current sources of information.

Reporting obligation under section 11 (1) sentence 2 of the GwG

Sentence 2 adds an additional reporting obligation in relation to this offence. Section 11 (1) sentence 2 of the GwG is worded as follows:

“The reporting obligation pursuant to sentence 1 shall exist as well where factual circumstances indicate that the contracting party failed to comply with its duty of disclosure under section 4 (6) sentence 2..”

According to this prescription, obligated parties must provide reporting of suspicion irrespective of the preconditions specified in section 11 (1) sentence 1 of the GwG due to the possibilities for concealment and the related enhanced risks of misuse for the purpose of money laundering or terrorist financing in such cases – even without any further indications of the applicability of a criminal offence under section 261 of the StGB or terrorist financing and irrespective of the obligation to terminate a business relationship or cancel a transaction under section 3 (6) of the GwG – should the counterparty fail to disclose to the obligated party whether he intends to justify, continue or execute the business relationship or the transaction for a beneficial owner or, through such disclosure, fails to document the identity of the beneficial owner for the obligated party.

Recipient of the suspicious transaction report

Reports under section 11 (1) of the GwG are to be addressed to the Financial Intelligence Unit,FIU, – which is integrated within the Federal Criminal Police Office – and the locally competent criminal prosecution authority.

Internal reporting procedure

The obligated party must produce work and organizational instructions in order to ensure that its employees refer any internal suspected cases (including transactions and business relationships which have been proposed, but have been rejected) to its complianceofficer (Money Laundering) or its senior management (insofar as a complianceofficer (Money Laundering) is not required by law, or the obligated party has not appointed a complianceofficer (Money Laundering)) in comprehensible form for evaluation and assessment by its compliance officer (Money Laundering) and to ensure that such cases are documented there.

The obligated party is to provide a form which its employees may use to present the facts and indications providing a basis for suspicion. A procedure whereby employees will initially refer an internally suspected case to their superior or a department of the obligated party or its corporate group other than the department specified as competent for this report pursuant to section 11 of the GwG and this department will only forward this report of suspicion if it shares the employee’s suspicion is not compatible with these principles.

Insofar as the obligated party opts not to provide a report pursuant to section 11 (1) of the GwG, the grounds for this must be clearly documented.

These grounds must also be notified to the employee of the obligated party who provided the internal report. Pursuant to section 13 (2) of the GwG, the employee will be completely released from his responsibility if he has internally reported a case of suspicion to the responsible department and this department has opted not to provide a report of this case, on whatever grounds.

Organizational structure for the procedure of suspicious transaction reporting

Through internal measures, the obligated party must ensure that it is able to immediately report to the FIU and the competent criminal prosecution authority of suspicious circumstances within the meaning of section 11 (1) of the GwG.

In general, mere transmission of a suspicious transaction report by letter will not be consistent with the requirement of immediate reporting. If the criminal prosecution authorities provide a secure electronic procedure for transmission, this must normally be used.

The compliance officer (Money Laundering) or the senior management of the obligated company (insofar as a compliance officer (Money Laundering) is not required by law or this company has not appointed a compliance officer (Money Laundering)) must assess the applicability of the preconditions for reporting under section 11 of the GwG on a case-by-case basis and, where applicable, refer suspicious transaction reports under section 11 of the GwG to the FIU and the competent criminal prosecution authorities.

If a compliance officer (Money Laundering) considers that the preconditions for a reportable case are satisfied and wishes to provide a suspicious transaction report, he will not be subject to the senior management’s instructions in this respect.

Internal suspicious transaction reports from employees and suspicious transaction reports must be kept for a period of five years. The internal audit department, the (group) complianceofficer (Money Laundering) (where required by law or insofar as the obligated party has appointed a compliance officer (Money Laundering)) and the competent authorities under section 16 (2) of the GwG and persons acting on behalf of them must have unhindered access to these documents. This also applies for disclosures and information regarding transactions and business relationships resulting from a report or an internal report.

Receipt of suspicious transaction reports

Any suspicious transaction reportmay provide important information for the criminal prosecution authorities. The obligation to provide a report pursuant to section 11 (1) of the GwG in case of suspicion applies even if the obligated party is aware that another obligated party or a third party has already submitted a report or a report under section 158 of the Code of Criminal Procedure (Strafprozessordnung – StPO) due to the same set of circumstances or if the obligated party is aware that the criminal prosecution authorities have already otherwise learned of this set of circumstances. A suspicious transaction report must only be provided upon receipt of a request from information from a state prosecutor’s office if this will provide the criminal prosecution authorities with additional details not currently known to them or not included in this request for information.

The criminal prosecution authorities are not obligated by law to cooperate e.g. in any preliminary review of a suspicious transaction report. Accordingly, the FIU and the competent criminal prosecution authorities may not reject suspicious transaction reportsprovided by the obligated party under this law. However, upon receipt of the suspicious transaction report they may request the reporting party to substantiate or concretise the facts providing the basis for its opinion. A request for information from a state prosecutor’s office is not required for this purpose.

Requirements for suspicious transaction reports

The obligation to provide a suspicious transaction report under section 11 (1) of the GwG constitutes an obligation in accordance with supervisory provisions. Unlike a criminal complaint pursuant to section 158 of the StPO, as with other reporting obligations under supervisory provisions this is subject to specific formal requirements and must satisfy certain minimum requirements in terms of its contents.

As well as the name and address of the obligated party on whose behalf the suspicious transaction report is transmitted, any report under section 11 (1) of the GwG must specify a contact at the obligated party (including his direct dial number in case of any queries) insofar as this contact has not already otherwise been notified by name to the FIU and the criminal prosecution authorities. If the obligated party has a compliance officer (Money Laundering), this person will be the specific contact. The report must indicate the identity of the obligated party.

Any report must specify whether a suspicious transaction has been already executed, has not yet been executed or has been refused. The suspicious transaction report must clearly indicate whether this involves an initial or repeat report within the meaning of section 11 (2) of the GwG or additional information for a report previously submitted in connection with the same set of circumstances. In the latter case, this report must indicate when and how a criminal prosecution authority has already been reported, and the criminal prosecution authority in question.

The details of the persons involved must distinguish between customers (counterparties), non-customers (persons involved), beneficial owners and persons otherwise involved.

Reports must always specify the name (corporate name) and first name of the customer (counterparty) and his address, date of birth, nationality, identity card number, type of identity card, issuing authority and, if known, name at birth, place of birth and any account, securities account or safe deposit box numbers and contract numbers or similar codes, where associated with the suspicious transaction report.

The identity of the counterparty/customer/person involved or the originator/beneficiary is important information in any report. In case of business which has merely been proposed, the name (i.e. the clearest identifying characteristic) may sometimes remain unknown. In this event, only indications regarding the nature of the business or the transaction may be provided in this report. Since these indications may also make it possible to identify the person and to clarify the facts of this case, a report is also required in these circumstances.

Reports of suspicious transactions must specify the nature, the amount, the date, the branch receiving the request for the transaction and the beneficiary of the transaction (where available). If the relevant documents are not already attached to the suspicious transaction report, they must be handed over to the FIU or the criminal prosecution authorities at their request. Insofar as such reports refer to contracts, handling of contracts or account documents (incl. account statements), these documents must be clearly and suitably indicated (e.g. by means of a reference to attached documents).

Should multiple individual transactions either individually or jointly give rise to suspicion on the part of the obligated party – including transactions already implemented, where applicable – the required details must be provided for each of these transactions. Insofar as a criminal complaint within the meaning of the Penal Code has already been filed due to the same set of circumstances, the obligated party should indicate this in its report, if this is known to it; the obligated party must specify the identity of the addressee of the criminal complaint, if known.

The obligated party may execute a requested suspicious transaction at the earliest upon receiving permission from the state prosecutor’s office or upon expiry of the second working day following the date of submission of a full report, without execution of this transaction having been prohibited under the rules of criminal procedure (section 11 (1a) of the GwG).

If the employees of the obligated company strongly suspect an act of money laundering or terrorist financing in a specific case, a transaction may not be executed in accordance with the “urgent case rule” in section 11 (1a) sentence 2 of the GwG.

Where available, the obligated party must use any official forms of the FIU or the criminal prosecution authorities or, in the absence of such forms, the forms provided by the competent authorities under section 16 (2) of the GwG for reporting suspicious transactions.

II. Requirement of a suspicious transaction report, even when knowledge of a self-declaration by the counterparty to the tax authorities is obtained

In the light of recent events, I would like to point out that, insofar as an obligated party learns that a customer of it has submitted a self-declaration in accordance with section 371 of the Fiscal Code (Abgabenordnung - AO) or intends to do so and a link between the current business relationship with this customer or this customer’s assets and tax evasion cannot be ruled out, the obligated party is obligated to submit a suspicious transaction report pursuant to section 11 (1) sentence 1 of the GwG insofar as the preconditions indicated therein are fulfilled.

This already follows from the fact that, in such case, it will not be clear for the obligated party whether this self-disclosure is in fact valid.

An obligated party is not generally obliged to examine a set of circumstances in regard to the applicability of all of the criteria for a predicate offence, and still less so for a valid legal reason for exemption from punishment.
It should be noted that tax self-disclosure statements are not submitted to the criminal prosecution authorities. Accordingly, they are not generally familiar with the facts of a given case. Even if this were the case, in principle the guidance notes in relation to section 11 of the GwG (cf. Section I above) require reporting even if a case is already known of.
Finally, even if the offender submits a valid self-declaration, other persons (joint offenders, accessories) will still be punishable unless they have themselves submitted self-disclosure statements. Thus in such cases the obligated party itself has an interest in submitting a suspicious transaction report – with the consequence specified in section 261 (9) of the StGB – to avoid possible criminality due to reckless aiding and abetting of tax evasion.

III. Interpretation of section 6 (2) no. 2 of the GwG (“not personally present”)

The Federal Ministry of Finance recently issued an interpretation regarding the scope of the enhanced customer due diligence in cases of non-face-to-face identification pursuant to section 6 (2) no. 2 of the GwG.

According to this prescription, an enhanced risk must be assumed and the obligated party will be subject to the enhanced customer due diligence stipulated therein, in particular, if the counterparty is a natural person and is not personally present for verification of his identity. In such cases, to compensate for the enhanced level of risk the obligated party must verify the identity of this counterparty in accordance with the procedures listed exhaustively in section 6 (2) no. 2 of the GwG.

The Federal Ministry of Finance has now interpreted this prescription to the effect that “personal presence” may also be assumed in certain circumstances and section 6 (2) no. 2 of the GwG will not apply if the parties participating in the identification process cannot be physically perceived, but may nonetheless be perceived visually through video transmission and it is simultaneously possible to make verbal contact and to verify the identity of the counterparty in this respect by means of an identification document.

In this case, regardless of this physical separation sensory perception of the persons participating in the identification process is possible, since the person who is to be identified and the employee sit opposite one another “face to face” through this video transmission and communicate with one another.

In the above-mentioned cases, a counterparty will therefore be identified in accordance with the general identification obligations in
section 3 (1) no. 1 in connection with section 4 (1), (3) no. 1 and (4) no. 1 of the GwG.

This is subject to the requirement that this identification process must be implemented by appropriately trained employees of the obligated party or of a third party to which the obligated party has outsourced identification pursuant to section 7 (2) of the GwG or which it relies upon pursuant to section 7 (1) of the GwG.
Moreover, during the identification process these employees must be situated in separate premises with restricted access.

During this video transmission process, the relevant employee must create photos/screenshots which clearly show the counterparty and the front and reverse of the identity document used by this counterparty for identification purposes and the information held on this document. Moreover, during video transmission the customer must indicate the full serial number of his identity document. The conversation between the employee and the counterparty must also be acoustically recorded.

The counterparty may only be identified by means of video transmission if he has expressly agreed to this recording at the start of the process.

Only identity documents featuring optical safety features which are equivalent to holographic images may be used as proof of identity within the scope of this process. The employee must visually verify that these optical safety features are present and thus determine the authenticity of the document in question. For this purpose, the counterparty who is to be identified must tilt his document horizontally or vertically in front of the camera, as instructed by the employee. The employee must also check that the identity document’s laminated cover is intact and that no image has been glued onto it. Any numbers on the document must be present in the correct order.

The employee must also verify that the photograph and the description of the person on the identity document presented are consistent with the counterparty who is to be identified. The photograph, the date of issue and the date of birth must also be consistent.

The employee must moreover verify that any further details on the identity document match existing details held for this customer (such as those provided on an application submitted by this customer).

If the visual check outlined above is not possible – e.g. due to poor light conditions or a poor image quality/transmission – and/or verbal communication is not possible, the identification process must be cancelled. The same applies in case of any other discrepancy or uncertainty. In such cases, the counterparty may be identified by means of one of the other processes permitted under GwG.

Finally, during the video transmission the person who is to be identified must directly enter online a valid sequence of numbers (TAN) which is specially produced for this purpose, is centrally generated and is delivered to this person (by email or SMS) and must return this to the employee electronically. Once the counterparty has entered this TAN, subject to successful confirmation of this TAN in the system the identification procedure will have been completed.

I would like to expressly point out that the above supervisory requirements apply irrespective of any existing or more extensive requirements pursuant to sections 7 and 8 of the GwG and notwithstanding any data protection requirements which must also be complied with.

IV. Administrative practice in relation to the statutory provisions on prevention of money laundering and terrorist financing in the Money Laundering Act and the Banking Act (Kreditwesengesetz - KWG)

As agreed with the Federal Ministry of Finance and myself, the German Banking Industry Committee (Deutsche Kreditwirtschaft – DK) publishes interpretation and implementation guidance notes for prevention of money laundering, terrorist financing and “other criminal offences” which provide concrete details regarding the statutory requirements. These notes were last revised on 16 December 2011. Several specific additions were made on 22 August 2012.

In the context of statutory changes and amendments – such as the Act Optimizing Money Laundering Prevention of 28 December 2011 – and in view of the intention to establish interpretation and implementation guidance notes for all relevant statutory provisions on money laundering, the member associations of the German Banking Industry Committee have revised the existing guidance notes. In this respect, in particular a new chapter provides comments on the requirements for operation of adequate IT monitoring systems pursuant to section 25h (2) of the KWG as well as the obligation to assess unusual or doubtful circumstances pursuant to section 25h (3) of the KWG. Moreover it is clarified that the clarification whether a customer or a beneficial owner or a beneficiary is a politically exposed person (“PeP”) does not yet belong to the measures of enhanced customer due diligence.

BaFin and the Federal Ministry of Finance have approved the contents of the current, revised version of the interpretation and implementation guidance notes (as of: 1 February 2014). Their wording is thus consistent with the administrative practice of BaFin.
I should like to expressly point out that these interpretation and implementation guidance notes constitute minimum requirements for obligated parties, as with the Minimum Requirements for Risk Management issued by BaFin (MaRisk) and the Additional Requirements Governing Rules of Conduct, Organisation and Transparency pursuant to sections 31 et seq. of the Securities Trading Act (Wertpapierhandelsgesetz - WpHG) for Investment Services Enterprises (MaComp).

In view of the fact that these interpretation and implementation guidance notes reflect my administrative practice – which is also valid for banks which are not members of the German Banking Industry Committee and for other obligated parties supervised by me (insofar as they are not subject to bank-specific rules and obligations) – I hereby notify all obligated parties under my supervision of publication of these interpretation and implementation guidance notes to be observed.

I have published these interpretation and implementation guidance notes on the “Anti-money laundering” section of BaFin’s website (only available in German).
The German Banking Industry Committee published them on its website in early March 2014 (only available in German).

The obligated parties are required to comply with the interpretation and implementation guidance notes revised or newly introduced in this new version of the notes by 30 April 2014.

Yours sincerely,
Dr. Fürhoff

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