Germany has unveiled plans to tackle financial crime more effectively by creating a new federal authority to strengthen enforcement and improve coordination among the country’s current supervisors, of which there are more than 300.
On Aug. 24, German Finance Minister Christian Lindner presented a three-point plan to curb money laundering and other financial crimes in the country. The key aims are to set up a new body to oversee enforcement efforts and pool resources, provide training to produce more highly qualified financial investigators, and promote the digitalization and linking of company and property registers so the true owners of businesses can easily be identified.
“Germany must overcome its reputation as a money-laundering paradise,” said Lindner in a statement. “We are not afraid to take bold and decisive action. We will create strong and effective structures to make sure that honest players are protected from those who don’t stick to the rules.”
The planned Higher Federal Authority for Combating Financial Crime (BBF) will consist of three pillars.
There will be a Federal Police Office for Financial Crime to investigate complex cases, as well as a Financial Intelligence Unit that will cooperate with it to investigate relevant suspicious transaction reports. There will also be a central office for anti-money laundering (AML) supervision that will coordinate supervision of companies outside of the financial services sector. Its creation aims to reduce the number of “Länder”-based regional supervisory authorities, which has made joint enforcement and oversight historically difficult.
The AML office will also act as a central point of contact for the European Union’s future Anti-Money Laundering Authority.
The German Federal Ministry of Finance hopes the new arrangement will mean reporting structures are simplified to ensure effective enforcement and that future investigations are more targeted and follow a risk-based approach.
The ministry has not announced any timeline as to when the initiatives will come into force or what their budgets and level of resources will be.
In a translated statement, Konrad Duffy, financial crime officer at Finanzwende, a German campaign group that wants greater transparency in business, said Lindner’s proposals to centralize efforts are “a step in the right direction” and would help clear up the current confusion and “unclear responsibilities” of a multitude of different regulators operating piecemeal at country level.
But Duffy added the proposals “remain vague in important areas or fall short.” For example, he said, “A new office should deal with all facets of financial crime [and] not apparently exclude topics such as serious tax crime.” He also said it is essential authorities have the right tools for the job; otherwise, “Germany will remain a popular destination for money launderers from all over the world.”
Germany’s track record for tackling financial crime and money laundering has been mixed. As Europe’s largest economy, it stands to reason it will experience high flows of dirty money. But the country is particularly open to greater chances of money laundering because German citizens have overwhelmingly preferred making cash payments compared to using cards or swiping smartphones (though the legacy of the Covid-19 pandemic might be changing that trend, albeit slowly).
German businesses also regularly make cash transactions, partly because the government has been reluctant to impose a 5,000-euro limit (U.S. $5,000) on them in line with AML regulations and best practice adopted in other countries, according to German news outlet Deutsche Welle.
The announcement by the Federal Ministry of Finance purposefully coincided with the publication of a report by the Financial Action Task Force (FATF) into Germany’s recent efforts to curb financial crime.
The FATF found while Germany has implemented significant reforms in the last five years to strengthen its system and combat money laundering and terrorist financing more effectively—with asset confiscation being particularly strong—the government needs to continue to implement further reforms and improve resources to ensure appropriate oversight, monitoring, and enforcement.
The FATF highlighted coordination across Germany’s 16 states (Länder) as a particular challenge and recommended the country’s 300-plus supervisors need more resources to tackle dirty money and terrorist financing.
It also said German authorities’ collection, analysis, dissemination, and use of financial intelligence needs to be enhanced. They should “do more to proactively and systematically investigate and prosecute ML activity in line with Germany’s risk profile,” the FATF said.