Last week’s raid by German prosecutors of the country’s finance and justice ministries has once again put a spotlight on Germany’s apparent failings in tackling financial crime.
The raid, which took place Sept. 9 in the city of Osnabrück, was part of an investigation into the government’s anti-money laundering (AML) agency, the Financial Intelligence Unit (FIU), over whether it was told to ignore warnings of suspect payments worth millions of euros to Africa and elsewhere between 2018-20.
The latest raid appears to be a follow-up to an investigation from July 2020 where Osnabrück prosecutors apparently found the agency had failed to (timely) forward eight suspicious activity reports (SARs) German banks had filed regarding transactions to Africa.
Following that instance, prosecutors took the unusual step of instigating criminal proceedings against some FIU officers for obstruction of justice in public office—a serious crime that carries a six-month minimum prison term—and raided the agency’s Cologne offices with the help of state police.
The FIU is overseen by Finance Minister Olaf Scholz, the candidate widely expected to succeed Angela Merkel as German chancellor in national elections on Sept. 26. BaFin, the country’s key financial regulator, is also part of Scholz’s remit. That, too, has faced criticism for failing to spot governance failings at collapsed payments firm Wirecard, the subject of Germany’s biggest corporate fraud.
Scholz has tried to deflect criticism, pointing out he has tripled staff numbers at the FIU from 165 to nearly 500 during his tenure.
However, media reports suggest the unit is under-resourced elsewhere: One German official told Reuters it only stopped using fax machines to receive warnings from banks about suspect transactions reports a few years ago.
The FIU has not made an official comment on the raid on its Website. Meanwhile, Scholz faces a grilling in German Parliament just days before the election.
Germany’s reputation for dealing with money laundering and other financial crime is often described as “checkered” at best. Its AML efforts are currently under review by the Financial Action Task Force (FATF), the global body committed to tackling financial crime. A report is due next August, and many experts expect it to contain significant criticisms.
In July, a report issued by anti-corruption campaign group Transparency International blasted Germany’s feeble political will to combat money laundering as “not even remotely sufficient.” The TI report warns of massive gaps in the country’s oversight of individuals and companies.
Contributing factors that have been cited include lack of human resources and weak sanctions.
German AML law might also be too prescriptive. Under national legislation, SARs must be filed with the FIU without undue delay if there are any indications funds are derived from money laundering or could be related to terrorist financing, according to a 2020 blog post from law firm Freshfields. The reporting obligation applies regardless of the value of the transaction and whether it has been rejected, is pending, or has already been executed, the firm noted.
As such, “financial institutions have little choice but to file low-threshold SARs even when there is merely a vague suspicion of money laundering or terrorist financing. When in doubt, it is usually better to file a SAR than not,” the blog post stated.
In August 2019, there was reportedly a backlog of more than 46,000 SARs the FIU had failed to examine.
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