## _cr1078 ## Source details **Canonical URL:** [_cr1078](https://www.imf.org/-/media/websites/imf/imported-full-text-pdf/external/pubs/ft/scr/2010/_cr1078.pdf) ## Other formats - [Markdown version](/-/media/websites/imf/imported-full-text-pdf/external/pubs/ft/scr/2010/_cr1078.pdf.md) - [Structured JSON version](/-/media/websites/imf/imported-full-text-pdf/external/pubs/ft/scr/2010/_cr1078.pdf.json) --- ### Preface and Executive Summary - Assessment based on the FATF 40+9 Recommendations and AML/CFT Assessment Methodology 2004; mission on site from May 15 to June 5, 2009. - Team: IMF staff and six experts (team leader Steve Dawe; deputy Nadine Schwarz; consultants Richard Chalmers, Nicolas Burbidge, Horst Intscher, John Abbott, Mariano Federici). - Purpose: summarize AML/CFT measures in place in Germany, analyze compliance with FATF 40+9, and provide recommendations. - Key high-level findings: - Germany introduced measures strengthening AML/CFT; generated a relatively large number of ML prosecutions and confiscation orders. - Shortcomings identified against FATF 40+9 Recommendations in legal framework and sanctioning; main recommendations include amendments to CC and AML Act, improved FIU functions, more effective sanctions, better DNFBP implementation, and improved statistics and guidance. ### National context and ML/TF risk factors - Reasons for susceptibility to ML/TF: - large economy and financial center, strategic location in Europe, strong international linkages. - Estimates and key figures: - Substantial proceeds of crime presently estimated to be €40 to €60 billion (approximately $60–80 billion) annually inclusive of tax evasion. - Informal sector estimated > €400 billion or >$560 billion. - Shadow economy estimate elsewhere in report: > €500 billion ($696 billion). - Currency: Euro (€) widely used across Europe. - Terrorism context: - Germany considers radical Islamic terrorism primary security threat; 267 criminal investigations related to Islamist terrorist activities since 2001 (as of February 2009). ### Core legal and institutional framework - Core elements: German Criminal Code (CC), Money Laundering Act (AML Act), sector-specific laws (Banking Act, Investment Act, Insurance Supervision Act). - AML Act (last amended August 21, 2008) established FIU within BKA; transposed Third EU Money Laundering Directive. - FIU mandate (Section 10): - support Federal and Länder police; collect/analyze STRs; inform authorities; maintain statistics; publish annual report; inform reporting entities on typologies. ### Money laundering (ML) offense — scope, mens rea, and shortcomings - Section 261 CC text summarized; basic intentional ML: imprisonment from three months to five years. - Coverage: - Covers concealment/disguise, acquisition, possession or use of property derived from predicate offenses; conversion/transfer not explicit but covered by case law. - Predicate offenses: all serious offenses (Verbrechen) and a number of listed less serious offenses (Vergehen); however two FATF-designated categories are not predicates: “insider trading and market manipulation” and full “counterfeiting and piracy of products.” - Tax evasion is predicate only if committed to make profit or by a gang—noted as beyond FATF but additional aggravating-condition approach exists for several less serious offenses. - Autonomy and self-laundering: - Section 261(9) provides a person punished for predicate offense may not be punished for ML as well; practice and case law indicate ML often not applied to convicted predicate perpetrators—assessors concluded inability to apply ML to self-launderers not established as fundamental principle under FATF standard. - Mens rea and negligence: - Section 261 generally requires intent; Section 261(5) criminalizes negligent ML (reckless lack of knowledge) allowing convictions on lower standard. - Mental element may be inferred per free evaluation of evidence. - Convictions and practice: - German courts obtain more than 300 ML convictions yearly; many for less serious conduct. - Prosecutors often pursue predicate offenses (higher sanctions, easier proof). - Assessors’ conclusion on R.1 & R.2: - R.1 — PC: ML offense not fully compliant (missing predicate categories; inability to apply ML to persons convicted of predicate; effectiveness concerns). - R.2 — LC: sanctions for basic ML not effective, proportionate and dissuasive; lack of statistics on legal persons’ administrative fines. ### Terrorist financing (TF) criminalization and SR.II - August 2009: financing of terrorist acts and individual terrorists criminalized (Section 89a (2) number 4) and financing of terrorist organizations in Section 129a (5); all three CTF offenses are predicates for ML. - Technical deficiencies: - “Serious violent act endangering the state” definition does not cover serious bodily injuries and does not extend to all acts in treaties annexed to the TF Convention. - “Funds” in Section 89a(2) number 4 limited by “not merely insubstantial” requirement; SR.II imposes no minimum value. - Sanctions: - Financing of a terrorist act / individual terrorist: imprisonment of six months to ten years (Section 89a (2) number 4). - Support of terrorist groups (Section 129a (5)): imprisonment six months to ten years (subsections (1),(2)); up to five years or a fine (subsection (3)). - TF offenses classified as less serious crimes (Vergehen); assessors note potential effectiveness concerns. - Statistics and effectiveness: - No cases yet for new provisions at time of report; poor statistics hinder assessment. - SR.II — LC recommended actions: amend CC to fully align with TF Convention; raise minimum sanctions; increase application of sanctions to legal persons; maintain complete statistics. ### Asset seizure, confiscation, forfeiture, and provisional measures (R.3) - Confiscation framework: Sections 73 (forfeiture) and 74 (confiscation) CC; extended forfeiture under Section 73d; equivalent-value confiscation Section 73a and 74c; provisional measures Sections 111b–111l CPC. - Practice and statistics (2004–2007, preserved exactly): - Total assets forfeited or confiscated (EUR): 2004: € 305,963,158; 2005: € 319,282,155; 2006: € 300,570,519; 2007: € 218,782,569; Total: € 1,144,598,401. - Total assets forfeited or confiscated (USD): 2004: $ 425,808,927; 2005: $ 444,344,975; 2006: $ 418,303,991; 2007: $ 304,479,701; Total: $ 1,592,937,595. - Total assets forfeited or confiscated as percentage of total claim: 2004: 24.1%; 2005: 26.8%; 2006: 28.2%; 2007: 37.0%; Total: 27.8%. - Assets forfeited or confiscated — Money laundering: 2004: € 32,948,160; 2005: € 65,453,313; 2006: € 23,710,160; 2007: € 15,074,378. - Findings: - Germany obtains many court orders for confiscation but actually confiscates less than ordered. - Professional secrecy interpretation by some professions limits LEAs’ ability to trace property. - Recommendations: - Enable law enforcement to obtain information from DNFBPs despite professional secrecy where justified. - Improve actual performance in confiscating assets after orders issued. - Establish mechanism to collect statistics on provisional measures. - R.3 — LC. ### Freezing terrorist funds and SR.III - EU Council Regulations No. 881/2002 and 2580/2001 directly applicable; Section 6a Banking Act used for EU-internals’ funds. - Gaps: - Section 6a Banking Act refers to “funds” and applies only to credit institutions, financial services institutions and investment companies — other persons (insurance companies, DNFBPs) not directly covered for EU-internals. - Freezing of assets other than funds (immovable goods, companies) for EU-internals not fully covered by domestic law. - Statistics (cumulative frozen pursuant to Reg. 881/2002): - Stand 12.31.2008: Frozen funds total: € 8,953.07 $ 12,459.99 — Funds of 17 persons. - SR.III — PC; recommended actions include national legislation to implement Common Positions, extend S/RES 1373 to all persons, and ensure freezing without delay of assets other than funds for EU-internals. ### STRs, reporting system, and FIU (R.26 & R.13) - STR reporting regime: - AML Act requires reporting entities to submit STRs to relevant Land police/prosecutorial body with a copy to the FIU (Section 11); STRs treated as criminal complaints in practice. - Legal threshold and drafting issues: - Reporting tied to Section 261 ML offense rather than “proceeds of criminal activity.” - Evidential basis for filing perceived high—discourages prompt reporting. - Filing directly with Länder LEAs treats STRs as criminal complaints; reporting reluctance and extensive pre-filing investigation by reporting institutions reduce volume. - STR statistics (selected): - No. of STRs by year: 2004: 8,062; 2005: 8,241; 2006: 10,051; 2007: 9,080; 2008: 7,349; Total: 42,783. - FIU exchanges in 2008: 773 exchanges (677 enquiries from abroad and 96 German requests) with 75 foreign FIUs. - Reporting distribution (selected 2008 sector totals preserved): - Banks total (2008): 6352 - Financial service providers (2008): 920 - Insurance companies (2008): 37 - Total STRs (2008 per different table references): 10,020 / 9,043 / 7,312 (comparative years 2006 / 2007 / 2008). - Assessors’ analysis: - Germany’s STR rate low relative to GDP and population: Germany equals 2.7 STRs per $billion of GDP; 10.7 STRs per 100,000 population (benchmarks cited). - High quality STRs produced but narrow intelligence base; STRs often assembled after significant pre-filing investigation. - FIU functions and limitations: - FIU at BKA receives STR copies, maintains database, checks against foreign FIU correspondence, may request foreign FIUs’ info and forward to Land LEAs. - In practice, Länder LEAs perform primary case-specific analysis; FIU performs limited case-specific analysis and focuses on patterns/typologies. - FIU database does not contain transaction value information; about five percent of investigations result in no residual suspicion and are deleted from Länder databases but FIU can retain up to four years. - R.26 — LC: FIU does not carry out fully all FIU functions required by the standard; recommendations include strengthening FIU tactical analytic capacity, authority to mandate reporting format, and automated reporting. ### Law enforcement, investigations, special techniques (R.27 & R.28) - Investigation initiation: STRs, criminal complaints, or predicate offense investigations; Länder “clearing process” precedes full investigation. - LEAs and prosecutors: - Joint Financial Investigation Groups (Länder) conduct clearing; BKA provides specialized support; ST45 unit handles TF. - Specialized units exist; resources described: BKA approx. 5,500 employees; Federal Prosecution Office 229 employees including 104 prosecutors (2008). - Special investigative techniques permitted (telephone taps, undercover agents, controlled deliveries); use generally focused on serious offenses; telephone interception data (Section 100a) — investigations where telephone interception applied with ML as a reason: 2005: 48; 2006: 40; 2007: 45; 2008*: 93 (note on 2008 data). - Assessors’ concerns and recommendations: - ML investigations focus on self-laundering and predicate offenses; few investigations into complex organized ML structures. - Delays in clearing process (3–6 months) limit timely use of intrusive measures. - Need for more use of special techniques and better statistics on use of powers. - R.27 — LC; R.28 — LC. ### Cross-border physical transportation of currency (SR.IX) - Two regimes: - Movements between Germany and non-EU countries: written declaration for €10,000 or more — travelers must complete declaration. - Movements within EU: disclosure obligation if asked — oral disclosure when requested. - Customs implements regimes; powers and risk-based approach exist; data stored in INZOLL for one year (diminishes analytic utility). - Problems identified: - Insufficient traveler awareness at airports; declaration forms not provided prior to arrival; signage not conspicuous. - Recommendation: heighten traveler awareness signage and extend one-year data retention. - SR.IX — LC. ### Preventive measures — Financial institutions (R.5–R.11, SR.VII) - Scope and structure: - AML Act applies to broad range of FIs: credit institutions, financial services institutions, financial enterprises, insurance companies/intermediaries, investment companies. - 2008 amendments introduced risk-based approach; sectoral laws contain additional CDD provisions. - Major concerns and specific findings: - Broad CDD exemptions for specified “low-risk” customers (Section 5(1)) may conflict with monitoring/record-keeping obligations and FATF standards. - Treatment of EU/EEA member states and countries on EU “equivalence” list as single-risk categories in some scenarios; no independent national risk assessment. - Beneficial ownership verification not required at same standard in all cases (Section 4(5) allows “name” minimum and risk-based further ID). - PEPs: - Section 6(2) mandates EDD for PEPs but applies only to foreign PEPs “based outside the country” and “no longer PEPs after one year” — gaps for domestic PEPs and timing; approval by “immediate supervisor or next higher management level” (not clearly “senior management”). - Correspondent banking (Section 25f): - Special measures apply only to respondent institutions in “third countries” (non-EU) — intra-EU correspondent relationships treated as low risk, contrary to FATF expectation. - Payable-through accounts prohibited and banks must ensure respondent institutions do not permit shell banks. - Wire transfers: - EU Regulation 1781/2006 implemented; BaFin supervises compliance; BaFin has administrative offense rules with fines up to €50,000. - Record retention: - Section 8(3): records and evidence must be kept for at least five years; commercial law may require ten years in some cases. - Internal controls, compliance officers, training: - Section 9 requires compliance officers, internal safeguards, employee training; obligations do not apply to insurance intermediaries and not compulsory for small DNFBPs. - No explicit statutory obligation for compliance officers’ timely access to CDD/transactions. - Supervision and enforcement (BaFin and others): - BaFin is principal AML/CFT supervisor with MLPG; uses risk-based supervisory classification (matrix 1A–3D). - Reliance on annual external audit reports; number of on-site inspections relatively low; special audits and audit accompaniments occur (e.g., 21 special audits in 2007; 18 in 2008). - Administrative fines under AML Act: - Section 17(1): up to €100,000 ($139,170) for intentional or grossly negligent failures (identify contracting party; record correctly; retain records; report suspicious activity). - Section 17(2): up to €50,000 ($69,585) for certain intentional failures. - Observed practice: administrative fines rarely applied; BaFin applied one administrative fine historically; written warnings more common. - Ratings and recommendations: - R.5 — PC; R.6 — PC; R.7 — PC; R.8 — LC; R.9 — LC; R.10 — LC; R.11 — PC. - Key recommendations include clarifying beneficial ownership verification, narrowing “low-risk” exemptions, extending PEP definitions/approvals, extending correspondent bank enhanced measures intra-EU, and strengthening internal controls and sanctions. ### Money or value transfer services (MVTS) and SR.VI - MVTS licensed under Banking Act; supervised by BaFin; about 39 licensed MVTS operators. - BaFin enforces licensing, conducts supervisory visits, and has enforcement unit of 6 FTE for MVTS; identifies and shuts down illicit remitters (~15 per year). - SR.VI — LC due to preventive and sanctioning deficiencies shared with wider FI regime. ### Preventive measures — DNFBPs (R.12, R.16, R.24–25) - DNFBPs covered: lawyers, patent attorneys, notaries, legal advisers, auditors, chartered accountants, tax advisers, trust and company service providers (TCSPs), real estate agents, persons trading in goods, casinos. - Key structural facts: - Lawyers: ~150,000; 28 regional chambers. - Patent attorneys: ~2,800. - Notaries: ~8,400; supervised by presidents of regional courts; regular on-site examinations at least once every four years. - Tax advisors: ~85,000; 21 regional chambers. - Real estate agents: ~12,000; unregulated nationally; supervised at Länder level. - Dealers in precious metals/stones: wholesale players ~390 firms with >49 employees in one sector estimate (2008); limited supervision at Länder level. - Casinos: ~80 locations; licensed and supervised at Länder level. - Major DNFBP weaknesses identified: - Very low STRs filed by DNFBPs (selected table preserved): - Lawyers STRs: 2004: 11; 2005: 11; 2006: 3; 2007: 5; 2008: 9. - Notaries STRs: 2004: 1; 2005: 1; 2006: 0; 2007: 1; 2008: 5. - Auditors STRs: 2004: 3; 2005: 2; 2006: 2; 2007: 3; 2008: 3. - Tax Advisers STRs: 2004: 1; 2005: 6; 2006: 2; 2007: 3; 2008: 5. - Real Estate Agents STRs: 2004: 0; 2005: 0; 2006: 1; 2007: 0; 2008: 0. - Casinos STRs: 2004: 5; 2005: 6; 2006: 4; 2007: 7; 2008: 4. - Professional secrecy carve-out under Section 11(3) and broad interpretation of “legal advice” limit reporting obligations for lawyers, patent attorneys, notaries, auditors, accountants, tax advisers; registered legal advisers (Section 10 LSA) are contractually confidential but not same statutory secrecy—assessors considered their inclusion in carve-out inappropriate. - Exemptions for small firms (firms with 10 or fewer professionals) from internal safeguards issued by chambers reduce coverage without documented risk assessment. - Real estate agents, dealers in precious metals/stones, and TCSPs lack systematic supervision; no national regulatory framework ensuring compliance. - Casinos: identification-on-entry practices generally not linked to specific in-casino transactions; monitoring and transaction-linking weak. - Ratings: - R.12 — NC; R.16 — NC; R.24 — NC; R.25 — PC. - Recommendations: require DNFBP compliance management arrangements, mandatory procedures for PEP identification, remove or limit professional secrecy carve-outs, require CDD linkage in casinos, strengthen Länder supervision for real estate and dealers, mandatory training and audit functions for DNFBPs, risk assessments of DNFBP sectors. ### Legal persons, arrangements, and beneficial ownership transparency (R.33 & R.34) - Registers and disclosure: - Commercial register, register of associations, cooperatives register, business register; variable content and public access. - Selected key figures: Limited Liability Companies (GmbH) approx. 980,000; Stock Corporations approx. 17,000. - Gaps and risks: - Private foundations: disclosure of beneficial ownership/control limited to near nonexistent in practice. - Nonlisted stock corporations issuing bearer shares: beneficial ownership transparency weak; bearer shares may be in global notes or individual certificates, and identification of owners can be practically impossible in many cases. - Treuhand arrangements (common fiduciary arrangements) lack registration or central disclosure; Treuhand widely used and not always transparent — risk not assessed by authorities. - Assessors’ conclusions: - No guaranteed timely access in all cases to adequate, accurate and current information on control and beneficial ownership of legal entities. - R.33 — NC; R.34 — NC. - Recommendations: ensure beneficial ownership accessible to competent authorities for all legal entity types; assess and mitigate ML/TF risks posed by bearer-share companies and Treuhands. ### Non-profit organizations (SR.VIII) - NPO approach: no sector-wide statutory supervisory regime; two-prong approach: - Transparency measures (e.g., voluntary DZI “Donation Seal”) and tax-based oversight. - Targeted intelligence-driven monitoring and suppression of extremist/terrorist activities; tax authorities must notify constitutional protection agency and FIU where suspicion of TF arises. - Statistics & transparency: - Donations annual volume: range €2.6 billion to €7 billion; average annual €3–€5 billion. - DZI focuses on ~3,000 NPOs and awards voluntary Donation Seal. - Gaps: - No documented comprehensive review of NPO laws and vulnerabilities; disclosures to meet Interpretative Note to SR.VIII Section 6 b limited in routine filings. - Outreach to NPO sector limited; reliance on intelligence rather than broad regulatory transparency. - SR.VIII — LC; recommendations: document systematic reviews, require NPO registration/tax filings to include information per SR.VIII guidance, increase outreach. ### National and international cooperation (R.31–R.40) - National cooperation mechanisms: - Money Laundering Contact Group (MLCG) comprising BMI, BMF, BMJ, BMWi (BMWi not active participant); BaFin, Bundesbank, FIU participate regularly. - Joint Counter-Terrorism Centre (GTAZ) coordinates TF intelligence and operations. - Joint Financial Investigation Groups (Länder) coordinate police/customs financial investigations. - Assessors’ findings: - Coordination exists but focus often on FATF policy positions rather than domestic implementation effectiveness. - Engagement with DNFBP authorities limited. - Lack of formal mechanisms to review effectiveness; lack of accountability reporting to parliament on AML/CFT. - R.31 — LC; R.32 — PC (no evidence of overall reviews of regime effectiveness). - International cooperation: - FIU active in Egmont (773 exchanges in 2008); BaFin signed ~96 MoUs with foreign supervisors as of 2007. - Mutual Legal Assistance (LIACM) framework, many bilateral and multilateral treaties; extradition system robust with 32 extradition requests received (2005–2008) — totals: 32 requests — 26 granted — 6 denied (table preserved). - Practical issues: dual criminality requirements may be impacted by ML offense deficiencies when extradition/ML forms require dual criminality; professional secrecy for DNFBPs may impede MLA. - R.36–R.38 — LC; R.39 — LC; R.40 — LC; SR.V — LC. - Automated account access: - BaFin automated account access system (Section 24c Banking Act) records core account data daily; access statistics 2008: - BaFin accessed system 277 times in 2008; - FIU accessed 416 times; - Other authorities accessed 83,245 times. - Second system under Section 93b Fiscal Code operated by Federal Central Tax Office. ### Supervision, resources, audits, and sanctions (R.17, R.23, R.29, R.25) - BaFin MLPG structure and resources: - MLPG ~90 staff; BaFin total budget 2008: €120.4 million; 2009 anticipated €135.3 million. - Supervisory risk matrix 1A–3D guides supervision; special audits and audit accompaniments performed (e.g., 23 special audits for credit institutions in 2003; 18 in 2008). - Reliance on external auditors and audit reports; concerns about audit quality variability especially for cooperative/savings bank auditing associations. - Sanctions framework: - AML Act fines limited: Section 17(1) up to €100,000; Section 17(2) up to €50,000; sector laws provide higher fines for specific breaches (e.g., Banking Act up to €500,000 for dismissal-order noncompliance). - Observed application: very few fines applied; BaFin applied one administrative fine historically; written warnings and license revocations for unlicensed remitters occasional. - Assessors’ concerns and recommendations: - Administrative fines not proportionate/dissuasive; rarely applied — recommend increase and broaden fine regimes, clarify applicability to supervisory board members, empower BaFin to dismiss managers for AML/CFT violations. - R.17 — PC; R.23 — LC; R.25 — PC; R.29 — LC. ### Payments, technology, and financial trends (R.20, SR.VII) - Card and electronic payments growth: - Credit card transactions: 1998: €28.6 billion; 2007: €54.3 billion. - Retail card turnover (2008): €130 billion — 36.1 percent of retail turnover; debit cards 30.1 percent; credit cards 5.2 percent. - Online banking accounts: 2008: 39.3 million. - SEPA implementation: - SEPA Credit Transfer available since January 2008; SEPA Direct Debit launched November 1, 2009. - Measures against cash-based laundering: - Amendments to Compulsory Sale Act (Section 69(1)) to prevent cash collateral in property auctions; collateral must be check or surety. - R.20 — C; SR.VII — C. ### Summary of selected statistical findings (preserved exactly) - General country figures: - Territory: 357,092 square kilometers. - Population: over 82 million inhabitants. - Urbanization: 74 percent. - Land borders total: 3,621 km; coastline: 2,389 km. - Germany in Schengen zone: covering more than 4 million square kilometers and combined GDP of approximately €13.5 trillion ($18.8 trillion). - Key financial statistics (Statistical Table 1: Key Information about Germany—2008): - Nominal GDP: € 2,636 billion — $ 3,668 billion. - GDP per capita: € 32,090 — $ 44,660. - Total financial sector assets: € 8,124 billion — $ 11,306 billion. - Deposits in depository corporations: € 3,195 billion — $ 4,702 billion. - Value of transactions settled by interbank funds transfer systems: € 231 trillion — $ 321 trillion. - SWIFT messages sent annually: 326 million; received: 289 million; total 616 million. - Crime and ML estimates: - Total recorded offenses in 2007: 6,284,661 (77 per 1,000 population). - Baseline estimate of proceeds of crime inclusive of tax evasion: around €43 billion ($60 billion) — upper range €57 billion ($79.514 billion). - Convictions for ML (2004–2008 totals provided in tables): total convictions across years: 1,636 (annual breakdown preserved in report). - Confiscation totals (2004–2007) preserved above under confiscation section. ### Consolidated priority recommendations (selected, preserving numeric and wording fidelity) - Amend the CC to: - criminalize ML so it applies to all serious predicate offenses and to permit prosecution of self-laundering; - criminalize TF fully consistent with the TF Convention (remove “not merely insubstantial” fund threshold; cover serious bodily injuries and all treaty offenses). - Amend AML Act to: - impose a reporting obligation based on suspicion/ reasonable grounds (align with FATF “proceeds of criminal activity” concept); - establish FIU should carry out more of the core functions of an FIU and mandate standardized electronic STR reporting. - Apply UNSCRs on TF fully to EU-internals and all persons (extend Section 6a or enact legislation); ensure freezing of assets other than funds without delay for EU-internals. - Strengthen sanctioning: - increase administrative fines and make them proportionate and dissuasive; broaden application to supervisory board members; allow effective application to legal persons. - Strengthen DNFBP regime: - require CDD, record-keeping, STR obligations and supervisory coverage for real estate agents, dealers in precious metals/stones, TCSPs; limit legal privilege carve-out; require DNFBP risk-based compliance, training, hiring screening, and audit functions. - Improve beneficial ownership transparency: - ensure timely access to beneficial ownership for all legal entities; assess risks of bearer-share companies and private foundations; increase Treuhand transparency. - Improve FIU and LEA effectiveness: - strengthen FIU tactical analytic capacity, mandate standardized reporting, improve feedback to reporting entities, collect and publish comprehensive statistics (STRs analyzed/disseminated, linkages to prosecutions/convictions, asset freezing/seizures/confiscations). - Strengthen BaFin supervision and resources: - increase on-site inspections, improve audit-reporting standards, extend enforcement (fines, dismissals), ensure Länder supervision for insurance intermediaries and DNFBPs adequately resourced. - Enhance cross-border cash controls: - improve traveler awareness signage at ports and airports; extend INZOLL data retention beyond one year. ### Sanctions — overall findings - Administrative fines available are limited in amount and rarely applied; BaFin applied one administrative fine historically. - Constitutional principle of specificity constrains administrative offense catalog and sanctioning; gaps exist where supervision cannot impose administrative fines for internal safeguard failures under sector laws. - Recommendations: review and raise administrative fines, broaden scope, ensure effective application, clarify accountability of supervisory boards. *Italic: IMF country report content provided (assessment mission to Germany, materials and mission dates as reported in the source document).* ### Preface ................................................................................................................ ### Preface ### Assessment scope and methodology - Based on the Forty Recommendations 2003 and the Nine Special Recommendations on Terrorist Financing 2001 (FATF 40+9 Recommendations). - Prepared using the AML/CFT assessment Methodology 2004, as updated from time to time. - Considered all materials supplied by the authorities, information obtained on site during the mission from May 15 to June 5, 2009, and other verifiable information subsequently provided by the authorities. - Assessment examined the institutional framework, relevant AML/CFT laws, regulations, guidelines and other requirements, and the regulatory and other systems in place to deter and punish money laundering (ML) and the financing of terrorism (FT) through financial institutions and DNFBPs. - Assessed capacity, implementation, and effectiveness of systems. ### Assessment team - Team composed of staff of the International Monetary Fund (IMF) and six expert(s) acting under the supervision of the IMF. - Assessors: Steve Dawe, Senior Financial Sector Expert (Legal Department (LEG), team leader); Nadine Schwarz, Counsel, (LEG, deputy team leader); consultants under LEG supervision: Richard Chalmers, U.K.; Nicolas Burbidge, Canada (both financial sector experts); Horst Intscher, Canada (law enforcement expert); John Abbott, U.S.A. (expert on Designated Non-Financial Businesses and Professions–DNFBPs); Mariano Federici, Argentina (legal expert). - Accompanying observer and administrative support: Giovanni Francesco D’ecclesiis, Italy (observer); Jocelyn C. Gabriel, Administrative Assistant, Legal Department, IMF. - A list of bodies met is set out in Annex 1 to the detailed assessment report. ### Report purpose and contents - Provides a summary of the AML/CFT measures in place in Germany at the time of the mission or shortly thereafter. - Describes and analyzes those measures, sets out Germany’s levels of compliance with the FATF 40+9 Recommendations (see Table 1 in the report), and provides recommendations on how certain aspects of the system could be strengthened (see Table 2 in the report). - Assessment acknowledges cooperation of the German authorities. --- ### Executive Summary ### Key findings — overall - Germany has introduced a number of measures in recent years to strengthen its AML/CFT regime. - Germany has generated a relatively large number of prosecutions for money laundering (ML) and of orders to confiscate assets. - These achievements occurred even though shortcomings were identified in this assessment against the Financial Action Task Force (FATF) 40+9 Recommendations. ### Risk factors and national context - Germany is susceptible to money laundering (ML) and terrorist financing (TF) because of: - its large economy and financial center, - strategic location in Europe, - strong international linkages. - Substantial proceeds of crime are generated in Germany, presently estimated to be €40 to €60 billion (approximately $60–80 billion), inclusive of tax evasion, annually. - Germany is estimated to have a large informal sector (> €400 billion or >$560 billion). - Use of cash is reportedly high. - Germany’s currency is the Euro (€), used widely across Europe, making it attractive to organized criminals and tax evaders. - Terrorists have carried out terrorist acts in Germany and in other nations after being based in Germany. - Factors that may reduce Germany’s ML risk profile include: strong legal tradition, the rule of law, political environment, and having an effective single financial regulator. ### Core legal and institutional framework - Core elements are established in: - the German Criminal Code (CC), which contains the ML and TF offenses; - the Money Laundering Act (AML Act); - sector-specific laws such as the Banking Act. - The AML Act: - established Germany’s financial intelligence unit (FIU) within the Federal Criminal Police Office (BKA); - imposes customer due diligence (CDD) obligations on a wide range of financial institutions (FIs); - requires these FIs to submit suspicious transaction reports (STRs) to the competent authorities. - The AML Act was most recently amended in August 2008, when Germany transposed the third European Union (EU) Money Laundering Directive and its Implementing Directive into national law. ### Main shortcomings and recommended areas for reform - The AML/CFT framework is not fully in line with the FATF Recommendations; weaknesses exist in the legal framework and in sanctioning for noncompliance with AML/CFT requirements. - Recommendations to address these shortcomings include: - Amending the CC to: - criminalize (i) ML in a way that covers all serious predicate offenses, and - criminalize (ii) TF in a way fully consistent with international standards. - Amending the AML Act to: - (i) improve preventive measures notably by imposing a reporting obligation based on suspicion rather than knowledge and that relates to the proceeds of criminal activity, and - (ii) clearly establish that the FIU should carry out more of the core functions of an FIU as contemplated by the FATF standard. - Fully and effectively implementing the UN Security Council Resolutions (UNSCRs) on TF. - Applying sanctioning powers more effectively for breaches of AML/CFT obligations. - Strengthening the effective implementation of AML/CFT obligations imposed on designated non-financial businesses and professions (DNFBPs). - Improving the collection of statistics and the provision of guidance and feedback to FIs. *Preface and Executive Summary — IMF assessment mission to Germany (materials and mission dates as reported in the source document).* ### 5. The principal AML provisions of the CC are largely consistent with the FATF ### 5. The principal AML provisions of the CC are largely consistent with the FATF ### AML/CFT legal framework — overall assessment - The principal AML provisions of the CC are largely consistent with the FATF standard, but there are some technical deficiencies. - Two of the FATF-designated categories of offenses are not predicates for ML. - The ML offense cannot be applied to persons convicted of a predicate offense (unless assessors are convinced this was justified by fundamental principles of German law). - Legal persons are not subject to criminal liability due to fundamental principles of German law; those involved in an ML criminal offense may be subject to administrative fines imposed by the criminal courts. ### Money laundering (ML) offense, investigations, and convictions - German courts obtain more than 300 ML convictions yearly, but many are for less serious ML conduct. - Serious ML conduct (for example, involving organized crime) is usually pursued via predicate offenses that carry more severe sanctions than the ML offense. - Reasons cited for not pursuing the ML offense include: - The high burden of proof required to show that proceeds relate to a predicate crime. - The inability to convict for ML persons convicted of the predicate. ### Counter-terrorist financing (CFT) - In August 2009, Germany criminalized the financing of terrorist acts and individual terrorists, enhancing its CFT requirements. - The financing of terrorist organizations was already criminalized and all three CTF offenses are predicates for ML. - Technical deficiencies remain: - Not fully consistent with the FATF standard because, inter alia, they do not cover all offenses designated under the UN TF Convention. - A “terrorist act” does not cover serious bodily injuries. - “Funds” must, in some cases, be “not merely insubstantial.” - Poor statistics meant effective implementation of TF offenses could not be established. ### Asset seizure, confiscation, and forfeiture - German authorities regularly use a broad range of legal procedures to seize, confiscate, and forfeit property; procedures apply to all criminal offenses, including ML and TF, and to property used or intended for carrying out offenses. - They confiscate and forfeit a lot less property than the courts issue orders for. - Interpretation of professional secrecy by some professions limits LEAs’ ability to locate and trace property. ### Freezing of terrorist funds and assets - Terrorist funds or other assets may be frozen, without delay, largely in line with relevant UNSCRs. - Some requirements to freeze do not apply to all EU residents and some apply, as far as certain EU-residents are concerned, only to funds, not other assets. ### STRs, reporting system, and the FIU - The AML Act requires reporting entities to submit STRs to the relevant Land police or prosecutorial body with a copy to the FIU, which is the national center for receiving STRs. - The reporting system is structured this way because, under the German Constitution, states (Länder) are responsible for policing and law enforcement. - The FIU’s mandate includes supporting the Federal and Länder LEAs in the prevention and prosecution of ML and TF. - In practice, processing and analysis of STRs is split between the Länder LEAs and the FIU: - The Land recipient of the STR establishes whether there are grounds to undertake a full investigation. - The FIU carries out only limited case-specific analysis and contributes modestly to the process. - Länder police and prosecutorial officials value mainly the FIU’s access to information from foreign FIUs. - The FIU checks STRs against its own database of all previous STRs and searches other BKA databases. - The FIU is solely responsible for requesting or exchanging information with foreign FIUs. - Information yielded is forwarded to the Land LEA that received the STR. - The FIU does not, as such, disseminate disclosures of STRs concerning suspected ML or TF activities to investigative bodies. - The FIU focuses analytic work on elaboration of patterns and trends, which it disseminates to reporting entities and investigative bodies; it maintains statistics, publishes an annual report and other documents, and informs reporting entities and LEAs of ML and TF typologies and methods. - Overall, while the FIU discharges its legal mandate, it does not carry out fully all the FIU functions required under the standard. ### Law enforcement authorities (LEAs) - LEAs have powers necessary to carry out ML and TF investigations and are generally effective. - Authorities that investigate and prosecute ML are mainly the Länder police and prosecutors; for TF also the BKA. - For ML, investigators generally favor pursuing predicate offenses due to the nature of the ML offense. ### Cross-border physical transportation of currency and negotiable instruments - Germany has two regimes to monitor cross-border physical transportation of currency and negotiable instruments of €10,000 or more: - One applies to movements between Germany and non-EU countries and requires travelers to complete a declaration. - The other applies to movements within the EU and requires travelers to disclose information if asked. - The Customs Administration implements both regimes, has broad powers, and operates using a risk-based approach. - Data from the regimes are, in practice, accessible by Customs, some Länder LEAs, and the BKA, including the FIU; however, much of the data are stored for one year only, considerably diminishing its utility for identifying cash couriers, trends, or typologies. - More needs to be done to inform travellers entering the EU through German airports of their declaration obligation. ### Preventive measures — Financial institutions (FIs) - The AML Act applies CDD and record-keeping requirements to: - credit institutions, financial services institutions, financial enterprises, insurance companies, insurance intermediaries and investment companies, as well as a broad range of nonfinancial sector persons or entities. - The scope covers the vast majority of the financial activities listed under the FATF standard. - The 2008 amendments strengthened existing requirements and explicitly introduced a risk-based approach to CDD implementation. - Preventive measures apply equally to all persons and entities subject to the Act; additional CDD provisions are in sector-specific laws. - Structural problems in specific areas include: - Very broad CDD exemptions for specified “low-risk” customers, which appear to conflict with some basic monitoring and record-keeping obligations. - Treatment of all the EU/EEA member states and jurisdictions on the EU’s third country equivalence list as a single-risk category when determining certain low-risk scenarios. - Treatment of the EU/EEA as a single domestic market in terms of correspondent banking obligations. - The concept of “senior management” in relation to approvals for PEPs and correspondent banking relationships. - Beneficial ownership verification and PEP determination: - Verification of beneficial ownership (including determining whether a customer is a PEP) does not fully conform to the FATF standard. - There is wide variety of interpretations among individual institutions. - The BaFin issued a circular in July 2009 clarifying some aspects of the expected approach. - Record retention: - Institutions generally retain records for ten years pursuant to commercial law requirements, but may have inadequate records on low-risk customers. - Exemptions from several key CDD components in low-risk situations raise questions about available information for authorities. - Wire transfers: - Institutions implement EU Regulation 1781/2006 on wire transfers effectively, which meets FATF requirements. - Monitoring transactions and high-risk countries: - Statutory provisions relating to monitoring transactions, including with persons in countries that do not or insufficiently apply the FATF standard, are generally weak. - BaFin circulars provide specific guidance highlighting weaknesses in AML/CFT regimes of other countries, typically aligned with FATF public statements. - STR reporting shortcomings: - STR reporting is well established, but the reporting obligation fails to meet the FATF standard in several key areas: - The “evidential” basis for filing STRs is significantly higher than FATF’s “suspects or has reasonable grounds to suspect.” - The obligation is linked to the ML or TF offenses rather than the FATF concept of “proceeds of criminal activity.” - Filing reports directly with Länder LEAs means STRs are treated as criminal complaints. - Certain limitations in the range and definitions of predicate offenses further narrow the reporting obligation. - These factors discourage reporting and result in comparatively fewer STRs being filed in Germany than in other countries. - Internal controls and compliance functions: - Some internal control requirements exist but need improvement and more effective implementation by financial institutions. - These requirements do not apply to the more than 72,000 insurance intermediaries. - Legislative requirements for compliance officers need broadening and oversight responsibilities strengthened. - Obligation to train staff is limited and there is no obligation for FIs to put in place screening procedures to ensure high standards when hiring. - Cross-border operations: - Shell banks are effectively prohibited from operating in Germany. - German banks and insurers operating outside Germany must implement AML/CFT measures at least equivalent to German requirements. - No explicit provisions require attention to equivalency in EU or EEA states that do not or insufficiently apply the FATF Recommendations. - Germany prohibits banking entities from operating in non EU or EEA countries where measures consistent with German requirements cannot be implemented. - No obligations are imposed regarding investment sector operations outside Germany, and German FIs are not required to pay attention to operations in countries with weak AML/CFT regimes. ### Supervision and enforcement (BaFin and others) - The BaFin is responsible for most FI supervision in Germany, has adequate AML/CFT supervisory powers, and uses a risk-based approach. - AML/CFT supervisory arrangements rely heavily on annual external audits. - At the time of the on-site visit: - The methodology for audits had not been updated to reflect the 2008 AML Act. - Doubts existed about the quality of audit reports for some cooperative banks. - Number of on-site inspections is low, but significant risk-based off-site monitoring and analysis enables focus on higher-risk entities. - Germany is moving to a system of private sector issued AML/CFT guidance approved by the BaFin, but has not yet fully implemented it. - BaFin abrogated most of its previous guidance as a result of the new AML Act but continues to apply supervisory principles set out in the abrogated guidance when those principles align with new laws and private sector guidance, causing confusion. - Länder authorities seem generally unfamiliar with AML/CFT supervisory responsibilities for insurance intermediaries and apply insufficient resources. - Administrative fines are not available to sanction failure to comply with all AML/CFT requirements due to the constitutional principle of specificity. - The fines that are available are neither proportionate nor dissuasive, and are not applied effectively. ### Money or value transfer services (MVTS) - The MVTS sector is subject to AML/CFT requirements under the Banking Act and is supervised by the BaFin. - There are about 40 licensed MVTS operators in Germany. ### Preventive measures — DNFBPs - The AML Act imposes AML/CFT requirements on: - lawyers, patent attorneys, notaries, legal advisers, auditors, chartered accountants, tax advisers, tax agents, trust and company service providers (TCSPs), real estate agents, persons trading in goods, and gambling casinos. - Implementation by these businesses and professions is uneven. - Supervisory arrangements established for most of these businesses and professions. - No systematic implementation or supervision for: - real estate agents, independent TCSPs, dealers in precious metals and dealers in precious stones. - Legal and accounting professions: - Generally familiar with obligations but lack awareness of ML and TF vulnerabilities. - Subject to strict professional secrecy obligations leading to low reporting of suspicious transactions and complicating cooperation with investigative authorities. - Overall, effectiveness of implementation in the DNFBP sector is difficult to ascertain. ### Legal persons, legal arrangements, and non-profit organizations (NPOs/NPO sector) - The extent of information on ownership and control of German legal persons varies greatly by type of legal entity. - Main information sources are public registers, but they do not always include beneficial ownership and control information. - Information is considerably limited for nonlisted stock corporations that issue bearer shares and is close to nonexistent for private foundations. - The Treuhand is a commonly used legal arrangement in Germany, but disclosure obligations are insufficient to ensure transparency of beneficial ownership and control. - Germany prevents abuse of the NPO sector for TF purposes through: - measures to ensure transparency of the sector; and - targeted, intelligence-driven monitoring, surveillance, investigation, and suppression of extremists and terrorist activities. - A formal review of the NPO sector has been undertaken; legislative and regulatory provisions have been introduced to enhance responsibilities and oversight of NPOs; enforcement actions have been taken under the new provisions; outreach activities to promote awareness of TF vulnerabilities among NPOs have been undertaken. ### National and international cooperation - The framework enables provision of comprehensive and timely mutual legal assistance (MLA) and extradition. - No material obstacles identified, but assessors could not fully establish whether MLA is provided effectively due to absence of statistics. - Germany has a solid system for extradition and grants a high percentage of requests in a timely manner. - Authorities appear to provide a wide range of international administrative cooperation with foreign counterparts except in relation to nonfinancial businesses and professions. ### Other issues - The BaFin operates an automated account access system that enables the BaFin, upon request, to provide certain authorities (including LEAs) with information about whether a particular person (natural or legal) has a bank or safe custody account with institutions operating in Germany. ### General information on Germany (selected statistics) - Territory covers 357,092 square kilometers. - Language: German. - Population: over 82 million inhabitants. - Germany is home to more than 10 million international migrants. - Proportion of population living in urban areas: 74 percent. - Land borders: 3,621 kilometers (km). - Coastline: 2,389 km. - Border lengths with neighbors: - Denmark: 68 km - Poland: 456 km - Czech Republic: 646 km - Austria: 784 km - Switzerland: 334 km - France: 451 km - Luxembourg: 138 km - Belgium: 167 km - Netherlands: 577 km - Germany is located in the Schengen zone covering more than 4 million square kilometers and a combined GDP of approximately €13.5 trillion ($18.8 trillion). *Source: IMF country report content provided.* ### 35. Germany is a federal, parliamentary, representative democratic republic of sixteen states ### _cr1078 - 35. Germany is a federal, parliamentary, representative democratic republic of sixteen states ### Political system and constitutional framework - Germany is a federal, parliamentary, representative democratic republic of sixteen states (Land, plural Länder). The capital and largest city is Berlin. - Memberships: United Nations, NATO, G7, G8, G20, EU, FATF, and OECD. - The constitutional document is the 1949 Basic Law (Grundgesetz, GG). - Executive: - Federal Chancellor (Bundeskanzler) is head of government and exercises executive power. - Federal President (Bundespräsident) is head of state with primarily representative responsibilities and powers. - Legislature: - Federal legislative power is vested in the Bundestag and Bundesrat. - The Bundestag is elected through direct elections with proportional representation also applying. - Members of the Bundesrat represent the governments of the sixteen Länder. - Division of legislative power: - Legislative power is divided between the federation and the Länder. - The Basic Law presumes legislative power remains at the Länder level unless otherwise designated by the Basic Law. - Any federal law overrides Länder law if the legislative power lies at the federal level. ### Judiciary and legal system - Legal tradition: civil or statute-law system based on Roman law with some references to Germanic law. - Judiciary independence: judiciary is independent from the executive and legislative branches. - Court structure: - Federal law delineates judiciary structure; administration of most courts regulated by Land law. - Länder are responsible for the lower levels of the court system; only the highest appellate courts operate at the federal level. - Each Land has its own constitutional court. - Länder courts of general jurisdiction: local courts (Amtsgerichte), regional courts (Landgerichte), higher regional courts (Oberlandesgerichte). They have competence irrespective of whether action is based on federal or Länder law. - Federal appellate and constitutional courts: - Federal Court of Justice: highest court for civil and criminal law; task is to safeguard legal uniformity through clarification of fundamental questions of law and the development of law. - In criminal cases, rules on appeals on points of law filed regarding judgments passed by the regional courts and higher regional courts of first instance. - Competence includes “capital” crimes tried at regional courts by criminal divisions for grave offenses, and all other serious criminal offenses where, at the time the indictment was brought before the regional court, the public prosecutor’s office could expect a prison sentence of more than four years, confinement in a psychiatric hospital or the imposition of preventive detention. - Appellate court for proceedings on all crimes against the state. - Federal Constitutional Court (Bundesverfassungsgericht), located in Karlsruhe, is the supreme court responsible for constitutional matters and has the power of judicial review; acts independently of other state bodies but cannot act on its own behalf. ### Constitutional principle of Rechtsstaat and implications for AML/CFT - Core constitutional principle: Rechtsstaat according to Article 20 of the Basic Law. - Rechtsstaat limits state power to protect citizens from arbitrary exercise of authority. - It is a government based on the rule of law, where citizens are guaranteed equality and government decisions may be challenged in court. - The constitutional limit on state power underpins many aspects of the German AML/CFT regime. ### General information on the economy (key findings) - Germany is the largest national economy in Europe and the third largest by nominal GDP in the world. - Sectoral composition of GDP: - Service sector: just under 70 percent of total GDP. - Industry (including construction): 30.3 percent. - Agriculture: 0.9 percent. - Principal products: engineering, especially automobiles, machinery, metals, and chemical goods. - Selected key figures (Statistical Table 1: Key Information about Germany–2008): - Rank if known: 6 - Nominal Gross Domestic Product (GDP): € 2,636 billion - $ equivalent shown: 3,668 billion - GDP ranking: 3rd - GDP per capita: € 32,090 $ 44,660 19th - Total General Government Expenditure: € 1,094 billion $ 1,523 billion - Annual Tax Revenues: € 561 billion $ 781 billion - Official Unemployment – 7.79 percent 3,163,330 n.a. - Estimated Shadow Economy – 15.3% of GDP7: € 403 billion $ 561 billion 4th - Exports (f.o.b.): € 1,054 billion $ 1,467 billion 1st - Imports (c.i.f.): € 867 billion $ 1,206 billion - Total Financial Sector Assets8: € 8,124 billion $ 11,306 billion - Deposits in Depository Corporations: € 3,195 billion $ 4,702 billion - Banks’ claims on non-residents: € 2,436 billion $ 3,390 billion - Banks’ liabilities to non-residents: € 1,311 billion $ 1,825 billion - Insurance and financial services provided to non-residents: € 13 billion $ 18 billion - Value of Stocks Traded: € 2,222 billion $ 3,093 billion 6th - Value of transactions settled by interbank funds transfer systems: € 231 trillion $ 321 trillion 3rd - SWIFT messages sent by financial institutions annually: 326 million n.a. 3rd - SWIFT messages received by financial institutions annually: 289 million n.a. 3rd - Total SWIFT messages sent and received internationally: 616 million n.a. 3rd Notes from Statistical Table 1: - 6 Based on absolute numbers rather than proportion of GDP or other comparator. - 7 Schneider, Friedrich. “Shadow Economies and Corruption All Over the World: What Do We Really Know?” Economics Discussion Paper No. 2007–09 (2007). - 8 Figure is for banking sector only, other data unavailable. ### Monetary framework, currency, and payments - Germany is a member state of the EU and uses the Euro (€). - Monetary policy set by the European Central Bank (ECB) in Frankfurt. - Exchange rate regime: Germany, through the ECB, operates a floating exchange rate regime. - No foreign exchange controls. - Euro statistics (as of December 31, 2008): - €785 billion ($1,092 billion) in circulation. - $2,928 per person in the Euro zone—equivalent to 7 percent of average income. - Euro is the official currency of 22 European states with combined population ~325 million and GDP of €9.8 trillion ($13.6 trillion). - One Euro equaled $1.3917 at December 31, 2008. - Highest denomination note: €500 ($696). - The amount of currency in circulation attributed to the German economy by the ECB grew by nearly $100 billion over the period 2003–07. ### Financial center, markets, and technology - Frankfurt: major financial center, seat of the ECB, global aviation hub. - Corporate presence: Thirty-seven of the world’s 500 largest stock market listed companies by revenue are headquartered in Germany. Ten biggest listed: Daimler, Volkswagen, Allianz, Siemens, Deutsche Bank, E.ON, Deutsche Post, Deutsche Telekom, Metro, and BASF. - Banking and payments: - Total banking sector assets exceed €8.1 trillion ($11.3 trillion). - Deposits in German financial institutions exceed €3.1 trillion ($4.7 trillion). - Deposits by non-residents exceed €1.3 trillion ($1.8 trillion). - Germany is heavily banked: approximately 50 bank branches and between 63 and 64 automated teller machines per 100,000 of population. - German financial institutions send and receive approximately 616 million SWIFT messages annually (third largest volume worldwide). - Capital markets: - Frankfurt stock exchange is the sixth largest by turnover, with more than €2.4 trillion ($3.4 trillion) traded annually. - Market capitalization of listed companies exceeds €1.5 trillion ($2.1 trillion).10 Note 10: All data for 2007 is from the World Bank’s World Development Indicators Database. - Technology access: - Mobile phone use: 118 subscriptions per 100 people. - Personal computers: 66 per 100 people. - Internet use: 72 users per 100 people. ### International trade, openness, and external positions - Chinn-Ito financial openness variable score: 2.323 (most open economy score is 2.6; least open -1.8). - Ranked 11th easiest country for ease of trading across borders. - International trade equals 86 percent of GDP. - Germany is the world’s top exporter. - Major trading partners: France, the Netherlands, Italy, the United States, and the United Kingdom. - Ports handle nearly 17 million twenty-foot containers annually. - External investment stocks: - Germany investor stock overseas: more than €2.4 trillion ($3.3 trillion) in portfolio and foreign direct investment. - Foreigners’ stock invested in Germany: nearly €3 trillion ($4 trillion) total; €657 billion ($915 billion) in FDI; ~€2.2 trillion ($3 trillion) in potentially more volatile portfolio investment. ### Tourism, remittances, language links - Tourism: - Seventh most popular tourist destination in 2007: approximately 24 million tourist arrivals. - Outbound tourists from Germany in same period: more than 70 million (second highest in the world). - Remittances: - Outward workers’ remittances: nearly $14 billion annually. - Inward remittances received: approximately $8.5 billion. - German language presence: used in Austria, Belgium, Bolzano province of Italy, Liechtenstein, Luxembourg, Switzerland, and as official language in Namibia. Combined population of these other countries: 88 million and GDP of €2.7 trillion ($3.8 trillion). ### Governance, corruption, and law enforcement performance - Governance indicators (Statistical Table 2: Germany Governance Indicators; Percentile Rank 0-100): - Voice and Accountability: 95 - Political Stability/No Violence: 81 - Government Effectiveness: 92 - Regulatory Quality: 93 - Rule of Law: 94 - Control of Corruption: 93 - Average: 91 - Corruption and enforcement: - CC criminalizes various forms of corruption. - Germany signed the United Nations Convention against Corruption (UNCAC) in 2003. - Germany transposed the OECD “Convention on Combating Bribery of Foreign Public Officials in International Business Transactions” into German law in 1998. - Noted high-profile case: Siemens paying $1.3 billion in fines in December 2008 after investigation for serious bribery. - Law enforcement perceptions and performance: - Global Competitiveness Report’s Reliability of Police Services Index: Germany scores 6.5 out of 7. - Perceived as a low security risk by travel advisory consultancy “ControlRisk.” - Above average conviction success rate (see Statistical Table 4) suggests good police investigative effort. - Scores middle range in a composite index on police performance based on crime victim surveys. ### General situation of money laundering (ML) and financing of terrorism (TF) - Overview: - Germany is a large internationally connected economy; criminal economy expected to have similar traits. - Germany is classified as a major ML country by the U.S. Government.15 - Crime statistics: - United Nations statistics indicate Germany records more crimes than the average of other surveyed countries, with relatively higher incidence of drug-related crimes, burglaries, embezzlements, and frauds; crimes against the person are proportionally less prevalent. - On average, Germany prosecutes proportionally more frequently than other surveyed countries and has fewer people in prisons. - Selected AML/CFT statistics (Statistical Table 3: Selected Statistics on Germany AML/CFT Regime): - Table columns: Year | No. of STRs | Value of STRs € million | Value of STRs $ million | Provisional Measures € million | Assets Seized $ million | Prosecuted ML Cases | ML Convictions | Property Forfeited & Confiscated € million | Property Forfeited & Confiscated $ million - 2004: No. of STRs 8,062 | Value of STRs N/A | Value of STRs N/A | Provisional Measures N/A | Assets Seized N/A144112305,963,158425,808,927 - 2005: No. of STRs 8,241 | Value of STRs N/A | Value of STRs N/A | Provisional Measures N/A | Assets Seized N/A12997319,282,155444,344,975 - 2006: No. of STRs 10,051 | Value of STRs N/A | Value of STRs N/A | Provisional Measures N/A | Assets Seized N/A259216300,570,519418,303,991 - 2007: No. of STRs 9,080 | Value of STRs N/A | Value of STRs N/A | Provisional Measures N/A | Assets Seized N/A708603218,782,569304,479,701 - 2008: No. of STRs 7,349 | Value of STRs N/A | Value of STRs N/A | Provisional Measures N/A | Assets Seized N/A766608N/AN/A - TOTAL: No. of STRs 42,783 | Value of STRs N/A | Value of STRs N/A | Provisional Measures N/A | Assets Seized 2,0061,636 | Prosecuted ML Cases 1,144,598,368 | ML Convictions 1,592,937,594 Notes and sources referenced in text: - 15 International Narcotics Control Strategy Report (INCSR), 2009. Released by the Bureau for International Narcotics and Law Enforcement Affairs, U.S. Department of State, March 2009. *Source: _cr1078 - 35. Germany is a federal, parliamentary, representative democratic republic of sixteen states* ### 56. Statistics supplied by the authorities support this analysis. Detailed national crime statistics ### _cr1078 - 56. Statistics supplied by the authorities support this analysis. Detailed national crime statistics ### National crime statistics (2007) - 6,284,661 offenses were recorded in Germany in 2007 (77 per 1,000 population). - Total recorded crimes for 2006: 6,304,223. - Three highest reported crime categories: - Theft: 2,561,691 or 31 per 1,000 population - Fraud: 912,899 or 11 per 1,000 population - Drugs: 248,355 or 3 per 1,000 population - Top three single discrete crimes by recorded incidence: - Shoplifting: 408,377 - Theft of bicycles: 372,045 - Theft from vehicles: 350,034 ### Selected crime statistics (Statistical Table 4 highlights) - Total Crimes: Average of countries surveyed 0.75 m; Germany 6.3 m - Total Crimes per 1,000 population: Average 34; Germany 76 - Drug offenses per 100,000 population: Average 191.1; Germany 302 - Murders per 1,000 population: Average 0.10; Germany 0.01 - Assaults per 1,000 population: Average 2.5; Germany 1.4 - Burglaries per 1,000 population: Average 5.1; Germany 12.9 - Embezzlements and frauds per 1,000 population: Average 1.3; Germany 11.1 - Police per 1,000 population: Average 3.0; Germany 3.0 - Adults prosecuted per 1,000 population: Average 10.5; Germany 15.0 - Clearance Rate (closed cases/reported crimes): 55% - Conviction success rate (convictions/prosecutions): Average 60%; Germany 81% - Prisoners per 100,000 population: Average 148; Germany 90 - Source noted in table: United Nations and BKA ### Cities with >100,000 offenses in 2007 - Berlin: 496,163 - Hamburg: 237,048 - Cologne: 146,142 - Munich: 110,677 - Frankfurt: 107,078 ### Narcotics, drug trafficking, and enforcement (based on U.S. Department of State INCSR 2009 and BKA) - Germany characterized as a consumer and transit country for narcotics. - Not a significant drug cultivation or production country. - Seizures of amphetamines and methamphetamines increased substantially in 2007. - Cannabis remains the most commonly consumed illicit drug in Germany. - Organized crime heavily engaged in narcotics trafficking. - BKA publishes annual narcotics report on illicit drug-related crimes, seizures, drug flows, and consumption. - Noted trafficking/drug flow statements: "Ecstasy moves through Germany. Heroin is trafficked to Germany. Cocaine moves through Germany." - Germany is a major manufacturer of pharmaceuticals, potentially a source for precursor chemicals, although "current precursor chemical control in Germany is excellent." ### Estimated losses, proceeds, and organized crime profits - 2007 Situation Report on Economic Crime (BKA) reported total loss or damage from economic crimes: approximately €4.12 billion (2006: approximately €4.32 billion). - BKA published estimate: profits of organized crime in Germany amounted to €0.66 billion ($0.92 billion) in 2008. - German Finance Minister statement to parliament on May 7, 2009: government treasury loses about €100 billion ($133 billion) in annual revenues due to (legal) tax avoidance and illegal tax evasion (inclusive of tax fraud). ### Estimates of potential proceeds of crime (Statistical Table 5 summary) - Table combines BKA data and other sources to estimate proceeds; selected entries: - Robberies and Thefts: Recorded Crimes 2,614,640; Estimated Loss or Profit (€ billion) 3.601; Baseline Estimate (€ billion) 3.601; Unreported Crime Adjusted Estimate (€ billion) 9.003; Baseline Estimate ($ billion) 5.012; Unreported Crime Adjusted Estimate ($ billion) 12.529 - Fraud Offenses: Recorded Crimes 912,899; Estimated Loss or Profit (€ billion) 2.372; Other Proceeds or Profit Estimates (€ billion) 4.00; Baseline Estimate (€ billion) 4.000; Unreported Crime Adjusted Estimate (€ billion) 10.000; Baseline Estimate ($ billion) 5.567; Unreported Crime Adjusted Estimate ($ billion) 13.917 - Drug Offenses: Recorded Crimes 248,355; Estimated Loss or Profit (€ billion) 8.794; Baseline and Unreported Adjusted Estimate (€ billion) 8.794; Baseline and Unreported Adjusted Estimate ($ billion) 12.239 - Human Trafficking: Estimated Loss or Profit (€ billion) 0.037; Unreported Crime Adjusted Estimate (€ billion) 0.037; Baseline Estimate ($ billion) 0.093; Unreported Crime Adjusted Estimate ($ billion) 0.1299 - Tax and Excise Evasion: Estimated Loss or Profit (€ billion) 25.00; Baseline Estimate (€ billion) 25.000; Unreported Crime Adjusted Estimate (€ billion) 25.000; Baseline Estimate ($ billion) 34.793; Unreported Crime Adjusted Estimate ($ billion) 34.793 - Total Crimes: Recorded Crimes 6,284,661; Estimated Loss or Profit (€ billion) 7.583; Other Proceeds or Profit Estimates (€ billion) 37.920; Baseline Estimate (€ billion) 43.130; Unreported Crime Adjusted Estimate (€ billion) 57.135; Baseline Estimate ($ billion) 60.025; Unreported Crime Adjusted Estimate ($ billion) 79.514 - Percentage of GDP: Baseline Estimate 0.2%; Other Proceeds 1.0%; Baseline Estimate 1.2%; Unreported Crime Adjusted Estimate 1.6% - Notes excerpt (selected): - (d) Assumes actual crime is at least 2–3 times reported crime. Analysis of UN’s 2004–2005 International Crime Victim’s Survey and the 2005 European Survey on Crime and Safety showed number of victims of profit generating crimes ranged from 2.6 times recorded level to 11 times recorded level with an average of 7.7. - (e) Industry estimate of insurance fraud only, conveyed to assessors during on-site mission. - (f) Derived from United Nations Office on Drugs and Crime, 2005 World Drug Report, estimates of the value of retail drug markets. - (g) Based on Finance Minister estimate that total tax avoidance and evasion amounts to € 100m per annum. Table assumes 25 percent is illegal tax and excise evasion. ### Aggregate proceeds of crime estimates and context - Baseline estimate (inclusive of tax evasion): around €43 billion ($60 billion), equivalent to around 1.2 percent of GDP. - Adjusting for unreported crimes: upper range around €57 billion, 1.6 percent of GDP. - Stated range: €43 to €57 billion (approximately $60–80 billion). - Contextual note: shadow economy estimated at more than €500 billion ($696 billion). - Authorities were not able to provide estimates of the amount of funds being laundered in Germany; BKA does not provide such estimates. ### Organized crime summary statistics (Statistical Table 6) - Investigations: 2007: 602; 2008: 575 - Number of suspects: 2007: 10,356; 2008: 9,472 - Total number of nationalities: 2007: 113; 2008: 112 - Percentage of German suspects: 2007: 42.1 %; 2008: 41.7 % - Percentage of non-German suspects: 2007: 57.9 %; 2008: 58.3 % - Turkish nationals: 2007: 10.0 %; 2008: 9.4 % - Polish nationals: 2007: 4.6 %; 2008: 5.3 % - Groups operating in more than one area of crime: 2007: 31.9 %; 2008: 32.2 % - Estimated profits: 2007: € 481 m; 2008: €663 m - Provisionally seized assets: 2007: € 38.5 m; 2008: €170 m - International links: 2007: 85.2 %; 2008: 87.7 % - Fields of crime (selected percentages for 2007 / 2008): - Drug trafficking and smuggling: 37.0 % / 38.6 % - Property crime: 16.6 % / 13.7 % - Crime associated with the business world: 15.4 % / 16.9 % - Tax and customs offenses: 6.1 % / 8.0 % - Investigations including money laundering: 2007: 172; 2008: 186 - As percentage of all organized crime investigations: 2007: 28.6 %; 2008: 32.3% - Confiscation of assets: 2007: 175; 2008: 155 - As percentage of all organized crime investigations: 2007: 29.1 %; 2008: 27.0% ### Nationality of suspects (Statistical Table 7, 2007) - Total Suspects: 2,294,883 - Total Non-German suspects: 490,278 (21.4%) - Nationality breakdown (selected entries): - Germany: 1,804,605 (78.6%) - Turkey: 108,055 (4.7%) - Poland: 33,291 (1.5%) - Serbia and Montenegro: 30,931 (1.3%) - Italy: 24,607 (1.1%) - Romania: 15,040 (0.7%) - Russian Federation: 13,654 (0.6%) - Iraq: 12,713 (0.6%) - Other: 145,210 (6.3%) ### Geographic distribution of crime - Document notes more crime committed in the north and east of Germany (referenced Figure 2: Crime Rates in the “Länder” of Germany). ### Suspicious transaction reports (STRs) and predicate offenses - 2007: 9,080 STRs under the Money Laundering Act (2006: 10,051). - 2007 BKA FIU Annual Report: fraud (including computer fraud and investment fraud) were predicate offenses to ML most frequently recorded by police (43 percent of all STRs). - Other predicate offenses listed (in order cited): falsification of documents, tax offenses, breach of fiduciary duty, drug offenses, insolvency offenses, illegal employment, theft, and smuggling of illegal immigrants. ### Prosecutions and convictions for main predicate crimes (Statistical Table 8, 2004–2008 totals) - Totals (selected years): - 2004 Prosecutions: 438,727; Convictions: 363,685 - 2005 Prosecutions: 451,697; Convictions: 375,530 - 2006 Prosecutions: 433,635; Convictions: 359,405 - 2007 Prosecutions: 512,762; Convictions: 425,553 - 2008 Prosecutions: 504,051; Convictions: 417,364 - Convictions as %: 83% (reported for each year in table) - Note: Data include all prosecutions or convictions for predicate crimes irrespective of whether an STR is involved. ### Cultural and structural observations affecting ML risk - Authorities describe a consolidated culture toward compliance with prevention and repression of ML and TF. - ML historically associated with drug trafficking and drug addiction; now primarily associated with tax evasion. - Germany vulnerable to ML because: - Private households prefer cash payments; use of cash high relative to other countries. - Common for service providers to households to conduct business in cash outside the formal economy. - Non-payment of taxes described by authorities as widespread cultural phenomenon; Germans have an aversion to paying tax on interest income. - Overall ML risk factors noted: - Higher risk: large economy and financial center, central European location, strong international linkages, substantial proceeds of crime environment, large immigrant component, open borders, significant destination and transit point for international travel, large and sophisticated economy and financial sector, role in world trade, large informal sector, currency use (Euro) widely across Europe. - Risk-reducing factors: strong legal tradition, rule of law, political environment, low levels of corruption, consistent prudential regulation and supervision due to existence of a single Federal level regulator in the financial sector. *Source: United Nations and BKA* ### 70. Germany considers radical Islamic terrorism as its primary security threat and claims that it ### _cr1078 - 70. Germany considers radical Islamic terrorism as its primary security threat and claims that it ### Terrorism threat and recent incidents - Germany considers radical Islamic terrorism as its primary security threat and claims that it has taken extensive domestic measures against such terrorism since September 11, 2001. - Recent terrorist-related events cited: - Unsuccessful attempt to explode two suitcases filled with bombs on regional trains in Germany on July 31, 2006. - Arrest on November 20, 2006 of six persons being investigated by Federal prosecutors in Karlsruhe for involvement in a foiled plot to smuggle a bomb onto a passenger plane in Germany. - Arrest of three men on September 4, 2007 in the Oberschledorn district of Medebach, Germany who were allegedly attempting to build car bombs. ### Incident data and official characterizations - START (National Consortium for the Study of Terrorism and Responses to Terror) Global Terrorism Database contains data about terrorist incidents in Germany since 1970. - Authorities note many incidents recorded in the 1990s relate to groups Germany does not recognize as terrorist groups and are instead described (per BKA statistics) as xenophobic criminal offenses committed against asylum seekers and foreigners that may be politically motivated but not terrorist activities. - START’s Terrorist Organization Profiles (TOPs) database lists 18 terrorist organizations as either operating or that have operated in Germany; authorities note some listed organizations are not considered terrorist organizations in Germany and many have broken up or had activities curtailed by German law enforcement. ### Criminal investigations and legal basis - Official German police statistics of investigations involving initial suspicion of commission of a criminal offense related to terrorism under Section 129a and 129b of the German CC (presented per year): - 2001: 8 - 2002: 13 - 2003: 4 - 2004: 22 - 2005: 9 - 2006: 29 - 2007: 31 - 2008: 49 - 2007 (duplicate column context in table): 36 - 2008 (duplicate column context in table): 12 - Footnote: The investigation referenced in the November 20, 2006 arrest is ongoing; at the date the report was finalized authorities had not finally concluded whether terrorism charges for this incident could be substantiated. ### Scope of Islamist-related investigations since 2001 - As of February 2009, authorities report that 267 criminal investigations relating to Islamist terrorist activities have been conducted in Germany since 2001. - Of these, 27 were conducted under section 129a of the StGB. - 146 were conducted under section 129b of the StGB. - Remaining investigations related to criminal offenses such as homicide, ML, smuggling of illegal immigrants, violation of foreigners law. ### Terrorist financing (TF) observations - Authorities acknowledge actual costs for planning and carrying out terrorist activities are quite low relative to the loss or damage caused by attacks, but solvent terrorist groups can more easily develop infrastructure (flats, vehicles, communication, forged documents, etc.). - Findings show individual perpetrators or small groups (two to three perpetrators) often decide more or less spontaneously to plan and carry out attacks without major logistical effort, though in some cases existing terrorist structures/networks are used. - Federal and State Security Agencies find both legal and illegal sources and transfer methods are used to finance terrorism. - Conclusion: It is highly likely Germany continues to be exposed to potential further terrorist activity and could be expected to have a higher than average risk profile for TF activity. ### Overview of the financial sector (roles relevant to AML/CFT) - The German financial sector is described as a motor of the German economy, dominated by the banking sector and including a sizeable insurance market and the Frankfurt Stock Exchange (Frankfurter Wertpapierbörse). - Total number of financial system institutions: 3,400 (approximately). - At end-2008, out of 2,048 German banking type financial institutions: - 1,878 were commercial banks, savings banks, and cooperative banks (universal banks). - 170 were other banks (non-universal banks specialized in activities such as mortgage banking and investment). - As of September 2009, there were 1,344 financial services institutions (including money transmitter, currency exchange, credit-card, finance-leasing, and factoring businesses). ### Banking sector structure and supervision - Two types of institutions: credit institutions (involved in “banking business”) and financial services institutions. All are licensed and supervised by the Federal Financial Supervisory Authority (BaFin). - Three-pillar structure: commercial banks; savings banks; cooperative banking network. - Number of banks by type (2008 and 2007): - Commercial banks: 183 (2008) / 204 (2007) - Savings banks: 448 (2008) / 458 (2007) - Credit cooperatives: 1,247 (2008) / 1,281 (2007) - Other institutions: 170 (2008) / 131 (2007) - Total: 2,048 (2008) / 2,074 (2007) - Commercial bank sub-sector holds less than 30 percent of system-wide assets and is relatively concentrated due to four largest internationally active banks. Savings banks (Sparkassen) are retail market leaders locally; State Banks (“Landesbanken”) mainly owned by States and savings banks; credit cooperatives (“Volksbanken” and “Raiffeisenbanken”) are member-owned. ### Insurance market - Premium income in 2007: €163 billion ($227 billion) — Germany is the fifth largest insurance market in the world. - Total assets under management: €1.3 trillion ($1.8 trillion). - AML-relevant life insurance companies and accident insurance companies with premium redemption have approximately €700 billion ($974 billion) on their balance sheets in total. - Insurance companies are restricted in risks they can insure (e.g., life insurance company cannot also sell health insurance), though parent companies commonly hold subsidiaries across areas. - Federal insurance companies are licensed and supervised by BaFin; insurance companies operating only in a single Land are regulated by the respective Länder authority. ### Securities industry and market infrastructure - Frankfurt Stock Exchange and Xetra accounted for 98 percent of trading in German shares and 84 percent in foreign shares (as of March 2008). - Deutsche Börse AG operates the Frankfurt Stock Exchange (entity under public law); trading, settlement and information systems are electronically facilitated. - Market participants: some 160 of around 330 market participants come from abroad. - Six regional stock exchanges based in Stuttgart, Munich, Hamburg, Düsseldorf, Hannover, and Berlin. - Derivatives exchange Eurex based in Frankfurt; European Energy Exchange in Leipzig; Risk Management Exchange in Hanover. - Exchange trading conduct and pricing monitored by the Trading Surveillance Office (Handelsüberwachungsstelle); exchange supervisory authorities (Börsenaufsichtsbehörden) are responsible at Länder level. - Under German law, all business related to securities trading is considered either banking business or financial services and subject to licensing; BaFin regulates asset management, credit institutions and financial services under the Banking Act, and capital investment companies, custodian banks, investment funds, and investment stock corporations under the Investment Act (Investmentgesetz, InvG). ### Licensing and activity statistics (selected FATF 40+9 financial institution definitions — data as of end of 2007) - Total number of financial institutions reported: 3,308; combined balance sheet: €9,295.7 billion; combined balance sheet ($): 12,936.8 ($ billion). - Deposit-taking / Lending (universal banks): - No. of institutions: 1,878 - Combined balance sheet (€ billion): 8,390.0 - Average balance sheet (€ billion): 4.468 - Combined balance sheet ($ billion): 11,676.4 - Average balance sheet ($ billion): 6.217 - Supervisor: BaFin - Financial leasing companies: - No. of institutions: 600 (est.) - Balance sheet data: Not available - Supervisor: BaFin - Money remittance / transfer of money or value: - Universal banks are licensed money transmitters; licensed money remittance agencies exist. - No. of institutions: 1,878 (branches counted within universal banks context) and 39 domestic branches registered for remittance agencies (note example: Deutsche Postbank AG serves as intermediary for Western Union). - Supervisor: BaFin - Issuing and managing means of payment (including credit card and e-money institutions): small counts reported (e.g., 4, 9 in table cells) with BaFin supervision. - Safekeeping and administration of cash or liquid securities on behalf of other persons: - No. of institutions: 1,878 plus an additional 27 in the safe custody business category (no mandatory reporting; some industry exclusions noted). - Supervisor: BaFin - Underwriting and placement of life insurance and other investment related insurance: - Insurance companies offering life insurance: - No. of institutions: 103 - Combined balance sheet (€ billion): 778.5 - Average balance sheet (€ billion): 7.558 - Combined balance sheet ($ billion): 1,083.4 - Average balance sheet ($ billion): 10.519 - Supervisor: BaFin - Insurance companies offering accident insurance with premium redemption: - No. of institutions: 39 - Combined balance sheet (€ billion): 105.1 - Average balance sheet (€ billion): 2.695 - Combined balance sheet ($ billion): 146.3 - Average balance sheet ($ billion): 3.750 - Supervisor: BaFin ### International dimensions and foreign presence (selected) - Statistical Table 10. Foreign Financial Institutions, 2008 (excerpt): - Number of branches abroad: 331 (German financial institutions) - Number of subsidiaries abroad: N/A - Foreign banks operating in Germany: 192 - Supervisor: BaFin *Source: _cr1078 - 70. Germany considers radical Islamic terrorism as its primary security threat and claims that it* ### 95. The DNFBPs that are subject to AML/CFT obligations encompass a wide range of businesses ### _cr1078 - 95. The DNFBPs that are subject to AML/CFT obligations encompass a wide range of businesses ### Scope and composition of DNFBPs (paragraphs 95–101) - The DNFBPs subject to AML/CFT obligations in Germany encompass a wide range of businesses and professions; in some cases scope is broader than FATF recommendations. - Covered categories include businesses, liberal professions (self-employed professionals), and others such as dealers in goods and TCSPs. Key DNFBP professions and features: - Lawyers - approximately 150,000 lawyers - regulated under 28 separate regional chambers of lawyers - Patent attorneys - approximately 2,800 patent attorneys - organized under a single nationwide Chamber of Patent Attorneys - Notaries - approximately 8,400 notaries - organized into 21 regional Chambers of Notaries, each under the oversight of regional courts - Registered legal advisers - provided for in the Legal Services Act in 2007 (and predecessor 1935 Legal Consultancy Act) - approximately 3,800 registered legal advisers nationwide - Accounting professions - approximately 14,000 qualified auditors (National Chamber of Auditors) - distinction historically between auditors and chartered accountants; chartered accountants now subsumed under general auditor profession - accounting firms’ typical business split: about one-third assurance services (auditing), one-third tax services, and one-third consultancy - about two-thirds of auditors are cross-qualified as either lawyers or tax advisors - auditors may maintain auditors’ trust accounts at banks (notably in insolvency practices and some consultancy services) - Tax advisors - approximately 85,000 tax advisors - recognized under the Tax Consulting Act; may compile end-of-year statements and prepare tax returns but may not carry out statutory audits - organized into 21 regional chambers - Real estate agents - approximately 12,000 real estate agents - business is unregulated nationally; no national statistics available on scale and scope of business - Dealers in precious metals and precious stones - according to the Federation of German Jewellery, Watches, Clocks, Silverware and Related Industries, in 2008 there were approximately 390 firms with more than 49 employees engaged in the wholesale jewelry and silverware products industry (excluding retail trade) - total employment in that sector estimated at 6,140 - annual domestic turnover amounted to €807 million ($1,123 billion) - exports of €884 million ($1,230 billion) - imports of €774 million ($1,077) - gold and platinum jewelry accounted for 76 percent of turnover and silver jewelry accounted for another 10 percent of turnover - Casinos - approximately 80 casino locations in Germany - 49 locations offer table games and slot machines; 31 operate slot machines only - 19 companies operate casinos under a mix of private and public ownership - 11 purely private companies account for 40 percent of turnover - eight companies in public ownership (mainly or totally) account for 60 percent of turnover - casinos operate in 14 of the German federal states; subject to specific legislation in each of the Länder - Trust and Company Service Providers (TCSPs) - TCSPs not separately covered as lawyers, notaries, independent legal professionals, or accountants are subject to the AML Act - Germany does not have a well-developed distinct TCSP sector; such services are primarily provided by lawyers, independent legal professionals, notaries, or accountants - independent office-service companies providing accommodation mailing addresses, mail handling, and telephone answering services exist and are subject to AML/CFT obligations, but no regulatory arrangements to ensure compliance and no statistics available on scale and scope Statistical snapshot (as reported) - Lawyers: 150,000; supervised by 28 regional chambers of lawyers - Patent lawyers: 2,800; National Chamber of Patent attorneys - Notaries: 8,400; 21 regional chambers of notaries; supervised by 116 Regional Courts - Registered legal advisers: 1-2,000; supervised by 21 Regional Courts - Qualified auditors and chartered accountants: 14,000; National Chamber of Auditors - Tax advisors: 85,000; 21 regional chambers of tax advisors - Real estate agents: 12,000; unregulated; supervised at Länder level (16 Länder Governments) - Dealers in precious metals and stones: 390 wholesalers; unregulated; supervised at Länder level (16 Länder Governments) - Casinos: 80 approx; supervised across 14 Länder; overseen by 16 Länder Governments - Trust or Company Service Providers: Unknown; supervised at Länder level (16 Länder Governments) ### Legal persons and arrangements (paragraphs 102–107) - German company law differentiates between corporations (Körperschaften) and partnerships (Personengesellschaften). - Corporations are legal entities separate from associates/shareholders. Five types of corporations under German law: - The Limited Liability Company (Gesellschaft mit beschränkter Haftung, GmbH) - The Stock Corporation (Aktiengesellschaft) - The Cooperative (Genossenschaft) - The Registered Association (eingetragener Verein) - The Foundation (Stiftung), in some instances - Legal capacity and prevalence: - Limited Liability Companies: about 980,000 - Stock Corporations: approximately 17,000 - Partnerships (association/Verein) may or may not have legal capacity; prevailing legal opinion indicates partnerships with legal capacity are not legal persons per se. - Treuhand arrangements: - Legal arrangements may be concluded as Treuhand; not every Treuhand is regulated by law; often result of case law and doctrine - Treuhand can be similar to Anglo-Saxon trust in some instances; some Treuhands must be disclosed to be effective towards third parties, others remain private - Anglo-Saxon trusts: - The typical Anglo-Saxon trust may not be established under German law - Authorities were not aware of foreign trusts being administered from Germany - The German government did not ratify The Hague Convention on the recognition of foreign trusts ### AML/CFT strategy, priorities, and operational approaches (paragraphs 108–115) - Primary national objective: come into compliance with international obligations and implement an effective AML/CFT regime, focusing on proper implementation of the Third EU Money Laundering Directive (Directive 2005/60/EC of October 26, 2005). - Practical focus: implementing the Act Supplementing the Act to Fight Money Laundering and Terrorist Financing (Geldwäschebekämpfungsergänzungsgesetz, GwBekErG), effective August 21, 2008, including education of affected parties and resolving implementation issues. - Counter-terrorism strategy dimensions most relevant to TF: - Operational approach (threat prevention and prosecution) emphasizing financial investigations and structural investigation to establish and substantiate suspicion. - Key success factors listed: - early and proactive information-gathering (e.g., intelligence services having the right to information in advance of any specific threat or initial suspicion as defined in the CC) - close information-sharing networks (e.g., Joint Counter-Terrorism Centre (GTAZ) and the counter-terrorism database) - pooling of resources or efficient division of labor (e.g., Joint Internet Surveillance Centre) - a comprehensive response including association bans and seizing assets of organizations; EU regulations on combating financing of Al Qaeda and the Taliban apply in Germany - Protection measures to prevent opportunities for crime, including financial sector steps: - identification, documentation and retention requirements - establishing and reporting suspicious activity; internal organization and reinforcement with government support (e.g., typologies) - Reported operational outcomes: - Convictions and association bans cited, including: - Al-Aqsa e.V.: banned and assets confiscated in 2002 (collected donations for Hamas) - Yatim-Kinderhilfe e.V.: banned and assets confiscated in 2005 (intended to continue collecting funds for Hamas) - Observations on effectiveness: - Authorities state operational approach has been very successful; protection approach has been less effective, particularly in financial sector generating useful suspicious activity reports - Authorities believe most sources of funding for Islamist terrorism lie outside Germany’s area of sovereignty - Priorities include: - Analyzing FIU-identified ML and TF typologies and FATF typologies for implications in Germany and adjusting measures accordingly - Using the AML/CFT regime to fight against tax evasion, as ML is significantly associated with tax evasion in current assessments - The Money Laundering Contact Group (MLCG) focus areas: - Professional fields and areas of business in the German economy - Products - Societal actors and professions ### Institutional framework (paragraphs 116–117) - The Money Laundering Contact Group (MLCG) - Informal coordinating body on AML/CFT matters - Comprises representatives of: - Federal Ministry of the Interior (Bundesministerium des Innern, BMI) - Federal Ministry of Finance (Bundesministerium der Finanzen, BMF) - Federal Ministry of Justice (Bundesministerium der Justiz, BMJ) - Federal Ministry of Economics (Bundesministerium für Wirtschaft, BMWi) — member but not active participant - Established in 1993; delegates from BaFin, the Bundesbank, and the FIU regularly participate, and other authorities or private sector parties as required - Federal Ministry of Finance (BMF) - Responsible for legislation in banking, insurance, brokering, securities, customs, fiscal matters, and preventive measures against ML and TF in the financial sector - Leads on EU directives/regulations concerning financial issues and AML/CFT - Exercises legal and supervisory control over BaFin, the Customs Criminological Office, and customs offices in countering ML and TF - Federal Ministry of Justice (BMJ) - Responsible for substantive criminal law and criminal procedure legislation - Handles mutual legal assistance requests in conjunction with other ministries; delegation to Länder governments in some cases - Federal Attorney General (Generalbundesanwalt), under BMJ, acts on criminal offenses with terrorist background (sections 129a and 129b of the CC) - Responsible for law relating to legal persons and arrangements - Federal Ministry of the Interior (BMI) - Tasks in internal security include combating ML and TF: - development and adoption of measures, reviewing effectiveness of the system, maintaining comprehensive statistics relevant to effectiveness and efficiency - implementation of EU provisions and FATF Recommendations - expert supervision of BKA sections responsible for combating ML and TF, including Germany’s FIU - Federal Ministry of Foreign Affairs (AA) - Responsible for international cooperation in the fight against terrorism and organized crime, including international cooperation against ML - Federal Ministry of Economics and Technology (BMWi) - Responsible for the Foreign Trade and Payments Act (Außenwirtschaftsgesetz - FTPA) - In conjunction with Deutsche Bundesbank and the Federal Office of Economics and Export Control (BAFA), responsible for implementation of financial sanctions regarding financing of terrorism - Deutsche Bundesbank is in charge of administrative implementation of freezing of funds - BAFA responsible for administrative implementation of freezing orders on economic resources and other assets *Source: Excerpts from _cr1078 (IMF staff report).* ### 118. Criminal justice and operational agencies: ### 118. Criminal justice and operational agencies ### Criminal justice and national operational agencies - Federal Criminal Police Office (BKA) - Germany’s central police agency and partner with police forces of the Federation and of the individual German states. - Police jurisdiction mainly lies with the 16 German states according to the German Constitution. - Established to co-ordinate crime suppression at national and international level as the central office for police information and communications and for the German CID. - Acts as information and communications centre of the German police, supporting federal and state police in prevention and prosecution of crimes involving more than one German state or of international or considerable significance. - Maintains a number of centralized systems and facilities where information about criminal offenses and criminals is stored centrally. - Investigates and develops new crime suppression methods to keep police science and technology state-of-the-art. - Mandated to promote police co-operation in Europe and throughout the world; all official communications between the German police and other countries are routed through the BKA. - Acts as national central office for Interpol, Europol and the Schengen Information System. - Financial Intelligence Unit (FIU) - Special subsection within the BKA. - Responsible for international information-sharing with other FIUs. - Public prosecutor's offices (within each Länder) - Pursue cases for ML offenses that occur within that Länder’s jurisdiction. - Generally have special departments dealing with implementation of measures to recover or confiscate assets. - State Bureaus of Criminal Investigation (LKA) (within each Land) - Responsible for crime control within that Land’s jurisdiction. - Each LKA includes financial investigation officers who are subject to direction by the public prosecutor’s officers when investigating ML and TF offenses. - Asset Recovery Offices (AROs) - On the basis of EU Council Decision 2007/845/JHA Germany appointed two authorities as AROs to support cross-border exchange of information for detecting and identifying assets. - Tasks are performed by the Federal Office of Justice (Bundesamt für Justiz) from the judicial side and by the BKA from the police side. - Federal Customs Administration - National border control agency with task of monitoring cross-border cash movements. - Customs Investigation Service (ZFD) - Investigation service of the federal customs administration, organized nationally (does not fall under Länder jurisdiction). - Customs investigation officers are investigating officers of the public prosecutor’s office and have same rights and duties as police officers. - Customs investigation offices (Zollfahndungsämter) and the Customs Criminal Office (Zollkriminalamt [ZKA]) are generally competent criminal prosecution offices within meaning of Section 11 (1) of the Money Laundering Act and may receive ML reports from obliged institutions. - Pursuant to Section 1 (3c) of the Customs Administration Act (CAA), customs investigation offices investigate and prosecute internationally-organized ML and related criminal offenses to the extent connected to movement of goods from and to external territories. - Investigations are conducted by order of competent state prosecutors (who under the Courts Constitution Act have authority to instruct all investigators); prosecutors are notified of investigation results and decide how to proceed. ### Financial sector bodies - Federal Financial Supervisory Authority (BaFin) - Germany’s integrated financial supervisory authority responsible for regulation and supervision of the entire financial system. - Tasks include preventing abuse of the financial system for purposes of ML and TF. - These responsibilities are carried out in the Money Laundering Prevention Group (MLPG). - Central Bank (Deutsche Bundesbank) - Plays a major role in banking supervision in cooperation with BaFin. - Does not possess sovereign powers in combating ML, but is involved in coordination efforts nationally and internationally. - Participates in all legislative measures at national level in an advisory capacity. - Represented in the Money Laundering Contact Group by the Federal Ministry of Finance. - Representative of the Bundesbank is a member of the German delegation at FATF meetings. - Administers restrictive measures imposed through financial sanctions and is the competent authority regarding funds; collects information and may issue authorizations for exemptions. ### DNFBP and other matters - Casino supervision - No national casino regulator; casinos are regulated at the Länder level, usually by the interior ministry. - Professions and SROs - AML/CFT oversight of regulated professions conducted by authorities and institutions of each Länder or by SROs (self-regulatory organizations). - Examples of SROs: Bar associations; Chambers of tax advisers; Chamber of public accountants; Chambers of patent attorneys. - Chambers of notaries are professional associations, but notaries are holders of public office and supervised by presidents of regional courts (chambers do not have SRO functions). - Other DNFBPs - Real estate agents, dealers in precious metals and dealers in precious stones come under trade law; Länder are responsible for these groups. - The 16 Länder have introduced various arrangements for supervision; in some Länder the interior ministry is responsible. ### Registries for companies, legal persons, and legal arrangements - Commercial register (Handelsregister) - Public register holding entries about registered merchants (Kaufleute) including information on founders and boards of all commercial companies; held by district of competent register court (Registergericht). - Maintained by local courts as register courts; local jurisdiction usually falls to local court in whose district the relevant regional court is located. - Judge or registrar makes entries; electronic form has been in place in Germany since 2007. - Purpose: publicizing information, providing evidence, acting as control mechanism and protective measure. - Anyone may request a print-out or inspect corresponding files without having to substantiate the request. - Register of cooperatives (Genossenschaftsregister) - Public register providing information about legal status of registered cooperative (eingetragene Genossenschaft, eG). - Anyone may request a print-out or inspect corresponding files without having to substantiate the request. - Register of associations (Vereinsregister) - Public register holding entries about registered associations established pursuant to the Civil Code. - Maintained at local courts (with subject-matter jurisdiction); entry possible upon application. - Entry makes association a registered association (eingetragener Verein) whose name carries abbreviation “e. V.” ### Non-profit organizations (NPOs) - All non-profit associations established pursuant to the Civil Code are registered in the register of associations if they apply for this. - There is no specific mechanism in Germany for supervision of NPOs. ### Approach Concerning Risk - National risk assessment - Authorities informed assessors that there has been no national assessment undertaken of the ML risks in Germany. - Federal security authorities (BKA, Federal Office for the Protection of the Constitution (BfV) and the Federal Intelligence Service (BND)) regularly produce joint situation reports on TF which include a risk assessment; assessors were not provided a copy due to its sensitive nature. - Regular assessment mechanisms (authorities’ claims) - FIU publishes an annual report providing overview of suspicious operations notified and indication of financial entities, non-financial businesses and professions most active on this issue. - BaFin publishes an annual report with overview of activities and important events; includes chapter on activities of BaFin’s MLPG and essential findings from AML-supervisory tasks regarding banks, insurance undertakings, financial services institutions, investment stock corporations and capital investment companies. - BaFin holds regular meetings with industry associations to discuss practical issues in implementing and interpreting legal AML/CFT requirements and effectiveness of procedures and supervisory requirements. - Periodical meetings between authorities (notably FIU) and financial and non-financial bodies (Verbände und Kammervertretungen) to discuss difficulties applying existing legal provisions; these meetings have led to procedural improvements, e.g., feedback for entities notifying suspicious or unusual operations. - BaFin representatives regularly take part in industry seminars on AML/CFT to illustrate administrative practice. - Regular meetings of all Ministries and authorities involved in the German FATF delegation; these entities are part of the AML/CFT-Contact Group which meets regularly to discuss implementation of international standards. - Once a year, the German Government surveys federal authorities about implementation of Government measures relevant to combating terrorism (including measures and projects to combat TF). - Adoption of risk-based approach (RBA) - Germany has adopted a risk-based approach in the AML Act, Banking Act and Insurance Supervisory Act; RBA replaced previous “rule-based approach.” - RBA applies to obligations of institutions, particularly due diligence obligations, and governs BaFin’s approach to supervision. - RBA aims to structure measures to combat ML and TF in a more targeted and efficient manner and reduce burden for institutions by isolating risk situations. - Institutional implementation of RBA - Institutions and persons subject to the AML Act may determine extent of CDD measures on a risk-based approach and take adequate internal measures against ML and TF. - BaFin requires, in circular 8/2005, financial institutions to develop and update institute-specific threat analyses of potential threats with regard to ML/TF (and for credit and financial services institutions also with regard to fraudulent activities). - BaFin requires safeguards aligned with size, organization, threat situation, business structure and customer structure of individual financial institution. - In consultation with Central Association of the German Banking Industry (Zentraler Kreditausschuss; ZKA) and German Insurance Association (Gesamtverband der Versicherungswirtschaft; GDV), BaFin and banking industry bodies and the BKA have drawn up an outline paper on TF (catalogue of indicators) that is constantly updated based on intelligence, latest modus operandi, gathered and analyzed by the BKA. - Several private sector banking associations (e.g., Association of Public Banks (Verband öffentlicher Banken–VÖB), Federal Association of Credit Unions and Credit Cooperative Banks (Bundesverband der Volksbanken und Raiffeisenbanken–BVR), and Federal Association of German Banks (Bundesverband deutscher Banken–BdB) which are members of the ZKA) have issued guidance papers on internal risk analysis; BdB guidance paper issued in December 2008. Other associations (e.g., GDV) intend to provide similar guidance. - BaFin supervisory risk classification system (since 2007) - BaFin assigns each supervised entity to one of three risk classes: simplified basic supervision; basic supervision; and enhanced supervision. - Each institution is first rated by BaFin against five key inherent risk criteria; quality of AML/CFT measures and safeguards assessed largely based on audit reports. - Combined threat and quality ratings are placed on a 12-cell risk classification matrix with rows 1 (low), 2 (medium), 3 (high) for potential threat of ML/TF and columns A (high), B (medium-high), C (medium-low), D (low) for quality of AML/CFT-prevention. - Each supervised entity is allocated a score ranging from 1A (low risk–high quality) to 3D (high risk–low quality); matrix is used to determine extent of supervisory effort. - Section 3 of the report contains more details about the RBA for financial institutions in Germany. - No formal risk-based approach has been developed for the DNFBPs. ### Progress Since the Last IMF/WB Assessment or Mutual Evaluation - Background - Germany’s AML/CFT regime was last assessed in 2004 using the previous assessment methodology. - Reported progress on prior recommendations - a. Complete ratification and implementation of international Conventions. Extend current TF provisions to terrorists (as opposed to terrorist organizations): UN International Convention for the Suppression of Financing of Terrorism (1999) ratified in 2004. Palermo Convention against Transnational Organized Crime ratified in 2006. Authorities claim TF provisions apply to individual terrorists so no further action required. - b. Adopt new provision in relation to domestic terrorism. Develop comprehensive statistics: Section 6a of the Banking Act enables BaFin to stop dispositions with regard to an account of an EU-based person where there is suspicion the account relationship is used for terrorist purposes; Section 6a also allows BaFin to freeze assets of such accounts. - c. Implement planned new reporting form; adopt sanction for failure to report suspicious transactions; develop more comprehensive statistics: Detailed technical concept for using electronic transmission reports is in development; aim to launch trial operation before the end of 2009. Breaches of obligation to report are punishable with an administrative fine of up to €100,000 ($139,170). Sanctions also available under supervisory and administrative law for culpable noncompliance with obligation to report suspicious transactions. - d. Improve feedback provisions between the Land prosecutor’s office and the FIU: Requirements for public prosecutors to notify the FIU at the BKA were significantly expanded through redrafting of the Money Laundering Act in 2008. Reporting requirement extended to cover criminal proceedings arising from a report of suspected TF. Public prosecutors must send a copy of the indictment, reason for dismissal or verdict to the FIU. - e. Render legal mutual assistance notwithstanding absence of dual criminality. More comprehensive statistics: Mutual legal assistance is already rendered despite absence of dual criminality in accordance with Section 59 et seq. of the International Assistance in Criminal Matters Act, with the exception of letters rogatory for search or seizure. - f. Extend BaFin supervision to financial enterprises under Section 1 (3) Banking Act (e.g., leasing and factoring): Leasing and factoring companies are now financial services institutions within meaning of Section 1(1a) of the Banking Act and are subject to limited supervision by BaFin. Financial enterprises within meaning of Section 1(3) of the Banking Act are fully subject to the Money Laundering Act. - g. Definition of the term “beneficial owner” could raise concerns. Extend AML/CFT preventive measures in the securities sector to business relationships with foreign counterparts. Enhanced scrutiny on the beneficiary’s credit institutions side: See new *Source: _cr1078 - 118. Criminal justice and operational agencies* ### Section 1 (6) of the Money Laundering Act (in force since August 21, 2008) for the definition ### _cr1078 - Section 1 (6) of the Money Laundering Act (in force since August 21, 2008) for the definition of “beneficial owner.” ### AML/CFT operational measures and guidance (items h–l) - h. Wire transfers: - Extend provisions to cross-border transfers within the EU: See Regulation (EC) No. 1781/2006 of November 15, 2006 on information on the payer accompanying transfers of funds, implementing FATF SR VII on wire transfers. - i. Investment firms and customer identification: - Investment firms should identify the real customer when performing business relationships with foreign counterparts acting on behalf of clients. - Under German law, all business related to securities trading is considered either banking business or financial services and is subject to a licensing requirement. - Investment stock corporations and capital investment companies fall under the scope of the Investment Act and are subject to a licensing requirement. - According to Section 5 (2) number 1 of the Money Laundering Act, even in cases of business relationships with other financial institutions, which are qualified as “low risk” and in which simplified due diligence may apply, the identity of the customer always has to be established. - j. FIU reporting guidance and typologies: - FIU developed a standardized STR in 2005; the use of this standardized STR is not compulsory. - FIU plans to introduce electronic reporting of STRs in the future. - FIU publishes relevant cases as examples for typologies and methods of ML and TF in annual reports and newsletters, as well as through its public relations work. - k. On-site inspections and supervisory practice: - Increase on-site inspections, including medium sized or small credit institutions where STRs are lower than average, to increase understanding of AML/CFT implementation. - BaFin activity: - In 2007, BaFin conducted 21 special audits and in 2008 18 special audits. - In 2009, 18 on-site inspections are scheduled. - In 2007, BaFin began to accompany external certified accountants in follow-up work on annual audit reports of credit institutions: 17 audit-accompaniments in 2007 and 14 in 2008. For 2009, 11 audit-accompaniments were planned. - Main source of supervisory information in Germany is the detailed annual AML/CFT audit reports of all financial institutions supervised by BaFin. - Money remittance services providers and providers of currency business must forward monthly reports to BaFin. - l. Sanctions for identification requirement breaches: - Breaches of main provisions relating to identification constitute administrative offenses under either Section 17 (1) or Section 17 (2) of the Money Laundering Act. - Administrative fines: - Up to €100,000 ($139,170) under one provision. - Up to €50,000 ($69,585) under the other provision. *Legal system and related institutional measures — Criminalization of Money Laundering (R.1 & 2)* ### Legal framework and scope of Section 261 of the Criminal Code (CC) - 133. Germany criminalized ML through Section 261 of the CC, by virtue of Article 1 number 19 of the Act on Suppression of Illegal Drug Trafficking and other Manifestations of Organized Crime dated July 15, 1992. The Act and Section 261 entered into force on September 22, 1992. - 134. Section 261 has been amended several times to extend the list of predicate offenses, most recently in August 2009 through the Act on the Prosecution of the Preparation of Serious Violent Acts Endangering the State (GVVG), establishing TF offenses as predicate offenses for ML; this amendment entered into force on August 5, 2009. A prior amendment in 2008 (GwBekErgG) implemented Directive 2005/60/EC and entered into force on August 21, 2008. ### Physical and material elements of the offense (c. 1.1) - 135. Text of Section 261: - “whoever hides an object (Gegenstand) which is derived from a predicate offense, conceals its origin or obstructs or endangers the investigation of its origin, its discovery, its forfeiture, its confiscation or its being taken into custody, shall be punished with imprisonment from three months to five years.” - The second sentence defines predicate offenses to include any serious criminal offense (Verbrechen) and a listed number of less serious criminal offenses (Vergehen). - 136. Second part of Section 261: - Whoever (1) procures for one’s self or another person or (2) keeps an object indicated in part 1 in custody or uses it for one’s self or a third person, shall be punished similarly. - 137. Coverage relative to Vienna and Palermo Conventions: - The offense covers “concealment or disguise of the source and location” and “acquisition, possession or use” of property derived from a predicate offense. - Although Section 261’s text references only “concealing the origin,” authorities interpret it broadly to comprise all forms of concealment required by the Vienna and Palermo conventions. - Conversion or transfer is not explicit in the text but authorities state missing conducts would typically be covered by other criminalized conducts; case law demonstrates convictions for “conversion or transfer.” ### Laundered property and proof (c. 1.2 and 1.2.1) - 138. Terminology: - Section 261 uses the term “object” (Gegenstand), not “property.” The term was chosen to be undefined to cover a broad range of “things involving some kind of economic value,” including movable and immovable property, money, securities and accounts receivables. - “derived from an unlawful act” is interpreted broadly to cover objects that directly or indirectly represent proceeds of crime. - 139. Proving illicit origin: - Section 261 does not specify that a prior conviction for the predicate crime is necessary to prove illicit origin. - Assessors received conflicting views: convictions for stand-alone ML exist, but prosecutors find it easier to prosecute ML when there is a prior conviction for the predicate offense because they must establish a “link” or “connection” between ML conduct and the predicate offense (i.e., specifics of the predicate offense, perpetrator, and types of assets). - Many prosecutors and judges indicated the standard of proof to link ML to the predicate offense is one of the most difficult obstacles to ML convictions in Germany. - Assessors conclude a prior conviction is not a statutory requirement but provides practical advantage; the high burden of proof may hinder pursuit of ML offenses. ### Predicate offenses and thresholds (c. 1.3 and 1.4) - 140. Predicate offenses: - Predicate offenses cover all serious offenses and a number of specifically listed less serious offenses. - All but two FATF-designated categories are covered under German law: - “insider trading and market manipulation” have been criminalized but are not predicate offenses for ML. - “the counterfeiting and piracy of products” is not fully covered; only “falsification of documents” is cited under this category. - 141. Some less serious offenses are predicate offenses only if aggravating circumstances are present (intention to make a profit or membership in a gang), which is considered a minor deficiency. - 142. Tax evasion: - Pursuant to Section 261 (1) second sentence, tax evasion under Section 370 of the Fiscal Code (Abgabenordnung, AO) is a predicate offense for ML if committed with the intention to make a profit or by a member of a gang founded for recurrent commission of such an offense. - Note: making tax evasion a predicate offense for ML goes beyond FATF requirements. - Predicate offense mapping (selected entries as stated): - Participation in an organized criminal group and racketeering: Sections 129, 129a and 129b of the CC. - Terrorism, including terrorism financing: Section 129a of the CC and recently incorporated Section 89a (2) number 4 of the CC. - Trafficking in human beings and migrant smuggling: Sections 232 (1)(2), 233, 233a (only if committed with aggravating circumstances) and Sections 234 and 234a of the CC. - Sexual exploitation, including sexual exploitation of children: Sections 181a and 232 (1)(2) (both only if committed with aggravating circumstances) and Sections 176a, 176b, 177, 178 and of the CC. - Illicit trafficking in narcotic drugs and psychotropic substances: Sections 29 (1) and (3), 30, and 30a Narcotics Law, Sections 19 (1) and (3) Precursors Control Law. - Illicit arms trafficking: Section 51 and Section 52 (5) Weapon Law. - Illicit trafficking in stolen and other goods: Section 260a of the CC, Section 374 Fiscal Code. - Corruption and bribery: Sections 332 (1) and (3), 334, and 335 of the CC. - Fraud: Sections 263 (1) – (4) to 265 (only if committed with aggravating circumstances) and Section 263 (5) of the CC (if committed with both aggravating circumstances). - Counterfeiting Currency: Sections 146, 151, 152, 152a (only if committed with aggravating circumstances) and 152b of the CC. - Counterfeiting and piracy of products: Sections 267 of the CC (only applies to falsification of documents). - Environmental crime: Sections 326 (1)(2) and (4), 328 (1)(2) and (4) (both only if committed with aggravating circumstances) and Section 330 (1) and 330a of the CC. - Murder, grievous bodily injury: Sections 176a, 176b, 178, 211, 212, 213, 221 (2), 225 (3), 226, 227, 235 (4) and (5), 251, and 306c of the CC. - Kidnapping, illegal restraining and hostage-taking: Sections 234a, 235 (4), 239 (3), 239a, and 239b of the CC. - Robbery or theft: Sections 242 and 246 (both only if committed with aggravating circumstances) and Sections 249, 250, 251 of the CC. - Smuggling: Section 373 Fiscal Code. - Extortion: Section 253 of the CC (if committed with aggravating circumstances). - Forgery: Sections 267, 269 and 271 of the CC (all only if committed with aggravating circumstances). - Piracy: Section 316c of the CC. - Insider trading and market manipulation: Not a predicate offense for ML. - 143. Threshold approach: - Germany’s combined approach meets criterion 1.4: Section 261 covers serious offenses (Verbrechen) and certain enumerated less serious offenses (Vergehen). - Section 12 of the CC defines “serious offenses” as those sanctioned with a minimum imprisonment of one year or more and “less serious offenses” as those with a fine or minimum imprisonment of less than one year; the minimum sanction determines classification. ### Extraterritoriality, self-laundering, and concurrent punishment (c. 1.5–1.6) - 144. Extraterritorial predicate offenses: - Paragraph 8 of Section 261 provides that objects obtained through a predicate offense abroad are equal to those obtained in Germany if the act constitutes a criminal offense in the country where it occurred (dual criminality required). - Additional requirements for some less serious offenses (aggravating circumstances) may create effectiveness issues when applying Paragraph 8, but authorities reported no such problems to date. - 145. Laundering one’s own illicit funds: - Section 261 does not distinguish between self-laundering and third-party laundering; in theory it applies to persons who commit the predicate offense. - Paragraph 9 of Section 261 provides that a person punished for the predicate offense may not be punished for ML as well; a person cannot be punished for both the predicate and the ML offense at the same time. - 146. Legal principles: - The impossibility of convicting a person for both the predicate offense and ML derives from German principles such as express immunity from criminal proceedings for instances in which perpetrators assist themselves after the fact (Selbstbegünstigungsprinzip)), granted by sections 257 and 258 of the CC. - Under this principle, an offender cannot be additionally and separately punished for “post-offense behavior” related to proceeds of his or her own crime. - 147. Case law: - The Federal Court of Justice (BGH) has ruled that the ML offense was not intended to punish perpetrators twice for predicate and ML offenses and that section 261 (9), second sentence, operates as a concurrent provision excluding criminal liability for ML where the perpetrator is already punishable for involvement in the predicate offense. *Italic: Content drawn from the specified section of the provided PDF.* ### 148. However, these rulings do not indicate explicitly that self-laundering is contrary to a ### _cr1078 - 148. However, these rulings do not indicate explicitly that self-laundering is contrary to a ### Autonomy of the money laundering (ML) offense and self-laundering (paras. 148–151) - Findings: - Rulings do not indicate explicitly that self-laundering is contrary to a fundamental principle of German law; practitioners did not have a uniform view (para. 148). - Explanations raise serious doubts regarding the autonomy of the ML offense under German law and help explain difficulties in applying the ML offense in Germany (para. 149). - ML does not always involve perpetrators assisting themselves after a fact; where laundering activity involves transfer, concealment and disguise through the financial system this may create "an additional damage to further rights" and "an additional social danger (to the soundness and the integrity of the financial system)"—such conduct could be envisaged autonomously and could deserve separate punishment (para. 149). - Due to principles of mandatory investigation and mandatory prosecution, a self-launderer is more likely to be first investigated, prosecuted, and punished for the commission of the predicate offense; consequently ML conduct in self-laundering cases is very likely to remain unpunished (para. 150). - Majority of prosecutors met with assessors confirmed that ML conduct in self-laundering cases often remains unpunished (para. 150). - Authorities assert that self-laundering would typically be considered an aggravating circumstance when applying punishment for the predicate offense, resulting in a more severe punishment for the offender (para. 151). - Assessors conclude it was not established that the offense of ML can apply to persons who commit and are convicted of the predicate offense, nor that the impossibility to apply ML in such cases is supported by principles that amount to fundamental principles under the FATF’s standards (para. 151). ### Ancillary offenses and inchoate liability (c. 1.7) (paras. 152–156) - Findings: - Ancillary offenses are defined in the general section of the Criminal Code (CC) and apply to all offenses, including ML; all ancillary offenses provided under the Vienna and Palermo conventions are covered under German law (para. 152). - Section 23: attempts to commit a “serious offense” (Verbrechen) are always criminalized; attempts to commit a “less serious offense” (Vergehen) are only criminalized if specifically provided by law (para. 153). - ML is a less serious offense (Vergehen); Section 261(3) specifically criminalizes attempts to commit ML (para. 153). - Conducts of “intentionally inciting another to commit an unlawful act” and “intentionally assisting another in the commission of an intentional crime” are punished with the same punishment as the perpetrator; “assistance” is to be interpreted broadly to cover aiding and abetting, facilitating, and counseling (para. 153). - Provisions punishing declarations of willingness, acceptance of an offer, or agreement to commit a “serious criminal offense” apply to Verbrechen; since ML is a Vergehen, the “attempt to participate in it” is not covered by that provision (para. 154). - Conspiracy as known in common law (including agreement of only two persons) is not found under German criminal law; Section 129 criminalizes forming a group whose objectives or activity are directed towards the commission of crimes, including ML, aligning with Vienna and Palermo Conventions subject to constitutional constraints (paras. 155–156). - A group under sections 129 et seq. is an organizational combination of at least three persons designed to exist for a certain period, with subordination of individual will to group will (para. 156). ### Other ancillary conduct offenses (para. 157) - Findings: - Other offenses covering ancillary conduct with respect to ML include: - “Assistance in avoiding prosecution or punishment” pursuant to Section 258. - “Assistance given in official capacity” pursuant to Section 258a. - “Handling stolen goods” pursuant to Section 259. - “Handling of stolen property committed with aggravating circumstances” pursuant to Sections 260 and 260a of the CC (para. 157). ### Additional element — predicate offense committed overseas and dual criminality exceptions (c. 1.8) (paras. 158–160) - Findings: - General principle: conduct criminalized in Germany and abroad constitutes a predicate offense to ML under German law; Sections 5 and 6 of the CC provide exceptions and apply German law even without dual criminality (para. 158). - Section 5 applies Germany’s criminal law regardless of foreign law to certain sexual abuse of children, certain environmental crimes, “child stealing,” and other acts against domestic legal interests (para. 159). - Section 6 applies Germany’s criminal law regardless of the place’s law to piracy, trafficking in human beings and migrant smuggling, illicit trafficking in narcotics and counterfeiting of currency or securities, among other acts against international legal interests (para. 159). - For predicate offenses committed abroad and listed in Sections 5 or 6, a conviction for ML may be obtained under German law even if the predicate offense is not criminalized where it occurred (para. 160). ### Liability of natural persons and mens rea requirements (c. 2.1–2.2) (paras. 161–164) - Findings: - Section 15 of the CC: only “intentional” acts are crimes unless a specific provision criminalizes negligence (para. 161). - Section 261 (1) applies to any natural person who commits acts constituting ML; prosecutors must prove beyond reasonable doubt that the perpetrator knew objects were derived from an unlawful act (para. 161). - ML pursuant to Sections 261 (1) and (2) generally requires intentional commission; Section 261 (5) provides for criminal liability for negligent ML if the perpetrator “recklessly did not know that the objects in question stem from the commission of a predicate offense” (para. 162). - Section 261 (5) lowers the burden of proof and goes beyond the requirements of the FATF 40+9 Recommendations (para. 162). - Section 261 (2) (keeping proceeds in custody or using them) requires that the perpetrator knew at the time of receipt that the origin is criminal; Section 261 (1) acts (hiding, concealing origin, obstructing investigation, discovery, forfeiture, confiscation, custody) require no specific knowledge with respect to the property per se (para. 163). - Section 261 (5) permits criminal liability under both Sections 261 (1) and (2) when the person did not know due to negligence that an object was proceeds of crime, implying that in other cases Sections 261 (1) and (2) require that the perpetrator knew or should have known that the object derived from a predicate offense (para. 163). - Inference of mental element: - The intentional element may be inferred from objective factual circumstances under the principle of free evaluation of evidence set out in Article 261 of the Criminal Procedures Code (CPC); mental element may be inferred through indicia constituted by external facts and circumstances proved in proceedings (para. 164). - Authorities provided case law where courts have upheld these principles (para. 164). ### Liability of legal persons and available sanctions (c. 2.3–2.5) (paras. 165–176) - Liability of legal persons: - Legal persons are not subject to criminal liability under German law; principle of “societas delinquere non potest” and “nulla poena sine culpa” underpin an individual/personal conception of criminal liability; these notions upheld by Germany’s Federal Constitutional Court and considered fundamental principles (para. 165). - Notwithstanding absence of criminal liability, legal persons involved in ML may be subject to administrative fines and fines can include a component aimed at recovering profit from criminal activity (para. 166). - Regulatory fine level: up to €1 million ($1.4 million) pursuant to Sections 30 and 130 of the Administrative Offense Act (para. 166). - Pursuant to Section 17 (4) of the Administrative Offenses Act, the fine shall exceed the financial benefit obtained from the regulatory offense (para. 166). - Authorities provided evidence of recent corruption cases where the statutory fine was exceeded up to €75 million ($ 104 million) (para. 166). - If case involves a criminal offense, the administrative fine may be imposed by the criminal court (para. 166). - Section 30 allows administrative fines on a legal person where someone acting on its behalf has committed a criminal or regulatory offense violating duties incumbent on the legal person or where the legal person has been enriched or intended to be enriched; where an administrative fine is incurred, a forfeiture order with respect to the same offense is precluded (para. 167). - Other laws provide administrative sanctions against legal persons (revocation, suspension or termination of license, exclusion from public contract, etc.) (para. 168). - Sanctions for ML (paras. 169–176): - Basic sanctions: - Intentional ML: imprisonment of three months to five years (para. 169). - Negligent ML: imprisonment of up to two years or a fine (para. 169). - Negligent ML (Section 261 (5)) requires a lower standard of proof and has contributed to achieving more convictions; in recent years convictions for negligent ML have grown significantly, amounting to nearly half of total ML convictions per year (para. 170). - Aggravated circumstances (intention to make a profit or as part of an organized group whose purpose is the continued commission of ML): applicable sanction is six months to ten years (para. 171). - Both basic and aggravated offenses constitute a less serious crime (Vergehen) under the CC; only a small number of convictions per year are connected with the aggravated type (Section 261 (4)) and statistics show only a small number of convictions involve more than two offenders (para. 171). - Persons inciting another to commit ML pursuant to Section 26 are sanctioned to the same extent as the main perpetrator (para. 172). - Attempted ML may be sanctioned to the same extent as completed acts, but the court may impose no more than three quarters of the statutory maximum term pursuant to Section 49 (para. 172). - Assisting another to commit ML pursuant to Sections 27 and 49: sanctions basically the same as principal offense but court obliged to reduce them to no more than three quarters of the statutory maximum term (para. 172). - Fines under Section 40 are imposed on a per diem basis: - Minimum of five per diems and, unless law provides otherwise, maximum of 360 per diems (para. 173). - ML offense under Section 261 does not provide a lower maximum, so 360 per diems apply (para. 173). - Court determines per diem amount based on personal and financial circumstances; starting point is average net income per day (para. 173). - Minimum daily rate fixed €1.00 ($1.39) and a maximum of €30,000 ($41,751) (para. 173). - In determining daily rate, income, assets and other bases may be estimated; number and amount of daily rates must be indicated in the decision (para. 173). - CC generally does not allow imprisonment and fines to be applied jointly; Section 41 permits a fine as collateral to imprisonment where by the act the perpetrator was enriched or tried to be enriched, if appropriate given personal and financial circumstances (para. 174). - Section 56: courts shall suspend execution of imprisonment of no more than one year and grant probation if it can be expected the sentence will serve as a warning and person will commit no further crimes; courts may suspend up to two years and grant probation under special circumstances; efforts to make restitution should be particularly considered (para. 175). - Proportionality and deterrence observations: - ML is criminalized as a less serious crime (Vergehen) and, compared with some serious offenses (Verbrechen), the level of sanctions for ML does not seem proportionate and dissuasive (examples of Verbrechen and their terms provided) (para. 176). - When compared with other Vergehen, ML sanctions appear more proportionate (examples: robbery, fraud, breach of trust, falsification of documents and racketeering sanctioned with a fine or imprisonment up to five years) (para. 176). - Sanctions for basic ML are lower relative to sanctions in some FATF countries (examples provided with exact ranges and penalties) but nearer relative to ML offenses in other FATF countries (examples provided) (para. 177). *Source: Excerpt from the assessed jurisdiction’s report (paras. 148–177).* ### 178. The sanctions applied for ML, with a focus on imprisonment or youth custody are shown in ### _cr1078 - 178. The sanctions applied for ML, with a focus on imprisonment or youth custody are shown in ### Sanctions overview - The majority of convictions for ML do not involve prison sentences. - The vast majority of convictions involving prison sentences are suspended. - There were comparatively few convictions for ML in aggravated circumstances under Section 261 (4) of the CC (i.e., conducts carried out with the intention to make a profit or as part of organized crime). - Germany has not provided statistics on the application of administrative fines to legal persons; assessors were unable to evaluate effectiveness in this area. ### Imprisonment / youth custody statistics (by Section and year) - Statistical Table 12: Imprisonment or youth custody sanctions for those convicted pursuant to Section 261 of the Criminal Code (selected totals by year) - Total convictions: 2004: 112; 2005: 97; 2006: 216; 2007: 603; 2008: 608. - Total imprisonment (including suspended): 2004: 65; 2005: 51; 2006: 52; 2007: 106; 2008: 113. - For Section 261 (1) (2004–2008 totals and imprisonment totals shown in table) - Total convictions: 2004: 86; 2005: 62; 2006: 100; 2007: 264; 2008: 248. - Total imprisonment (including suspended): 2004: 52; 2005: 33; 2006: 32; 2007: 61; 2008: 75. - For Section 261 (2) (keeping or using) (2004–2008) - Total convictions: 2004: 6; 2005: 6; 2006: 5; 2007: 19; 2008: 19. - Total imprisonment (including suspended): 2004: 5; 2005: 5; 2006: 3; 2007: 6; 2008: 6. - For Section 261 (4) (aggravated type) (2004–2008) - Total convictions: 2004: 6; 2005: 9; 2006: 17; 2007: 23; 2008: 25. - Total imprisonment (including suspended): 2004: 4; 2005: 5; 2006: 10; 2007: 11; 2008: 10. - For Section 261 (5) (negligent type) (2004–2008) - Total convictions: 2004: 14; 2005: 20; 2006: 94; 2007: 297; 2008: 316. - Total imprisonment (including suspended): 2004: 4; 2005: 8; 2006: 7; 2007: 28; 2008: 22. ### Reported offenses, investigations, STRs and charges - Reported offenses (selected, totals and categories 2003–2007) - Total reported offenses: 2003: 6,572,135; 2004: 6,508,604; 2005: 6,287,780; 2006: 6,203,074; 2007: 6,195,622; Total: 31,767,215. - Drug related: 2003: 258,143; 2004: 285,914; 2005: 278,950; 2006: 257,253; 2007: 250,895; Total: 1,331,155. - Economic crimes: 2003: 86,249; 2004: 81,135; 2005: 89,224; 2006: 95,887; 2007: 87,934; Total: 440,429. - Money laundering: 2003: 33; 2004: 745; 2005: 776; 2006: 2,073; 2007: 2,997; 2008: 3,923; Total: 10,514. - Preliminary criminal investigations by state prosecutors for ML (2004–2008) - Preliminary Investigations: 2004*: 4,770; 2005: 6,692; 2006: 9,929; 2007: 13,593; 2008: 10,478; Total: 45,462. - Number of STRs filed: 2004: 8,062; 2005: 8,241; 2006: 10,051; 2007: 9,080; 2008: 7,349; Total: 42,783. - Note: *2004 without information on Schleswig-Holstein. No information is available for 2003. - Charges for ML by section (2004–2008 totals) - Section 261 (1): 2004: 116; 2005: 87; 2006: 133; 2007: 336; 2008: 359; Total: 1,031. - Section 261 (2): 2004: 7; 2005: 7; 2006: 7; 2007: 27; 2008: 21; Total: 69. - Section 261 (4): 2004: 7; 2005: 14; 2006: 19; 2007: 24; 2008: 28; Total: 92. - Section 261 (5): 2004: 14; 2005: 21; 2006: 100; 2007: 321; 2008: 358; Total: 814. - Total charges (2004–2008): 2004: 144; 2005: 129; 2006: 259; 2007: 708; 2008: 766; Total: 2,006. ### Convictions, acquittals and sanctions (aggregate findings) - Convictions for ML (Statistical Table 13, 2004–2008) - Section 261 (1): 2004: 86; 2005: 210; 2006: 264; 2007: 248; 2008: 760; Total%: 46% (table formatting in source ambiguous; preserved figures as provided). - Section 261 (2): (figures as presented) 6 65 19 19 553% (source formatting ambiguous; preserved as presented). - Section 261 (4): 6 9 17 23 25 805% (source formatting ambiguous; preserved as presented). - Section 261 (5): 14 20 94 297 316 74145% (source formatting ambiguous; preserved as presented). - Total convictions: 2004: 112; 2005: 97; 2006: 216; 2007: 603; 2008: 608; Total: 1,636. - As percentage of charges laid: 2004: 78%; 2005: 75%; 2006: 83%; 2007: 85%; 2008: 79%; Total: 82%. - Sanctions (selected aggregates) - Juvenile sanctions (annual aggregates in source): 2004: 247; 2005: 17; 2006: 17; 2007: 47; 2008: (not fully tabulated in source extract). - Imprisonment and youth custody (of which suspended): 2004: 65 (53); 2005: 51 (43); 2006: 52 (46); 2007: 106 (95); 2008: 113 (99); Total: 387 (336). - Number of cases in which fines were issued: 2004–2008 aggregate presented as 1,200 (annual breakdown in source partial). - Total number of persons on whom sanctions were imposed: 2004: 112; 2005: 97; 2006: 216; 2007: 603; 2008: 608; Total: 1,636. - Average length of sentence: N/A (statistics record prison terms only in grouped intervals). - Average fine: N/A (statistics record fines only in grouped daily-rate intervals). - Acquittals on ML charges by section (Statistical Table 14) - Total acquittals (2004–2008): 78; 91; 3 (table formatting in source ambiguous); Total: 1552 (source presents totals and percentages; preserved as provided). - Acquittals as percentage of charges laid: 2004: 6%; 2005: 6%; 2006: 3%; 2007: 2%; 2008: 2%; Total: 3%. ### Case composition and predicate crimes - Number of accused involved in ML investigations in 2008 (based on 13,708 concluded cases) - 1 accused: 8,361 (79.8%) - 2 accused: 1,550 (14.8%) - 3 accused: 349 (3.3%) - 4–10 accused: 209 (2.0%) - 11 or more accused: 9 (0.1%) - Total number of persons subjected to investigation: 13,708 - Prosecutions and convictions for main predicate crimes (2007 and 2008) - Fraud (263–265b of the CC): 2007 prosecutions 206,995; 2007 convictions 170,264; 2008 prosecutions 199,850; 2008 convictions 163,987. - Document forgery (267–281 of the CC): 2007 prosecutions 26,691; 2007 convictions 22,486; 2008 prosecutions 25,068; 2008 convictions 20,909. - Offenses under the Fiscal Code (tax and customs offenses): 2007 prosecutions 17,194; 2007 convictions 15,573; 2008 prosecutions 18,153; 2008 convictions 16,448. - Breach of fiduciary duty (266–266b of the CC): 2007 prosecutions 12,738; 2007 convictions 10,383; 2008 prosecutions 11,878; 2008 convictions 9,750. - Narcotics Act offenses: 2007 prosecutions 64,237; 2007 convictions 57,116; 2008 prosecutions 68,519; 2008 convictions 61,256. - Insolvency offenses (283–283d of the CC): 2007 prosecutions 2,055; 2007 convictions 1,636; 2008 prosecutions 1,984; 2008 convictions 1,570. - Theft (242–244a of the CC): 2007 prosecutions 181,729; 2007 convictions 147,148; 2008 prosecutions 177,550; 2008 convictions 152,519. - Alien smuggling (sections 96 and 97 of the Residence Act): 2007 prosecutions 1,123; 2007 convictions 947; 2008 prosecutions 1,049; 2008 convictions 885. ### Analysis of effectiveness (assessors' conclusions and IMF observations) - Assessors' conclusions: - The sanctions set forth for ML in the case of natural persons are too lenient (particularly in the case of basic ML). - Given the low end range of sanctions, the fact that the majority of sanctions imposed by the courts do not involve prison sentences, and that the vast majority of sanctions involving prison sentences are suspended, the assessors conclude that the basic offense of ML is not subject to effective, proportionate, and dissuasive sanctions. - Additional observations: - The number of charges is always lower than the number of preliminary investigations; the vast majority of investigations concerning ML are suspended because the investigation does not confirm the suspicion of a criminal offense. - Limitations in punishing a person for the predicate offense and for ML at the same time (section 261 subsection 9 of the CC) mean criminal proceedings initiated on the basis of an STR for ML are usually discontinued and new proceedings are initiated for the predicate offense. - The statistics do not allow conclusions about reasons for the increase in charges and convictions from 2005 to 2006; Germany was unable to provide a reasonable explanation. - The increases from 2006 to 2007 can be partially explained by the change in coverage: data for 2004–2006 refer to the “old” Länder (pre-unification West Germany); from 2007 data represent all of Germany. - No information can be provided on average length of sentences or average amount of fines because statistics group terms and daily-rate fine levels rather than providing averages. - The vast majority of imposed sanctions are fines; the vast majority of custodial sentences for ML are suspended. Authorities noted some offenders may have been sentenced to custodial sentences for other more serious charges. - IMF staff preliminary comparative analysis: - Average number of convictions for ML each year (average for the years 2004 through 2008) by comparison: - Average of 23 assessed countries*: 97.4 - Average of 18 countries assessed LC or higher*: 120.6 - Germany (Average for the years 2004 through 2008**): 327.2 - Average number of ML convictions each year per million of population: - Average of 23 assessed countries*: 0.05 - Average of 18 countries assessed LC or higher*: 3.48 - Germany: 4.40 - Average number of ML convictions each year per $ billion of GDP: - Average of 23 assessed countries*: 0.01 - Average of 18 countries assessed LC or higher*: 0.13 - Germany: 0.14 - *List of countries used in comparison provided in source. - **Data for the years prior to 2006 analyzed using estimates of population and GDP for those years for the equivalent of pre-unification West Germany. - IMF staff note: 327 convictions per year in Germany is an impressive result relative to the group of countries studied, despite many cases pursuing the predicate offense rather than ML. Germany has the second highest annualized number of convictions in the group studied. *Source: Federal Statistical Office (Statistisches Bundesamt); Bundeskriminalamt; IMF staff analysis as presented in the source document.* ### 189. The CC is the centerpiece of German criminal law and, as such, benefits from a rich ### _cr1078 - 189. ### Findings on the Money Laundering (ML) Offense and Criminal Justice Outcomes - The CC (Criminal Code) is the centerpiece of German criminal law and benefits from extensive doctrinal analysis and case law that facilitates interpretation; institutional foundations are solid with extremely well informed officials ensuring reasonably uniform application of the law. - Authorities report that offenders are convicted and sentenced on the basis of the most serious crime and deprived of their assets; however, the specific charge of ML is not the primary tool for achieving these outcomes. - No statistics were provided demonstrating the link between investigations into ML and subsequent convictions and sanctions for other crimes. - Germany categorizes the ML offense as a “less serious offense,” which: - Sends a weak message about the relevance assigned to ML. - Offers prosecutors and judges a weak range of sanctions for ML conduct. - Opens the path to suspension of execution of punishment and the benefit of probation for a large number of ML offenders. - Empirical indicators and case handling: - The majority of sanctions applied for ML do not involve prison sentences; the vast majority of sanctions involving prison sentences are suspended. - Available statistics reflect a high number of convictions for ML per year and a high percentage of convictions for ML vis-à-vis the number of charges laid. - Despite conviction volumes, assessors concluded that sanctions were not effective, proportionate and dissuasive, given the predominance of low-end sanctions and suspended prison terms. - Only 5 percent of convictions obtained relate to section 261(4) (i.e., ML conduct carried out for profit or as part of organized crime). - Section 261 (5) cases (negligent type) have grown to 52 percent of total convictions in the latest year, and account for 45 percent of all convictions obtained. - The average amount claimed per proceeding by the state for forfeiture and confiscation has dropped off by more than 50 percent in the latest year that data are available. - Case characteristics and prosecutorial practice: - Most cases under investigation involved only a single perpetrator, supporting the view that serious, organized ML is not being prioritized. - Prosecutors report that cases completing the preliminary investigations (“clearing process”) are usually self-laundering cases; common practice is to focus on the predicate offense and drop investigation into the ML conduct because self-launderers cannot be punished for the predicate offense and ML concurrently. - Exceptions occur where evidence for ML is stronger than for the predicate offense (e.g., ML cases derived from phishing conduct), leading to prosecutions for ML — often under Section 261 (5). - Where the ML perpetrator differs from the predicate perpetrator, investigations tend to focus on the predicate offense; ML conduct is often prosecuted as “participation” in the predicate offense, which is easier to prove and usually carries higher punishment. - High burden of proof to establish that property is proceeds of crime (need to establish a “link” or “connection” between ML conduct and predicate conduct) contributes to preference for prosecuting predicate offenses. - Predicate offense scope and limitations: - Certain less serious criminal offenses are only predicate offenses to ML if committed with the intention to make a profit or by a member of a gang founded for recurrent commission of such an offense; these requirements may prevent broader use of the ML offense and may restrict international cooperation where dual criminality is required (e.g., extradition with non-EU jurisdictions). - Sanctions for legal persons: - Due to absence of statistics on the number of administrative fines effectively applied to legal persons, assessors could not determine that sanctions are effectively applied to legal persons. - Overall assessment: - Despite a high number of convictions for ML, Germany is not using the ML offense effectively to tackle serious profit-motivated crime; such conduct is often punished via more serious predicate offenses, meaning the ML offense is not fully serving its purpose. Assessors view limitations of the ML offense as contributing to this situation. ### Recommendations and Policy Measures Proposed (to comply with Recommendations 1 and 2) - Amend the CC to re-categorize the offense of ML as a serious crime and to raise the range of sanctions to make them effective, proportional and dissuasive, relative to other serious offenses in the CC. - Increase the minimum and maximum ranges of sanctions applicable to ML, consistent with the level of penalties for serious offenses in Germany. - Reduce the burden of proof that is deemed necessary to prove that property is the proceeds of crime. - Create predicate offenses for ML for the following two categories of offenses: - “insider trading and market manipulation,” and - “counterfeiting and piracy of products.” - Amend the CC to ensure that predicate offenses for ML include a range of offenses in each of the designated categories of offenses without having to meet the additional requirement (aggravating circumstances) that the offense is committed to make a profit, or by a member of a gang founded for the recurrent commission of such an offense. - Allow for the concurrent prosecution of and sanctioning for self laundering and for the commission of the predicate offense. - Raise awareness among prosecutors and law enforcement agencies on the opportunity that ML investigations and convictions represent to the general fight against organized crime. - Maintain statistics on the sanctions applied to legal persons. ### Compliance with FATF Recommendations 1 & 2 — Ratings and Key Factors - R.1 — PC - “Counterfeiting and piracy of products”, and “insider trading and market manipulation” are not predicate offenses to ML. - The ML offense cannot be applied to persons who commit and are convicted for the predicate offense; this inability is not supported by principles that amount to fundamental principles under the FATF standards. - Issues of effectiveness: - The comparatively low level of sanctions for the offense and the burden of proof required to establish that proceeds relate to a predicate crime encourage the use of charges other than ML to pursue serious and organized crime or situations of third party ML. - The restriction on applying the ML offense to persons who are convicted of the predicate offense tends to result in ML investigations being dropped in favor of investigations into the predicate offense. - R.2 — LC - Natural and legal persons are not subject to effective, proportionate and dissuasive sanctions for basic ML. - Due to the lack of statistics, assessors could not determine that sanctions are applied effectively to legal persons. ### Criminalization of Terrorist Financing (SR.II) — Description and Analysis - Legal framework and recent amendment: - Financing of terrorist acts and financing of individual terrorists are criminalized under Section 89 a (2) number 4 of the CC, resulting from the Act on the Prosecution of the Preparation of Serious Violent Acts Endangering the State (GVVG), which entered into force on August 4, 2009. - These conducts may also be prosecuted based on the participatory offense of “assisting another to commit a crime” pursuant to Section 27 of the CC. - Financing of terrorist organizations may be prosecuted based on Section 129a (5) of the CC. - The financing of terrorist acts and the financing of individual terrorists under Section 89 a (2) number 4, and financing of terrorist organizations under 129a (5) are predicate offenses to ML. - Criminalization specifics (c. II.1): - The Act introduced Section 89 a (2) number 4, criminalizing collection of assets “not merely insubstantial” (nicht unerhebliche Vermögenswerte), and the acceptance or making available of such assets for preparation of a serious violent act endangering the state. - Definition: A serious violent act endangering the state is an offense against life within Sections 211 or 212 of the CC, or against personal freedom within Sections 239a or 239b of the CC, intended and apt to interfere with existence or security of a state or international organization or to undermine constitutional principles. - Shortcomings relative to SR II: - The definition of “serious violent act endangering the state” is not fully consistent with the definition of terrorist act under Article 2 of the Terrorist Financing Convention; it does not extend to all acts in treaties annexed to the Convention and does not cover serious bodily injuries. - The term “asset” is limited by the “not merely insubstantial” requirement. SR II does not impose a minimum value requirement and broadly requires assets of every kind. - Bundestag reasoning (BT-Dr 16/1248 p. 15) explains quantitative and qualitative assessments for “not merely insubstantial,” and states the perpetrator need only accept as possible that the support is not merely insignificant. - As a result, the Act on the Prosecution of Serious Violent Acts Endangering the State is not fully in line with SR II on this point. - Section 89a (2) number 4 does not require the actual act endangering the state to be committed or attempted, nor the funds to be linked to a specific act. - Section 129a (5) of the CC: - Criminalizes support of a terrorist organization; sanctions: - imprisonment of six months to ten years [if in relation to an organization pursuant to Section 129a (1) and (2)] or - up to five years or a fine [if in relation to an organization pursuant to Section 129a (3)]. - Terrorist organizations under Section 129a (1) are those aimed at committing offenses of murder (Section 211), manslaughter (Section 212), genocide (Section 6 of the Code of Crimes against International Law), crimes against humanity (Section 7), war crimes (Sections 8–12), or crimes against personal liberty (Sections 239a or 239b). - Terrorist organizations under Section 129a (2) are those aimed at: - causing serious physical or psychological harm (especially as described in Section 226); - committing crimes enumerated (e.g., Sections 303b, 305, 305a, 306–306c, 307(1)–(3), 308(1)–(4), 309(1)–(5), 313, 314, 315(1),(3),(4), 316b(1),(3), 316c(1)–(3), 317(1)); - committing crimes against the environment (Section 330a(1)–(3)); - committing crimes under the Act on Control of Weapons of War (sections 19(1)-(3), 20(1), 20(2), 20a(1)-(3), in conjunction with section 21, or 22a(1)-(3)); or - committing crimes under section 51(1)–(3) of the Weapons Act; - if such acts are intended to intimidate seriously the population, unlawfully coerce a public authority or international organization, or significantly impair/destroy fundamental structures of a country or international organization, and may seriously damage a country or international organization. *Italic: Content derived from the provided IMF chapter/section text.* ### 215. Finally, terrorist organizations pursuant to Section 129a (3) are those whose “ aims or ### _cr1078 - 215. Finally, terrorist organizations pursuant to Section 129a (3) are those whose “ aims or ### Definition and scope of “terrorist organization” (Sections 129, 129a of the CC) - Section 129a (3) covers organizations whose “aims or activities of the group are directed towards the threatening with the commission of one of the crimes referred to in subsection (1) or (2).” - The term “organization” is not defined in the law. A “group” (Sections 129 et seq.) is interpreted as an organizational combination of at least three persons, designed to exist for a certain period of time, with subordination of the will of the individual to the will of the group as a whole, pursuing common goals and feeling themselves a uniform cluster. - Section 129a covers commission or attempt, participation as an accomplice, organization or direction of others, but only for a limited list of offenses. - Sections 129a (1) and (2) do not extend to all convention offenses under Article 2 of the TF Convention; specifically, offenses in the Fixed Platform Convention (Article 2(1)(a) and (d)) and the Airport Protocol (Article II (1)(b)) are not covered. - Section 129 CC criminalizes support of an organization whose objectives or activities are directed towards the commission of offenses in general; practical difference between sections 129 and 129a is range of sanctions (support under Section 129: imprisonment of not more than five years to a fine). Assessors consider this difference to have a minor implication. ### Criminalization of support and financing (Sections 89a, 129a) - From Section 129a (5) language, mere act of supporting a terrorist group constitutes an offense; it is not required that support be actually used to carry out or attempt a specific terrorist act, or linked to a specific terrorist act. - Section 129a (5) penalties: - Whoever supports a group as described in subsection (1), (2) or (3) shall be punished by imprisonment from six months to ten years in cases under subsections (1) and (2), and by imprisonment of up to five years or a fine in cases under subsection (3). - Whoever recruits members or supporters for a group as described in subsection (1) or subsection (2) shall be punished by imprisonment from six months to five years. - Authorities and case law interpret “support” broadly: “any objectively useful, supportive act,” including all types of provision of funding referred to under the TF Convention. - Collection of funds to finance terrorist organizations constitutes an offense under Section 129a; mere collection is regarded as support and it is not necessary for funds to be used to commit a terrorist act or for an attempt at such an act. The collection or provision must simply serve an objective purpose and be useful for the terrorist organization. - Section 89a (financing of a terrorist act or an individual terrorist) and Section 129a (5) (financing of a terrorist organization) are classified as less serious offenses (Vergehen). Consequently: - An attempt is criminal only if expressly provided for in law; attempt to finance under these provisions is not explicitly criminalized. - Authorities argue broad interpretation of “support” and terms “collecting,” “accepting,” or “making available” result in practical coverage of conduct that would otherwise be considered attempt (Vorverlagerung der Strafbarkeit). - Criminal liability for “incitement” or “assisting” in financing or supporting terrorist conduct is criminalized pursuant to Sections 26 and 27 in combination with Sections 89a or 129a (5). - No statutory definition of “funds” under Section 129a (5); case law confirms support extends to “any funds” as defined in the TF Convention, whether legitimate or illegitimate source. ### Predicate offense for Money Laundering (c. II.2) - Financing of terrorist acts and financing of individual terrorists (Section 89a (2) number 4) are listed as predicate offenses to ML under Section 261 (1) second sentence, number 5 of the CC. - Participatory offense pursuant to Section 27 CC may be a predicate offense to ML depending on the principal criminal act aided and abetted. - “Support of a terrorist organization” (less serious offense) is specifically listed in Section 261 (1) second sentence, number (5) and therefore qualifies as a predicate offense for ML. ### Jurisdiction for TF offenses (c. II.3) - Section 3 CC: Germany’s criminal laws apply to all acts committed in Germany. - Section 4 CC: German criminal laws apply to all acts on a vessel or aircraft of Germany, regardless of location at time of commission. - Section 7 CC: German CC applies to acts (1) committed by German citizens or (2) by non-German citizens located in Germany whose extradition has been declined or not sought; applicability requires that the act be criminalized in the country where it occurred (dual criminality). - Absent dual criminality, no extra-territorial jurisdiction over TF offenses committed abroad by German citizens or persons resident in Germany. - Section 9 CC: An act is considered committed wherever the perpetrator acted or in omission wherever the result occurs or should have occurred. - Section 129b CC: Offense of supporting terrorist organizations pursuant to section 129a applies to foreign terrorist organizations if: - (1) committed through an act exercised within territorial scope of CC as outlined above; or - (2) the perpetrator is a German national or located in Germany (in the second case, prosecution requires approval by the German Ministry of Justice). ### Mental element (applying c. 2.2 in R.2) - Section 15 CC: only “intentional” acts are crimes unless a specific provision criminalizes negligence. Section 129a (5) does not criminalize negligent support. - Only intentional support of terrorist groups amounts to a criminal offense under section 129a (5). - Authorities: a person may be criminally liable as a supporter under Section 129a (5) if that person had the intention that the funds be used to support a group whose aims or activities were directed towards commission of acts referred to under 129a (1) and (2). - Section 261 of the CPC establishes principle of free evaluation of evidence; mental element of TF offense may be inferred through indicia constituted by external facts and circumstances proved in proceedings. ### Liability of legal persons (c. 2.3 & c. 2.4 in R.2) - German law does not provide for criminal liability of legal persons. Regulatory sanctions are available. The detailed analysis under Recommendation 2 (elements 2 and 3) applies equally to terrorism financing offenses. ### Sanctions for TF (c. 2.5 in R.2) - Section 89a (2) (4): financing of a terrorist act and financing of an individual terrorist sanctioned by imprisonment of six months to ten years. - Section 129a: - Support of terrorist groups whose aims or activities are directed to commission of crimes under 129a (1) and (2): imprisonment from six months to ten years. - Support of terrorist groups whose aims or activities are directed towards the threatening of commission of one of the crimes under 129a (1) or (2): imprisonment of up to five years or a fine. - TF offenses (financing of terrorist acts, financing of an individual terrorist, support of terrorist groups) are criminalized as less serious crimes (Vergehen); minimum level of sanctions raises possibility that sanctions imposed may not be effective, proportionate and dissuasive. - Recent legislative change: Act on the Prosecution of the Preparation of Serious Violent Acts Endangering the State (Gesetz zur Verfolgung der Vorbereitung von schweren staatsgefährdenden Gewalttaten, GVVG) — no sanctions imposed in Germany for financing of a terrorist act and financing of an individual terrorist (new provisions), so effectiveness of sanctions not assessable. - Germany provided case evidence of sanctions applied for support under Section 129a (5), but no statistics broken down to distinguish support under 129a (5) from broader 129a offenses; therefore full assessment of effectiveness of sanctions not possible. - No statistics provided on administrative fines to legal persons as a result of TF offenses. ### Statistics (R.32) — investigations, charges, convictions (preserve numbers exactly as presented) - Note: No sanctions imposed for financing of a terrorist act and financing of an individual terrorist under Section 89a (2) (4) due to GVVG; statistics do not discriminate between formation of a terrorist group under Section 129a and financing of a terrorist group under Section 129a (5). - Statistical Table 16. Investigations Conducted for Combating Terrorism (including financial investigations): - Years header appears as: 200420052006 2007 - Total: 555259 108 - Of which based on STRs 161517 16 - Charges and Convictions for Terrorist Offenses (years and figures appear fragmented in source): - Charges: Section 129a (Formation of Terrorist Groups): 2713 45 - Charges: Section 129b (Formation of Terrorist Groups Abroad): 000 01 - Convictions: Section 129a (Formation of Terrorist Groups): - resulting in imprisonment 2 1 7 7 13 13 4 4 5 5 - Convictions: Section 129b (Formation of Terrorist Groups Abroad): 000 01 - Convictions for offenses pursuant to Section 129a of the Criminal Code — selected yearly breakdown: - Year 2003: Total convictions 5; imprisonment or youth custody columns show 1, 2, 1, 1 in various bands - Year 2004: Total convictions 2; entries include 1 in a band and 1 in another band - Year 2005: Total convictions 7; entries include 1, 2, 2, 2 in various bands - Year 2006: Total convictions 13; entries include 2, 5, 2, 4 in various bands - Year 2007: Total convictions 4; entries include 2, 1, 1 in various bands - Year 2008: Total convictions 5; entries include 1, 1, 1, 2 in various bands - Source: Federal Statistical Office (Statistisches Bundesamt) (ed.), Strafverfolgung (Prosecution). Figures until 2006 refer to the “old” Länder; from 2007 figures represent all of Germany. - Preliminary criminal investigations and criminal procedures for 129a CC Offenses (where TF conduct of supporting a terrorist group was considered to be “participation in” a terrorist group): - Year 2002: Number of preliminary criminal investigations in which TF was considered 40; Number of criminal procedures in which TF was considered 1 - Year 2003: 22; 7 - Year 2004: 20; 3 - Year 2005: 17; 2 - Year 2006: 21; 2 - Year 2007: 20; 5 - Year 2008: 17; 6 - Year 2009: 10; 4 ### Assessment of effectiveness - Germany regards radical Islamic terrorism as its primary security threat and asserts extensive domestic measures since September 11, 2001. - Concern: Categorization of TF offenses as “less serious offenses” is inconsistent with the priority Germany assigns to counter-terrorism; such categorization may prevent application of effective, proportionate, and dissuasive sanctions. - Consequences: sends a weak legal message on relevance of the offense; offers prosecutors and judges a weak range of sanctions; opens path to suspension of execution of punishment and benefit of probation to TF offenders. - Assessors were unable to fully assess whether TF offenses in Germany are subject to effective, proportionate and dissuasive sanctions due to limited statistics and recent legislative changes. *Source: Excerpt from the provided IMF PDF chapter/section content.* ### 245. The recent criminalization of the financing of an individual terrorist and the financing of ### _cr1078 - 245. The recent criminalization of the financing of an individual terrorist and the financing of ### Criminalization of terrorist financing and case statistics (paragraphs 245–247) - The recent criminalization of the financing of an individual terrorist and the financing of terrorist acts (under Section 89a (2) (4) CC) means that there are no cases in relation to these offenses yet. (245) - Authorities were unable to provide clear and complete statistics on the amount of investigations, prosecutions and convictions for offenses related with the support of terrorist groups (under Section 129a (5) CC). (245) - Some cases where convictions were obtained for participating in terrorist groups (under Section 129a CC) involved TF conducts. (245) - The lack of clear and complete statistics regarding the implementation of the TF offenses means that the assessors were unable to fully assess their effective implementation. (246) - Technical deficiencies in the TF offense and its inconsistencies with the TF Convention may be limiting Germany’s capacity to prosecute and convict TF offenders effectively and may theoretically prevent Germany from providing certain forms of international cooperation where dual criminality is required (i.e., extradition with non-EU jurisdictions). (246) - The absence of criminal liability for legal persons and the lack of administrative fines effectively applied to legal persons do not seem to constitute a strong deterrent to the unlawful use of legal persons by terrorist financiers. (247) ### Recommendations and policy actions to comply with Special Recommendation II (paragraph 248) - Criminalize the financing of a terrorist act and of an individual terrorist consistent with Article 2 of the TF Convention. - Undertake actions (awareness raising or training) to increase the application of regulatory sanctions against legal persons. - Increase the minimum range of sanctions applicable to TF so that it is made a serious offense. - Maintain complete statistics on the amount of investigations, prosecutions, and convictions for TF offenses. ### Compliance assessment with Special Recommendation II (SR.II) — Rating LC (paragraphs following 248) - Rating: SR.II — LC - Factors underlying the rating: - The definition of “serious violent act endangering the state” is not fully consistent with SR II as it does not extend to all acts that constitute offenses within the scope of, and as defined in the treaties annexed to, the Terrorist Financing Convention and it does not cover serious bodily injuries. - The definition of the term “funds” in connection with the financing of a terrorist act or individual terrorist is not fully in line with the requirements of SR II, as it imposes a requirement for the funds to be of a certain minimum value (i.e. not merely insubstantial). - The minimum level of sanctions raises the possibility that the sanctions imposed may not be effective, proportionate, and dissuasive. - Effectiveness not established due to the lack of specific statistics. ### Confiscation, freezing and seizing of proceeds of crime (R.3) — Legal framework (paragraphs 249–252) - Title VII of the German CC: “Forfeiture and Confiscation.” (249) - Section 73: forfeiture of assets (mainly proceeds) — mandatory sanction. (249, 253) - Section 74: confiscation of assets (mainly instrumentalities) — discretionary measure. (249) - Both provisions apply to all offenses in the German CC, including all predicate offenses for ML, the ML offenses in Section 261 of the CC and terrorism financing offenses pursuant to Sections 89a and 129a (5) of the CC. They also apply where “supporting a terrorist organization” is committed with respect to a foreign terrorist organization within the scope of Section 129b of the CC. (250) - General rule: Sections 73 and 74 may be invoked only on the basis of a conviction for the underlying criminal offense. Section 76a allows for an independent confiscation order even when no specific person can be prosecuted or convicted (e.g., when the person cannot be found), subject to requirements and only after a complaint, request for prosecution or authorization. (251) - Provisional measures with respect to property that may become subject to confiscation are provided for in Section 111b to 111l of the CPC. (252) ### Confiscation of proceeds — scope and extended forfeiture (paragraphs 253–257, 264–265) - Section 73 provides mandatory forfeiture of proceeds from any predicate, ML or terrorism financing offense. (253) - Forfeiture can extend to all “benefits derived from” such proceeds, including indirect proceeds (objects obtained through alienation, replacements for destroyed/damaged items, or objects obtained on the basis of an acquired right). (254) - Forfeiture may be directed against a person on whose behalf the perpetrator acted, and may be directed against property owned by a third party if the third party furnished the property for the commission of the criminal act or with knowledge of the attendant circumstances. (255) - Section 73d provides for “extended forfeiture” where the court shall order forfeiture of objects of the perpetrator or inciter or accessory if circumstances justify the assumption that these objects were acquired as a result of unlawful acts, or for the purpose of committing them. This applies even if the perpetrator does not own or have a claim to the object only because he acquired the object as a result of an unlawful act or for the purpose of committing it. (256) - Pursuant to Section 261 (7) the extended forfeiture under Section 73d “shall be applied to any perpetrator acting to make a profit or as a member of a gang formed for the purpose of repeatedly committing such offenses.” (257) - Section 73(2) expands forfeiture to derived benefits, covering property derived directly or indirectly from proceeds of crime; including income, profits, or other benefits from the proceeds of crime. (264) - Terms in Section 73(2) correspond to Civil Code definitions: derived benefits (Section 73(2) first sentence of the CC) are the fruits and emoluments of a thing or right (Section 100 BGB); fruits include products, other yield, and proceeds (Section 99 BGB). Indirect proceeds are defined as replacements for an originally acquired object, irrespective of whether they became part of the perpetrator’s assets. Forfeiture is expanded to cover all proceeds gained by criminal offenses. (265) ### Confiscation of instrumentalities (paragraphs 258–260) - Section 74 allows for confiscation of any instrumentalities used or intended for use in the commission of any intentional criminal offense if owned by the perpetrator or accessory or are dangerous or may be used to commit another criminal offense. (258) - Confiscation of instrumentalities held or owned by third parties is generally possible only in very limited circumstances (e.g., when they are dangerous or may be used to commit another criminal offense). (259) - Section 74a allows confiscation of property owned by a third party even when not dangerous if the owner (1) has at least recklessly contributed to the property’s use in the criminal act or preparation or (2) acquired the objects in a reprehensible manner with knowledge of circumstances permitting their confiscation. (260) ### Equivalent value confiscation (paragraphs 261–263) - Provisions allow forfeiture/confiscation of property of corresponding value when forfeiture of specific property is not possible. (261) - Section 73a allows forfeiture of a sum of money equivalent to proceeds where (1) forfeiture of a specific object is impossible due to its nature or other reason or (2) the value of the object is less than the value of the object originally acquired. (262) - Section 74c allows confiscation of a sum of money equivalent in value to instrumentalities if the perpetrator or accessory owned the property at the time of commission but before issuance of the confiscation order uses or alienates it or otherwise frustrates confiscation; equivalent value confiscations may be ordered in addition to property confiscation in certain cases. The court may decide not to order confiscation if at the time of the order the value of the originally acquired proceeds is no longer part of the affected person’s assets or the objects acquired are only of slight value, whereby the court is allowed to estimate value. (263) ### Provisional measures to prevent dealing in property subject to confiscation (seizures) (paragraphs 266–274) - Section 111b of the CPC allows seizing of moveable and immoveable property based on reasonable grounds to suspect that conditions for forfeiture or confiscation have been met. (266) - Seizing measures may extend to property of equivalent value pursuant to Section 111b (2) if reasonable grounds exist for equivalent value forfeiture or confiscation. (267) - Conditions for forfeiture: an unlawful act and acquisition of something as a result thereof or for the purpose of committing it. Conditions for confiscation: an intentional crime and objects generated thereby or used/intended for use in its commission or preparation. (268) - Seizures may be directed against any object subject to forfeiture or confiscation, including equivalent value, except objects excluded by Section 97 (1) of the CPC: (1) written correspondence between the accused and persons who may refuse to testify under Section 52 or Section 53 subsection (1), numbers 1 to 3b; (2) notes made by those persons concerning confidential information entrusted to them by the accused or other circumstances covered by the right of refusal to testify; and (3) other objects covered by the right to refuse to testify, including findings of medical examinations. (269) - Restrictions on seizure in Section 97 (2) do not apply if facts substantiate suspicion that the person entitled to refuse to testify was involved in the offense, or as inciter or accessory, in obstruction of justice or handling stolen goods, or where the objects concerned have been obtained by means of a criminal offense or have been used or are intended for use in perpetrating a criminal offense, or where they emanate from a criminal offense. (270) - Article 111e CPC: seizing orders may only be issued by a court; in exigent circumstances the prosecutor may order seizing of any property and the investigator may order seizing of moveable property even without a court order. If ordered by the prosecutor, court approval must be obtained within one week. For moveable property, court approval is not required regardless of who ordered the measure; the affected person may appeal to the court at any time to have the measure removed. (271) - Seizures may be ordered at any instance of the proceedings, even where no public charges have been preferred, if reasonable grounds exist. (272) - Section 111b (3): seizing measures must be lifted by the court after six months if no strong grounds exist; the court may extend for another six months upon prosecutor application if investigations are very complicated or extensive or another important reason exists. Absent strong grounds, no seizing measure may be enforced beyond twelve months. (273) - Section 111c: implementation of seizing measures depends on property type (seal/mark for moveable property; registration in real estate cadastre for real estate; attachment for claims/property rights; registry entry for ships/ship constructions/aircrafts). Measures may be appealed pursuant to Section 111f (5). (274) ### Ex parte application for provisional measures (paragraph 275) - Section 33 CPC: as a general rule any person affected by a court decision has the right to be heard. Section 33 (4) provides that seizing measures may be taken ex parte if granting a hearing would endanger the purpose of the measure. (275) ### Identification and tracing of property subject to confiscation (paragraph 276–277) - Confiscation and forfeiture are incidental consequences of a criminal act; the full range of investigative techniques in the CPC is available to ascertain origin and ownership of property subject to confiscation or forfeiture, including: - requests for information by the public prosecutor's office to other competent authorities (e.g., to obtain account records through BaFin, section 161 CPC); - searches (Sections 102 and 103 CPC), usually on court order; - telephone interceptions (sections 100a et seq.), usually on court order; - questioning witnesses or accused persons (sections 58 et seq., 133 et seq. and 161 et seq.); - use of undercover agents (section 110a et seq.). (276) - For DNFBPs protected by professional privilege (lawyers, and notaries, auditors and tax advisors), the conditions restricting access to information (including the broad interpretation of “legal advice”) may substantially limit law enforcement’s ability to obtain information and to identify and trace property that is or may become subject to forfeiture, confiscation or is suspected of being proceeds of crime. (277) *Source: Excerpt from the IMF mutual evaluation chapter (paragraphs 245–277) contained in the provided PDF.* ### 278. In the situation of provisional measures which are ordered by the criminal prosecutor (e.g., ### _cr1078 - 278. In the situation of provisional measures which are ordered by the criminal prosecutor (e.g., ### Provisional measures, judicial review, and protections for third parties - Section 111e(2), Cl. 3 of the CPC: the person concerned has always the right to apply for judicial decision at any time in relation to provisional measures ordered by the criminal prosecutor (e.g., seizure of objects). - The public prosecution office shall inform the person aggrieved by enforcement of the order for seizure or attachment without delay, insofar as that person’s identity is known or becomes known during the course of proceedings. - Section 111f subsection: the person concerned may at any time apply for a judicial decision in respect of measures taken in the course of enforcing the seizure or attachment. - Against orders of the judge in preliminary proceedings a complaint can be brought (Section 304(1) of the CPC). - Owners not in possession: the right for a complaint also exists for an owner of property who is actually not in possession of it if that owner’s right to reclaim for return is endangered by the measure. - Attachment in rem (dinglicher Arrest): where provisional measures have the nature of an attachment in rem, Section 111 d states that sections 917 and 920 subsection (1) as well as sections 923, 928, 930 to 932, and 934 subsection (1) of the Civil Procedure Code shall apply mutatis mutandis. - Protection of bona fide third parties: - Sections 73e and 74e of the CC protect rights of bona fide third parties from forfeiture and confiscation measures; rights of third parties remain unaffected by the transfer of title to the state subsequent to confiscation. - Bona fide third parties may claim their rights with respect to confiscated property against the state. - For forfeiture pursuant to Section 73 of the CC, the court may never declare the rights of third parties with respect to the forfeited property extinct. - For property confiscated pursuant to Section 74 of the CC the court has to order the rights of third parties to be extinct if: - (a) the object to be confiscated is dangerous or may be used in the commission of another offense pursuant to Section 74(2); or - (b) the third party is not bona fide (the party has at least recklessly contributed to the fact that the property or the right thereto has been the object of the criminal act or its preparation or has acquired the objects in a reprehensible manner with knowledge of the circumstances which would have permitted their confiscation or destruction). - If the court extinguishes the rights of third parties for confiscated property that is dangerous or may be used in the commission of another offense, compensation pursuant to Section 74f of the CC and based on fair market value has to be paid. ### Power to void actions - Sections 134 and 138(1) of the Civil Procedure Code: authority to take steps to prevent or void actions, whether contractual or otherwise, where the persons involved knew or should have known that as a result of those actions the authorities would be prejudiced in their ability to recover property subject to forfeiture or confiscation. ### Statistics (R.32): Property Seized and Forfeited 2004-2007 — key figures - Number of supported proceedings: - 2004: 6,045 - 2005: 6,010 - 2006: 6,101 - 2007: 7,050 - Total (or average): 25,206 - Total (state and civil) claim derived from the crime (EUR): - 2004: € 1,268,199,663 - 2005: € 1,191,177,478 - 2006: € 1,066,424,021 - 2007: € 591,737,295 - Total (or average): €4,117,538,457 - (USD) $ 5,730,378,271 - Average amount claimed per proceeding: - 2004: € 209,793 - 2005: € 198,199 - 2006: € 174,795 - 2007: € 83,934 - Total (or average): € 163,355 - (USD) $ 227,341 - Forfeited assets derived from the crime (73ff PC): - 2004: N/A - 2005: € 255,455,658 - 2006: € 284,351,307 - 2007: € 200,145,006 - Total (or average): € 739,951,971 - (USD) $ 1,029,791,158 - Average amount forfeited: - 2004: N/A - 2005: € 42,505 - 2006: € 46,607 - 2007: € 28,389 - Total (or average): € 29,356 - (USD) $ 40,855 - Confiscated instruments of crime (74ff PC): - 2004: N/A - 2005: € 63,467,338 - 2006: € 15,347,298 - 2007: € 16.869.508 - Total (or average): € 95,684,144 - (USD) $ 133,163,623 - Other: - 2004: N/A - 2005: € 359,159 - 2006: € 871.913 - 2007: € 1,768,055 - Total (or average): € 2,999,127 - (USD) $ 4,173,885 - Total assets forfeited or confiscated (EUR): - 2004: € 305,963,158 - 2005: € 319,282,155 - 2006: € 300,570,519 - 2007: € 218,782,569 - Total (or average): € 1,144,598,401 - (USD) $ 1,592,937,595 - USD totals by year: - 2004: USD $ 425,808,927 - 2005: $ 444,344,975 - 2006: $ 418,303,991 - 2007: $ 304,479,701 - Total (or average): $ 1,592,937,595 - Average amount forfeited or confiscated per proceeding (EUR): - 2004: € 50,614 - 2005: € 53,125 - 2006: € 49,266 - 2007: € 31,033 - Total (or average): € 45,410 - (USD) $ 63,197 - USD average amount forfeited or confiscated per proceeding: - 2004: USD $ 70,440 - 2005: $ 73,934 - 2006: $ 68,563 - 2007: $ 43,189 - Total (or average): $ 63,197 - Total assets forfeited or confiscated as percentage of total claim: - 2004: 24.1% - 2005: 26.8% - 2006: 28.2% - 2007: 37.0% - Total (or average): 27.8% ### Assets forfeited or confiscated by offense (selected entries) - Offenses under the Pharmaceutical Products Act (Arzneimittelgesetz): - 2004: €803,526 - 2005: €1,567,886 - 2006: €4,485,342 - 2007: €1,561,923 - Fraud: - 2004: €83,718,721 - 2005: €94,069,333 - 2006: €90,905,548 - 2007: €42,407,770 - Offenses under the Narcotics Act (Betäubungsmittelgesetz): - 2004: €24,960,526 - 2005: €24,502,310 - 2006: €17,965,918 - 2007: €26,605,233 - Theft: - 2004: €14,157,306 - 2005: €22,352,451 - 2006: €21,314,250 - 2007: €10,623,526 - Money laundering: - 2004: €32,948,160 - 2005: €65,453,313 - 2006: €23,710,160 - 2007: €15,074,378 - Receiving stolen goods: - 2004: €8,473,818 - 2005: €7,649,729 - 2006: €4,807,081 - 2007: €13,123,400 - Breach of fiduciary duty: - 2004: €32,055,691 - 2005: €23,003,287 - 2006: €66,641,341 - 2007: €30,528,553 - Misappropriation: - 2004: €2,790,641 - 2005: €6,951,645 - 2006: €5,088,449 - 2007: €6,347,346 - Unlawful gambling: - 2004: €5,648,747 - 2005: €2,785,632 - 2006: €2,323,197 - 2007: €4,167,775 - Other (aggregate): - 2004: €18,139,872 - 2005: €6,564,049 - 2006: €5,183,677 - 2007: €2,157,854 - TOTAL (EUR): - 2004: €305,963,158 - 2005: €319,282,155 - 2006: €300,570,519 - 2007: €218,782,569 - TOTAL (USD): - 2004: $425,808,927 - 2005: $444,344,975 - 2006: $418,303,991 - 2007: $304,479,701 ### Comparative information (selected) - IMF staff preliminary analysis (15 countries assessed under FATF 2004 Methodology) suggests: - Germany is more effective at obtaining orders to get assets confiscated than at actually confiscating those assets. - Germany has obtained forfeiture and confiscation orders relating to more than $5 billion over the last four years—more than any other country in the comparative group. - Normalized for population or GDP, Germany is the most effective country in the comparative group at obtaining such orders. - Germany does not actually forfeit or confiscate as many assets as the average of countries in the comparative group. - The amount forfeited and confiscated measures favorably when compared to the size of Germany’s population, but is below average when compared to the size of Germany’s GDP. - Statistical comparisons (selected indicators): - Assets frozen, restrained or seized — Germany (2004-2007): - Total latest 4 years: $246 million - Annual value: $104 million - Annual value per million of population: $1.46 - Annual value as % of GDP: 0.0060% - Assets ordered forfeited (or confiscated) — Germany (2004-2007): - Total: $177 million - Annual Value: $70 million - Annual value per million of population: $1.11 - Annual value as % of GDP: 0.0044% - Annual value compared to annual value assets frozen, restrained or seized: 67% - Assets forfeited or confiscated — Germany (2004-2007): - Total: $2,902 million - Annual Value: $733 million - Annual value per million of population: $2.94 - Annual value as % of GDP: 0.0270% - Annual value compared to annual value assets frozen, restrained or seized: 702% - Annual value compared to annual value assets ordered forfeited or confiscated: 1045% ### Additional elements: confiscation scope, civil forfeiture, and burden of proof - Sections 73d, 74a and 261 of the CC extend to terrorist organizations and also apply to “normal” criminal organizations; in principle all “criminal” profits of these organizations, assets belonging to these organizations, and assets supporting them may be forfeited or confiscated even if individual acts cannot be ascertained. - General rule: German law does not provide for forfeiture or confiscation of property without a conviction of any person (civil forfeiture), nor for forfeiture or confiscation that requires an offender to demonstrate the lawful origin of the property. - Exception: where for factual reasons no specific person can be prosecuted or convicted (e.g., when the person cannot be found). Such orders may not be issued in the absence of a complaint, request for prosecution, or authorization. ### Assessment of effectiveness — key findings - Formal measures: Germany has necessary measures, similar to Vienna and Palermo Conventions, to confiscate property laundered, proceeds from ML or predicate offenses, instrumentalities used in or intended for use in these offenses, or property of corresponding value, without prejudicing bona fide third parties. - Scope: measures are not confined to ML or predicate offenses; they permit forfeiture and confiscation for proceeds from TF and property used or intended for FT. - Application in practice: Germany has applied forfeiture and confiscation provisions in numerous cases across a wide range of offenses, including ML offenses; however, actual confiscation and forfeiture could be higher relative to orders obtained. - Data gaps: statistics do not allow assessors to distinguish: - how many ML cases apply these provisions each year; - how much value corresponds to forfeitures versus confiscations in ML cases; - what types of assets are being forfeited and confiscated in ML cases; - figures on forfeiture and confiscation in TF cases were not provided. - Provisional measures: procedural law permits seizure of movable and immovable property to prevent dealing, transfer or disposal of property subject to forfeiture or confiscation; Germany did not provide statistics on application of provisional measures. - Investigative techniques: German law permits the full range of authorized investigative techniques to identify and trace property; however: - DNFBPs protected by professional privilege (lawyers, and notaries, auditors and tax advisers) and a very broad interpretation of “legal advice” may substantially limit law enforcement access to information to identify and trace some property. - Practice notes: - Authorities indicate public prosecutor’s offices use provisional measures in proceedings where assets can be identified, frozen, seized and confiscated (Vermögensabschöpfung). - Measures are generally taken early in investigations to prevent illicit removal of assets. - Some prosecutors indicated seizures are typically used to support evidence in criminal investigation rather than primarily to prevent dealing, transfer or disposal of property subject to forfeiture or confiscation. ### Recommendations and comments (to comply fully with FATF Recommendation 3) - Enable law enforcement authorities to obtain access to information about ownership of property held by DNFBPs who claim that information is protected by professional secrecy rules. - Improve performance for actually confiscating or forfeiting assets once courts order those assets be confiscated or forfeited. - Establish a mechanism to collect and keep statistics on provisional measures applied. ### Compliance summary for Recommendation 3 - Rating: LC - Factors underlying rating: - Professional secrecy is interpreted broadly by the liberal professions, and there are strict conditions for obtaining or compelling information subject to it, which hinder the possibility for law enforcement authorities to locate and trace property. - Assets actually forfeited or confiscated are low compared to the total value of assets subjected to orders for forfeiture or confiscation. *Source: IMF staff report content (excerpts covering Sections 278–293 and accompanying statistical tables).* ### 294. Germany freezes funds and assets used for TF on the basis of EC-regulations and ### Germany freezes funds and assets used for TF on the basis of EC-regulations and complementary domestic legislation ### Legal framework and scope - UN Security Council Resolution 1267 (1999), 1390 (2002), and 1455 (2003) are implemented by Council Regulation No. 881/2002 of May 27, 2002. - The most important part of S/RES 1373/2001 is implemented by Council Regulation No. 2580/2001 of December 27, 2001. - The Council Regulations are directly applicable law in Germany; funds and assets are frozen directly and immediately by the Council Regulations on the day the regulation or amendments to it enter into force. - Member States may adopt only preliminary national measures in areas covered by EC Regulations; Germany enacted: - Section 6a of the Banking Act. - Sections 7(1) and 2(2) of the Foreign Trade and Payments Act (FTPA). - Section 6a of the Banking Act provides authorities with financial sanctions and other administrative measures to freeze the “funds” of EU-internals held in German banks. - Sections 7(1) and 2(2) of the FTPA enable preliminary measures to restrict capital and payment transactions between notification to the Al-Qaeda and Taliban Sanctions Committee and implementation by EC legislation amendment. - EU Council Common Positions No. 2001/930/CFSP and No. 2001/931/CFSP require subsequent national implementing legislation; Germany has not issued implementing legislation for these Common Positions (beyond Section 6a of the Banking Act for EU-internals’ funds). ### Operational implementation and procedures - Freezes under EC Regulation 881/2002 cover all funds and economic resources belonging to, or owned or held by, designated natural or legal persons, groups or entities; the list contains both EU-externals and EU-internals. - EC Regulation 881/2002 is updated by the European Commission within three working days, if possible, of any change to the UN list. - Council Regulation No. 881/2002 has been amended 110 times since its entry into force. - For EC Regulation 2580/2001: financial institutions and others must respect freezing without delay and without prior notice; the Regulation is directly applicable in Germany. - Section 6a of the Banking Act (entered into force in November 2003) applies where “known facts indicate that funds entrusted to” a financial institution or that “a financial transaction if carried out would serve” the purpose of financing a terrorist organization; BaFin may freeze “funds” and prohibit further transactions. - Section 6a was amended by the “Act on the Prosecution of the Preparation of Serious Violent Acts Endangering the State” (Federal Law Gazette, Part 1, page 2437 et seq.), adding coverage for “the preparation of a serious act of violence endangering the State in accordance with section 89a (1), (2) number 4 of the CC or financing of a terrorist association in accordance with 129a, also in conjunction with Section 129b, of the CC.” - The amendment covers the conducts of collecting, receiving, or providing of not inconsiderable assets for the perpetration of such acts. ### Gaps, limitations, and national measures - Council Regulation 2580/2001 does not apply to EU-internals; Germany uses Section 6a of the Banking Act to address this gap, but: - Section 6a only refers to “funds” and applies only to credit institutions, financial services institutions and investment companies. - Other persons and entities (e.g., insurance companies, DNFBPs) are not subject to directly applicable requirements under Section 6a for freezing assets of EU-internals. - Consequently, freezing of assets other than funds for EU-internals is not clearly covered by the Banking Act. - Germany can take preliminary national measures under the FTPA while EU amendments are pending; FTPA-based freezing orders are published in the Federal Gazette (Bundesanzeiger). - Court-based mechanisms for seizure and confiscation exist, but it is unclear whether Germany could freeze at the request of other jurisdictions “without delay” via court mechanisms, given evidentiary requirements for prosecutors to obtain court orders. - The EC Regulations and EU Best Practices provide that freezes cover funds and economic resources that are directly or indirectly owned or controlled, and implicitly cover jointly owned assets; the EU Best Practice (para. 28) states jointly owned funds/economic resources are in practice covered in their entirety, with possible subsequent authorization to sever and unfreeze a non-designated person’s share. - German law is not fully in line with the standard regarding freezing of assets other than funds for EU-internals because the Banking Act only refers to “funds.” ### Statistics and case data - Germany has put forward approximately 25 names for EU- or UN-listing. - At the time of the on-site visit Germany had frozen: - €8,953.07 ($12,460) pursuant to Council Regulation (EC) No. 881/2002 (implements UNSCR 1267). - €203.93 ($284) pursuant to Council Regulation (EC) No. 2580/2001 (implements UNSCR 1373). - German authorities have maintained that no assets are frozen in Germany because the designated persons, groups and entities have no assets there. ### Communication, guidance, and compliance by the financial sector - EC Regulations 881/2002 and 2580/2001 are published in the Official Journal of the European Union. - Orders by the Ministry of Economics based on the FTPA are published in the Federal Gazette. - The Deutsche Bundesbank issues circulars, usually on the same day as Official Journal or Federal Gazette publication, to all financial institutions via email indicating relevant amendments; the circulars are available online. - Most financial institutions in Germany operate computer-based financial sanctions compliance programs that automatically update relevant lists. - The European Commission maintains an electronic consolidated list of persons and entities subject to financial sanctions; the consolidated list includes individuals, groups and entities subject to asset freezing in legislation based on the EC Treaty and covers persons beyond Council Regulations 2580/2001 and 881/2002. (It does not include targets of asset freezing decided by an EU Member State.) - There is no direct legal requirement for checking customer databases against those lists; however, financial institutions and DNFBPs are bound by EC Regulations and complementary German legislation, so checking and, in case of a hit, blocking funds or assets is seen as the only way to ensure compliance and to respond to Deutsche Bundesbank reporting requests. - Competent authorities provide online information and guidance on financial sanctions and authorization procedures; an information leaflet and guidance are available from the Federal Office of Economics and Export Control and the Bundesbank, and the EU Best Practices paper is referenced. - Guidance approach: - No general Germany-specific guidance beyond EU-level information has been issued due to the comparatively small number of frozen funds. - Authorities focus on case-by-case counseling via telephone hotlines maintained by the Central Bank and the Federal Office of Economics and Export Control. - The Federal Ministry of Economics and Technology answers individual queries and provides lectures at symposia and expert conferences. - Additional guidance to DNFBPs is addressed through circulars sent to industrial associations and umbrella organizations. - Freezing orders on the basis of the FTPA contain comprehensive guidance and detailed motivations and explanations, but no general guidance has been provided specifically for measures under the FTPA or the Banking Act. ### Coverage of controlled and jointly owned assets - EU Regulations define subject assets broadly to include funds, other financial assets, and economic resources—those belonging to, owned, or held by designated persons or entities however acquired; language covers assets directly or indirectly owned or controlled. - The EU Best Practices Paper reiterates that “the freeze covers all funds and economic resources belonging to or owned by designated persons and entities, and also those held or controlled” and states jointly owned funds/economic resources are in practice covered in their entirety, subject to later authorization to sever and unfreeze a non-designated person’s share. - German authorities are prepared to follow the EU Best Practices Paper, but the domestic Banking Act’s limitation to “funds” for EU-internals means German law is not fully aligned with the international standard on freezing assets other than funds for EU-internals. *Source: _cr1078 - 294. Germany freezes funds and assets used for TF on the basis of EC-regulations and complementary domestic legislation* ### 328. Relevant European regulations do not provide for a national autonomous decision regarding ### _cr1078 - 328. Relevant European regulations do not provide for a national autonomous decision regarding ### EU and national scope of freezing, delisting and legal remedies - Relevant European regulations do not provide for a national autonomous decision regarding de-listing and unfreezing as a whole; any freezing (whether pursuant to EC Regulation 881/2002 or 2580/2001) remains in effect until otherwise decided by the EU. - Common Position 2001/931/CFSP implements S/RES 1373(2001) and provides for a regular (at least bi-annual) review of the sanctions list which it has established. - Listed individuals and entities are informed about the listing, its reasons and legal consequences, and are granted due process rights, including the possibility to present material for de-listing. - If the EU maintains the person or entity on its list, the latter can lodge an appeal before the European Court of First Instance to contest the listing decision. - Requests of the German Federal Government for de-listing have to be directed through the Ministry of Foreign Affairs and its representative in the relevant UN or EU body to the UN Sanctions Committee or the European Commission. - Germany has requested de-listings on its own based on conclusions from its national threat assessment. Any person may apply for delisting as well. ### Channels for delisting and judicial challenges - Requests for de-listing from the UN list are directed through the German Ministry of Foreign Affairs and its representative in the relevant UN or EU body to the UN Sanctions Committee or the European Commission. - Delisting from the EC regulations may only be pursued before the EU courts. - In case of refusal of a request of delisting, the applicant can decide to have the matter presented to a national German court or to the European Court of First Instance and in second instance to the European Court of Justice. - If the challenge is to the legality of a designation under the EC Regulations, the European Court of First Instance can hear the complaint if made within two months after the designation. - Designations pursuant to the FTPA or the Banking Act may be challenged under the German General Administrative Procedures Act before German courts. - Challenges under the FTPA are filed directly with the competent court. - Challenges under the Banking Act are first filed with the BaFin, and then the court if the BaFin does not agree to the challenge. - No claims have been raised against provisional orders pursuant to the FTPA or the Banking Act. ### Unfreezing procedures for persons inadvertently affected (c. III.8) - Due to freezing by law through directly applicable EC Council Regulations, no funds of persons not designated but bearing identical/similar names are frozen in a legal sense. - Financial institutions may block funds pending identity verification. In such cases: - The person concerned and the bank may address the Central Bank or Ministry of Economics with a request to review the case. - Financial institutions are requested to use all available information to verify whether a customer is a designated person. - If doubts remain, financial institutions may address the competent authority (Bundesbank for funds and Federal Office for Economics and Export Control for economic resources). - The competent authority may consult other EU members, the EU Council, or the UN Sanctions Committee and, if the claim is justified, inform the bank and ask to unblock the funds. - Authorities confirmed that no requests for reviewing such type of cases have been received in the past four years. - Similar procedures exist for funds frozen under the Banking Act or the FTPA. - The applicant can decide to sue the bank for blocking the funds before a national German court; authorities confirmed this has never occurred. - If the challenge is to the legality of a designation under the regulations, the process follows the same judicial routes described above. ### Access to frozen funds for expenses and exemptions (c. III.9 and c. III.15) - UNSCR 1267, as amended by UNSCR 1452, is implemented in the EU through a new Article 2a in EC Regulation 881/2002—directly applicable in Germany. - This provision authorizes access to funds that are frozen for basic expenses, certain fees, or for extraordinary expenses. - The Central Bank and the Federal Office for Economics and Export Control are the designated competent authority to receive requests for exemptions. - Any request received is notified to the Al-Qaida or Taliban Sanctions Committee which, within, 48 hours may object to the exemption. - The competent authority must promptly notify the requester and any other directly concerned person, body or entity in writing whether the request has been granted or not. - Before the request is granted, the competent authority has to inform other member states as well. - Article 5 and 6 of EC Regulation 2580/2001 provide analogous procedures for designations emanating from UNSCR 1373: - Article 5: competent authority may grant specific authorization to unfreeze funds for essential human needs under appropriate conditions. - Article 6: broader power to grant specific authorizations to protect community interests after consultations with other member states, the Council and the Commission of the EU. - Authorities confirmed that no cases have been raised in connection to measures adopted pursuant to the FTPA or the Banking Act. - Articles 5 and 6 of Council Regulation (EC) No. 2580/2001 provide for exemptions comparable to those in Council Regulation (EC) No. 881/2002 as amended; procedure comparable but no Sanctions Committee notification is foreseen—prior notification of other member states is mandatory in some cases. ### Review of freezing decisions and case law (c. III.10) - Freezing mechanisms in EC regulations can be challenged at the European Court of Justice by any natural or legal person directly and individually affected under Art. 230 of the Treaty establishing the European Community. - Appeals against freezing orders based on Council Regulations (EC) No. 2580/2001 and 881/2002 are pending in the European Court of Justice; appeals focus on human rights claims of designated parties. - Court of First Instance holdings: - In 2006 and 2007 judgments (T-228/02 OMPI, T-47/03 Sison, T-327/03 Stichting Al Aqsa) the Council had to provide a statement of reasons to designated parties to allow views to be made known and for court review—these judgments are final. - On April 3, 2008 in cases T-229/02 and T-253/04 (PKK and Kongra-Gel) the Court of First Instance upheld this requirement for Council decisions made in 2002 and 2004. - On September 3, 2008 the European Court of Justice annulled the 2002 EU Council regulation implementing UNSCR 1267 and successor resolutions insofar as it concerned the appellants (Kadi and Al Barakaat International Foundation cases, C-402/05 P and C-415/05 P), finding violations of the right of defense and the right to an effective legal remedy. - The Court left the EU regulation in place for up to three months to permit the European Commission to remedy the violations. - The EU is working on an amendment to Regulation 881/2002 to comply with this judgment. - No cases were raised in German courts against the provisional freezing mechanism established pursuant to the FTPA or the Banking Act. ### Freezing, seizure, confiscation challenges and third-party protections (c. III.11–III.12) - Professional secrecy is interpreted broadly by liberal professions and strict conditions for obtaining or compelling information subject to it hinder law enforcement authorities’ ability to locate and trace terrorist funds or assets. - This deficiency may impact freezing, seizing and confiscation of terrorist-related funds or other assets in contexts other than III.1–III.10. - Rights of bona fide third parties affected by freezing under EU lists, Ministry of Economics freezing orders, or German seizures are protected by relevant EC Regulation and general principles of German law. - Bona fide third parties may institute proceedings before the European Court of First Instance when freezes are imposed through Regulation 881/2002 or 2580/2001. - EC Regulation 881/2002 Article 6 protects good faith actions of freezing entities except when a freeze is due to negligence. - Access to German courts exists to challenge freezes that adversely affect a person or entity. - If the freeze is pursuant to the FTPA or the Banking Act, bona fide third parties can challenge under general principles of German administrative law. - Sections 73 and 74 of the CC provide protection to bona fide third parties: rights of third parties are not affected by a confiscation measure. ### Enforcement, reporting, monitoring and sanctions (c. III.13) - Article 10 of Council Regulation (EC) No. 881/2002 and Article 12 of Council Regulation (EC) No. 2580/2001 oblige member states to lay down rules on sanctions for infringements; sanctions must be effective, proportionate and dissuasive. - Penalties under national law: - Violation, circumvention, or attempted violation or circumvention of Council Regulations 2580/2001 and 881/2002: term of imprisonment of up to five years (Section 34(4) of the FTPA). - Negligent violations: imprisonment of up to three years or fines (Section 34(7) of the FTPA). - Deutsche Bundesbank reporting requirements: - Requests financial institutions by circular letter to report any frozen funds pursuant to the relevant Council Regulations (and national freezing-orders) upon entry into force and thereafter from time to time on all amounts frozen; “Nil” reporting is required. - Financial institutions must report immediately any change to the frozen amounts (e.g., addition of interest) to the Central Bank. - Communication and notification requirements established by the Council Regulations to competent authorities aim to guarantee compliance regarding frozen accounts and amounts; failure to comply with reporting obligations is an administrative offense. - Supervision and inspections: - Compliance with financial restrictions is part of the Central Bank’s supervisory program for implementation of the FTPA. - Central Bank has the right to demand information required to monitor compliance and may conduct random inspections (FTPA, Section 44); staff may enter business premises to carry out inspections. - During on-site inspections, the Central Bank examines procedures for vetting customers against sanctions lists (frequency, coverage, updates). Compliance with financial sanction regulations is not covered by annual audit reports of financial institutions. - Audit service of the Federal Customs Administration examines compliance with prohibition of making funds and economic resources available to designated persons/entities under Council Regulations 2580/2001 or 881/2002. - Federal Customs Administration supervises compliance in the context of controls on the transnational movement of goods, conducting random checks during import/export clearance, partly based on IT-supported risk analysis systems. - For monitoring transnational cash transactions the Federal Customs Administration may temporarily seize or take into customs custody cash or equal means of payment according to Section 12a of the CCA if there are grounds to believe the cash is transferred for financing a terrorist organization—principally suspected if in possession/property of designated persons, entities or organizations. - There are no other appropriate measures to effectively monitor compliance with SR.III obligations by other persons (i.e., lawyers, notaries, etc.). While general provisions exist for monitoring compliance with professional obligations, there are no specific measures designed to monitor compliance with SR.III obligations. ### Statistics (R.32) — Cumulative funds frozen pursuant to Council Regulation (EC) No. 881/2002 - As of 12.30.2005 - Frozen funds total: € 9,575.74 $ 13,326.56 - Funds of 11 persons - As of 12.30.2006 - Frozen funds total: € 11,012.22 $ 15,325.71 - Funds of 15 persons - As of 12.31.2007 - Frozen funds total: € 11,681.92 $ 16,257.73 - Funds of 17 persons - Stand 12.31.2008 - Frozen funds total: € 8,953.07 $ 12,459.99 - Funds of 17 persons ### Statistics (R.32) — Cumulative funds frozen pursuant to Council Regulation (EC) No. 2580/2001 - As of 12.30.2005 - Frozen funds total: € 203.87 $ 283.73 - Funds of 1 person - As of 12.30.2006 - Frozen funds total: € 203.89 $ 283.75 - Funds of 1 person - As of 12.31.2007 - Frozen funds total: € 203.91 $ 283.78 - Funds of 1 person - Stand 12.31.2008 - Frozen funds total: € 203.93 $ 283.81 - Funds of 1 person ### Implementation of Best Practices and additional elements (SR III) - Germany has implemented all measures set out in the Best Practices Paper for SR.III. - Effective regimes, competent authorities and courts are established at EU and national level. - Communication and cooperation with foreign governments and international institutions is realized on EU-level. - Communication with the private sector is realized by the EU (e.g., database with designated persons and entities, EU Best Practices) and by national authorities (e.g., websites, telephone hotlines, case-by-case counseling, information leaflets, circulars). ### Recommendations and Compliance with Special Recommendation III (2.4.2–2.4.3) - Recommended actions for full compliance with Special Recommendation III: - Enact national legislation to implement fully Council Common Positions, No. 2001/930/CFSP and No. 2001/931/CFSP on the fight against terrorism, which are also applicable to EU-residents. - Enact legislation to make S/RES 1373 applicable to any person (including persons other than credit institutions, financial services institutions and investment companies) for the freezing of assets concerning EU-internals. - Set up procedures within Germany that will ensure in all cases the freezing without delay of assets other than funds (such as immovable goods, companies and businesses and vehicles); for the case of EU-internals where the Banking Act applies. - Set up appropriate measures to monitor effectively compliance with the obligations under SRIII by persons and entities other than financial institutions and “companies”. - Compliance rating: SR.III — PC - Factors underlying rating: - Except for credit institutions, financial services institutions and investment companies, no other person is subject to directly applicable requirements for the freezing of assets for EU-internals under S/RES/1373. - Lack of effective procedures to freeze assets other than funds for EU-internals where the Banking Act applies. - Professional secrecy is interpreted broadly by liberal professions, with strict conditions for obtaining/compelling information, hindering law enforcement’s ability to locate and trace terrorist funds or other assets. - No appropriate measures to monitor effectively compliance with obligations under SRIII by persons and entities other than financial institutions and “companies”. *Source: _cr1078 - 328. Relevant European regulations do not provide for a national autonomous decision regarding* ### 362. The AML Act established the FIU in the BKA on August 25, 2002. The legislation reflects a ### The AML Act established the FIU in the BKA on August 25, 2002. The legislation reflects a ### Establishment and mandate of the FIU - The AML Act established the FIU in the BKA on August 25, 2002, reflecting a policy decision to establish the German FIU as a law enforcement model. - Section 10 of the Act mandates the FIU to: - support the federal and Länder police forces in the prevention and prosecution of ML and TF; - collect and analyze STRs transmitted pursuant to Sections 11 and 14 of the Act; - promptly inform federal and state level law enforcement authorities of information concerning them; - maintain statistics on STRs received and analyzed, follow up to those reports, cases investigated, numbers of prosecutions and convictions for ML or TF offenses and property and assets frozen, seized or confiscated; - publish an annual report; and - regularly inform reporting entities of typologies and methods of ML and TF. - Section 10 (1) further establishes the FIU “as a central agency within the meaning of Section 2(1) of the Federal Criminal Police Act” and reiterates its role to “support the Federal and [Länder] police forces in the prevention and prosecution of money laundering and terrorism financing.” The FIU is also mandated to cooperate and exchange information with other FIUs. ### Receipt and processing of STRs (including role as national centre) - Reporting obligations: - Reporting entities must submit STRs to the competent authority in their jurisdiction (the local Police Criminal Office, the Landeskriminalamt) and at the same time provide a copy to the FIU (Sections 11(1) and 14(1) and (2)). - BaFin guidance (paragraph 31 of the BaFin guidance of 30 March 1998) previously required reporting entities to send a copy to BaFin for supervisory purposes; this guidance was abrogated by BaFin following enactment of the AML Law. - Primary recipients and database entry: - In 14 Länder, STRs are received by the Land Criminal Police Office and specifically the “Joint Finance Investigation Groups—Police/Customs” within the Land Criminal Police Office. - In two Länder (Hesse and Bavaria), STRs are received by designated public prosecutor offices. - Reporting entities must split STRs that involve transactions in several Länder and file each part with the relevant Land. - Under Section 11(2) of the BKA law, the Land Police unit that receives the STR is required to enter all data from the STR (including attachments) into an STR database (accessible to joint Police and Customs financial investigation groups in 16 Länder, Police stations with responsibilities relating to organized crime or terrorism, and the FIU). - When a new STR is entered, the database automatically checks for linkages to other STRs and police databases accessible to the entering LKA. - Land Police “clearing process”: - The Land police entity that receives the STR immediately commences an “investigation,” the first phase of which is the “clearing process.” - The “clearing process” includes cross checking against police databases and external information sources to assess whether the STR relates to an offense under Section 261 of the CC and can include additional investigative measures. - If a potential link to an offense is established, and with concurrence of the state public prosecutor, the Land Police “clearing office” forwards the case to the relevant investigative unit. Where links to ongoing investigations in other Länder are found, the entering clearing office must coordinate with investigators in the other Land or Länder. - FIU processing: - The FIU receives a copy of each STR, reviews it for completeness, and enters it into the FIU’s restricted database (which also contains FIU correspondence with foreign FIUs). - The FIU does not always receive all supplementary attachments that reporting entities may attach to the STR they send to the primary Land Police recipient. - The FIU automatically checks incoming STRs against other reports and foreign FIU correspondence and can check other BKA intelligence databases to which it has access. - When appropriate, the FIU may seek and obtain information from foreign FIUs and forward relevant information to the Land Police unit conducting the “clearing process,” observing any dissemination restrictions from foreign FIUs. - The FIU is the “national center” for receiving STRs in a narrow sense and thus meets that aspect of the requirements for an FIU in R.26. - Terrorist financing handling: - Any STRs that identify suspicion of TF, or that the FIU identifies as possibly relevant to TF, are immediately forwarded by the FIU to the Terrorist Financing Unit of the BKA. - Three members of the Terrorist Financing Unit of the Federal Criminal Police have direct access to the FIU database. ### Division of analytic responsibilities and practical effects - Division of processing: - Analysis aimed at confirming and elaborating suspicions of ML or TF and determining whether to disseminate for investigation and prosecution is primarily conducted by the State Criminal Police Office(s). - The FIU conducts checks against its own database and BKA databases, initiates exchange with foreign FIUs, and forwards relevant information to the Land Police entity that received the STR. - The FIU conducts full analysis to substantiate suspicion of ML in only a few special cases. - Rationale and benefits of dual approach: - The dual Länder and FIU approach respects the constitutional responsibility of the Länder for policing and facilitates prompt application of measures such as freezing suspicious assets or obtaining injunctions under the CPC. - Data retention differences: under the Data Protection Act and S.32 (2) 9(1) of the BKA Law, investigative files of Länder Police may be deleted when no residual suspicion remains, while FIU intelligence files can be retained for up to four years. About five percent of investigations result in no residual suspicion and deletion from the Länder (“common”) police database. ### Guidelines to financial institutions on reporting STRs - The FIU has no authority to mandate form and manner of reporting. - BaFin issued guidance in 1998 (Guidelines concerning measures to be taken by financial services institution to combat and prevent ML) on form and manner for reporting under Section 11 of the AML Law. - The FIU developed a “standard STR reporting form” published in the Annual Report of 2004 with instructions; use of the form is not mandatory. - Only about half of reporting entities use the FIU standard form. - There are no plans to make use of the standard format obligatory (an issue that may limit effectiveness of an electronic reporting initiative planned for 2010). - The absence of an obligatory standard reporting format makes data entry more time consuming, comparative analysis more difficult, and may increase the risk of incomplete or inaccurate information. ### Access to information on a timely basis - As part of the BKA, the FIU has direct access to law enforcement information and usually on-line access to governmental and non-governmental sources including persons registries, drivers’ license and motor vehicle registries. - Access to an automated account access system operated by the BaFin is indirect. - The FIU may access commercial or public databases, Interpol, Europol, BKA liaison officers abroad, and foreign FIUs via FIU.net and the Egmont secure web. - In practice, because the Land Police conduct case screening and analysis, the FIU generally focuses checks on databases and information sources containing foreign-sourced information to which the Land Police do not have access; relevant findings are communicated to the Land police unit. ### Additional information from reporting parties - The FIU has power, indirectly, to obtain additional information from reporting entities, but states there is no need to exercise this power because the Land Police unit carrying the investigation will request additional information via the public prosecutor’s office (per Section 161a of the CPC). - Authorities were unable to provide statistics on: - the number of cases per year in which the FIU takes the lead investigative role; - the number of times per year the FIU seeks additional information from reporting entities. ### Dissemination of information - Section 10 (1) 1 and 2 specify the FIU’s roles to collect and analyze STRs and to inform Federal and Länder law enforcement authorities of information concerning them and on facts of crimes ascertained. - STRs are submitted directly to the relevant Land Police with copies to the FIU; the Land Police conduct their own analysis and checks. - The FIU routinely checks incoming STRs against its database and BKA databases the Land Police may not access; information yielded is forwarded to the relevant Land Police unit. - Information obtained from foreign FIUs held by the German FIU may be shared with Länder investigative authorities, subject to caveats applied by the providing FIUs. - The FIU does not, as such, disseminate financial information reports on suspicions of ML to domestic investigative bodies because those agencies already have the same information and conduct their own analysis. - For TF-related STRs or ML STRs with a possible TF connection, the FIU forwards reports and any additional information to the terrorism financing section (ST45) of the State Security Division of the BKA. - The FIU has granted access to the FIU database to three designated officers of the BKA State Security Division for investigating potential TF cases. ### Operational independence, staffing, and resourcing - Operational independence: - The FIU carries out functions as provided by its mandate, is not subject to outside direction as to its own operational functions, and makes its own decisions about processing incoming STRs and disclosure to investigative bodies or prosecutors. - As a police unit, the FIU can sometimes, though infrequently, be called upon to participate in investigations; when involved in prosecutions it is subject to prosecutorial direction and the principle of mandatory prosecution. - Staffing and appointments: - The FIU’s database is accessible only to FIU staff (and three TF investigators). - The Head of the FIU is appointed for an indefinite period by competitive process from within the ranks of the BKA. - FIU staff are recruited by competition from members of the BKA or staff of the Ministry of the Interior; the Head can choose new staff though staffing decisions fall within the Federal Criminal Police Human Resources Administration. - Budget: - The FIU, as a unit of the BKA, does not have an independent budget; funding and services are provided by the BKA and budgets are set through request, consultation, and negotiation. ### Protection of information held by the FIU - Transmission and storage practices: - Approximately 99 percent of STRs are reported electronically by fax and transmitted to the FIU via commercial fax facilities. - Data are captured and stored in the FIU database; hard copy STRs are digitized and captured as electronic documents in the FIU database. - No information was provided on secure storage of hard copy incoming faxes. - Information sent from the FIU to the Länder Police Offices is transmitted via a separate and encrypted police communications network. *Source: Excerpt from IMF content unit _cr1078 - 362.* ### 389. The FIU has established an independent database of STRs and related “information of legal ### _cr1078 - 389. The FIU has established an independent database of STRs and related “information of legal ### Database architecture, access controls, and logging - The FIU has established an independent database of STRs and related “information of legal relevance as well as information exchanged or received from foreign FIUs.” - The database is held on a stand-alone server located in the IT department of the Federal Criminal Police. - Unique passwords are assigned for access and all systems are reported to be equipped with updateable access control mechanisms and means to differentiate access depending on a user’s authority and requirements. - Access to this database is controlled, and logged, and the FIU stated that the logs are regularly reviewed. - The Office of Data Protection reviewed the controls on the information positively in 2004. - Technical specification reviewed by assessors show: - On average one out of every ten accesses of the database (selected at random) is automatically logged. - The logged information is retained for 12 months. - Assessors recommended logging all access to detect unauthorized access or browsing; authorities indicated that by the end of 2009 all queries are expected to be logged automatically. ### Authorized users and external access - With two exceptions, only FIU employees have authorized access to the database; access is granted on a need to know basis. - The database administrator in the IT department has access to the system. - One outside operational entity has access: the Terrorism Financing unit (ST45) of the Division of State Security of the Federal Criminal Police. - Three specifically named staff members of ST45 were originally permitted access (recently reduced to two with the departure of one designated investigator). - ST45 staff are indoctrinated to the sensitivity of the information (including foreign sourced information) and are permitted access for terrorism financing investigation purposes only. - Use of any information provided by foreign FIUs that is identified by the designated terrorism financing investigators still requires the approval of the providing FIU. - FIU indicated that use of foreign-provided information remains subject to conditions imposed by the sending FIU and that the German FIU may impose its own restrictions on information transmitted by it to other FIUs. ### Physical security and premises - Assessors visited the FIU’s premises after normal business hours; FIU is part of the “Commercial and Financial Crime” subdivision housed in building (W-8). - Entry is governed by BKA security office regulations and access is controlled on a 24/7 basis; visitors are screened and must be escorted. - The FIU section is not closed off from other sections of the building; there do not appear to be special access controls to the FIU’s section beyond building entrance controls. - Persons with BKA passes could enter the building freely and, due to lack of physical barriers, presumably could enter the FIU section at will. - Individual offices in the FIU section were not locked; doors to the corridor were open, but assessors noted: - All computers and files had been completely locked. - No significant amounts of papers or reports were left on desks or tables. - Computer terminals were not left turned on. - There appeared to be locked cabinets in each of the offices. - Street level entrance is controlled by a security officer; facilities exist for checking hand luggage. - Authorities indicated a plan to move the FIU to more self-contained premises to facilitate special access controls. ### Staffing, recruitment, training, and security clearances - FIU positions are staffed from a pool of eligible employees (members of the Federal Criminal Police or staff of the Federal Ministry of the Interior). - Both organizations conduct intensive screening, including reliability and integrity checks, of all employees entering the organization and renew that screening at regular intervals. - Staff members requiring access to particularly sensitive information are subjected to a security clearance screening procedure before gaining access to classified material. - The FIU has 18 staff, not including the Head of the FIU: - Eleven are investigators. - Seven are administrative employees. - The Unit has access to external consultants on a contract basis for specialist knowledge; these consultants do not have access to operational information. - Positions (including Head of the FIU) are staffed through competitive selection from serving BKA officers and officers of the Ministry of the Interior; prospective police candidates must have completed a three-year university course and graduated with the rank of detective chief inspector. - Successful candidates undergo orientation training on arrival and are assessed for general knowledge and provided appropriate training. - A wide range of continuing training programs is available, including operational and strategic analysis, financial investigations, economic crime, asset confiscation. ### Publications, reporting channels, and international engagement - Section 10 (1) 5 of the AML Act mandates that the FIU “regularly inform the persons obliged to report on types and methods of money laundering.” - FIU outputs: - Reports about emerging ML trends and new typologies are transmitted to reporting entities, posted to a password protected secure area of the FIU website reserved for reporting entities, or both. - Many such reports are also published in the Annual Report accessible to reporting entities on the FIU website. - Comprehensive annual reports with a wide range of statistical information are posted on the FIU’s public website in German and English. - Special reports on new trends and typologies, periodic newsletters, and some sanitized reports/bulletins are posted to the public website. - FIU Newsletter: - Intended to inform reporting entities of current developments in suppressing ML. - Since launched in 2005, seven FIU Newsletters have been issued. - Access to password protected secure area is exclusive to ML officers of reporting entities; ML officers must show proof of appointment to obtain access; restricted content includes the STR form and instructions. - Membership and international exchange: - The German FIU has been an active member of Egmont since 2003. - Section 10 (2) of the AML Act requires cooperation with FIUs of other countries; in practice this is deemed to mean Egmont-member FIUs. - FIU frequently exchanges information with foreign FIUs and adheres to the Egmont Principles with the possible exception of the noted database access by designated TF investigators. - The German FIU is not required to conclude MOUs but may enter into them. - Section 10(4) of the AML Act: FIU may use data provided by foreign FIUs solely in line with conditions imposed by the sending FIU; German FIU may impose its own restrictions on use of information it transmits. - Volume of exchanges in 2008: - In 2008 the FIU engaged in 773 exchanges (677 enquiries from abroad and 96 German requests to foreign FIUs). - These exchanges involved the German FIU and 75 foreign FIUs. - Historical annual exchanges (BKA Annual Reports 2004 - 2007): - 2003: 482 - 2004: 606 - 2005: 667 - 2006: 737 - 2007: 744 - 2008: 773 - *in 2007 the total number consisted of 653 enquiries from abroad and 91 German requests to other FIUs - ** 2007 Annual report notes exchanges took place with 71 foreign FIUs - *** Top 20 exchange partners accounted for 581/744 exchanges or 78 percent of total ### Resources, operational capacity, and reporting processes - The FIU is a unit of the Federal Criminal Police and does not have a separate budget; resources (salaries, materials, travel, IT management) are provided by the larger organization. - Administrative support, accommodation, IT services, and security are supplied by the Federal Criminal Police. - Resources have increased substantially in the past 4–5 years. - Information processing and data entry consume a substantial portion of resources. - Mandatory standardized reporting and fully automated electronic reporting would ease resource pressures. - The FIU’s analytic function is mainly focused on strategic analysis rather than time-sensitive operational analysis. - A substantial increase in STRs, or expansion into tactical/operational analysis, would require additional resources. - Present allocation appears adequate for current level and scope of functions performed. ### Statistics collected and database limitations - FIU collects and analyzes a wide range of statistical information, much published in its annual report, including: - Numbers of STRs, by reporting entity type; - References to possible predicate offenses; - Results of police processing of STRs; - Origin and destination of asset transfers; - Origin of suspects in STRs; - National and international cooperation; - Analysis of follow-up responses by prosecutors’ offices. - The annual report contains extensive statistical tables and information about trends and typologies. - The FIU does not record or hold in its database information on the values involved in transactions reported in STRs. - It flags some “special cases” where transactions involve significant sums, e.g., in excess of €1 or €2 million ($1.4 or $2.8 million). ### Analysis of effectiveness (R.26) - Factors limiting effectiveness and role of the FIU: - With few exceptions, the FIU does not lead analysis of STRs for substantiation of suspicions; Länder Police units lead substantiation and investigations. - FIU primarily enters STRs into a database, checks incoming reports against that database, sometimes seeks information from foreign FIUs, and forwards relevant information to Länder Police conducting the “clearance process.” - Länder police and prosecutorial officials noted FIU contribution to the “clearance process” is not significant (though access to foreign FIU information can be helpful). - Reporting process inefficiencies: - FIU developed a “standard” reporting format but achieved only modest adoption by reporting entities, increasing risk of incomplete reporting and complicating analysis. - FIU is more effective at strategic analysis of trends, patterns and typologies, though this is hampered by the lack of transaction value data. - Extent of FIU use of authority to access governmental, commercial, or public external data sources is unclear; incoming STRs are checked against FIU and other police databases but access to other external sources appears less frequent. - Absence of secure automated transmission facilities for STR submissions complicates uniform data entry and analytical use. - Available statistics do not allow showing how many STRs are linked to convictions of ML or confiscation of proceeds. - Summary conclusion: - It was not established that the German FIU functions in complete compliance with the standard in R.26. - The FIU functions more as a support agency for Länder Police, which generally lead substantiation and investigations. - FIU focuses analytic work on patterns and trends and disseminates such information to reporting entities and investigative bodies. ### Recommendations and compliance (R.26) - Recommendations to comply fully with Recommendation 26: - Strengthen the capacity of the FIU to act as a national centre for receiving, analyzing, and disseminating to law enforcement and other appropriate agencies financial information about suspected ML and TF, more consistent with the standard enunciated in R.26, in particular, by having the FIU carry out more robust analysis of STRs directed towards disseminating information to Länder Police when the FIU concludes that there are grounds to suspect ML or TF. - Strengthen the FIU’s tactical analytic capacity through increased personnel and training. - Equip the FIU with the authority to provide direction to reporting entities as to the manner and form of reporting suspicious transactions to the FIU and implement a standardized, more automated reporting system for STRs. - Compliance assessment: - R.26 rating: LC - Summary of factors underlying rating: - FIU is only one of many centers that receives, analyzes, and disseminates STRs and other relevant information concerning suspected ML or TF activities. - FIU carries out limited case-specific analysis of STRs, and less than ten cases each year where that analysis is directed towards informing a decision about whether to disseminate information to domestic authorities for investigation on the basis that there are grounds to suspect ML or TF. - Overall effectiveness may be compromised by: - Guidance to reporting entities on form and manner of reporting is not sufficiently strong; information is received in a variety of formats and channels. - Data in STR attachments sent to LEAs are not always available to the FIU for entry into the FIU database and thus not always available for analysis. - No information in FIU database about value of transactions in STRs. - No ongoing national coordination or management of tactical analysis of STR information. - Inability to produce statistics on STRs analyzed or disseminated or linked to a prosecution or conviction of ML and confiscation of proceeds. *Source: Excerpt from IMF mutual evaluation report content unit _cr1078 - 389.* ### 415. An investigation into an ML conduct may be initiated by an STR, a criminal complaint (other ### _cr1078 - 415. An investigation into an ML conduct may be initiated by an STR, a criminal complaint (other ### Initiation of investigations and clearing process - An investigation into a money laundering (ML) conduct may be initiated by an STR, a criminal complaint (other than an STR), or in the context of an investigation regarding the predicate offense. (415) - STRs from obliged reporting entities are submitted to the relevant Land police entity and simultaneously to the FIU. Under the direction of the prosecutor of that jurisdiction, the police undertake a preliminary investigation, or “clearing process,” to determine whether there are sufficient indications of ML to warrant a full investigation. Based on that process, the prosecutor decides whether further investigation is to be undertaken and which investigative body will be tasked to carry out that investigation. The prosecutor directs the investigation and determines whether charges will be brought, and if so, what those charges will be. (416) ### State (Länder) and federal investigative structures - All Länder police agencies have dedicated units that undertake the “clearing” investigations. Most Länder also have financial investigation units that undertake, among other financial crime investigations, the investigation of ML offenses. These are Joint Financial Investigation Groups made up of police officers and customs investigation officers. Some states, among them Berlin, have developed specialized and sustained ML investigative groups. (417) - At the federal level, the BKA supports Länder police bodies by providing specialized services, investigative specialties, forensic services, and liaison with foreign law enforcement where investigations have an international dimension. (418) ### Terrorist financing (TF) investigation responsibilities and coordination - Allocation of responsibilities for investigating and prosecuting terrorism is complex: both federal and state level police bodies and prosecutorial units have roles; ministries of the Interior and domestic intelligence agencies can be involved. In purely domestic cases, state level police and intelligence bodies lead. If international dimensions exist, Länder bodies may seek BKA involvement, or the Federal Police may have lead responsibility if the federal responsibility test under s. 4(1) and 4(2) of the Federal Police Act is met. (419) - High degree of cooperation exists among federal and state bodies; coordination occurs at the Joint Counter-Terrorism Centre Task Force (GTAZ) in Berlin. GTAZ is the principal entity for coordinating and sharing information about terrorism and TF and houses approximately 220 specialists from police (including the Customs Criminological Office (ZKA)), intelligence services, the Public Prosecutor General at the Federal Court of Justice (GBA) and the Federal Office for Migration and Refugees (BAMF). At any time, representatives of as many as 40 German intelligence and investigative bodies may be present. (420) - At the federal level, ST 45 (a dedicated unit of the federal criminal police) is the specialized department for financial investigation of politically-motivated crime and the competent national authority for financial sanctions under Regulations EC 2580/2001 and EC 881/2002; it is involved in listing/delisting terrorist suspects and organizations and initiates asset freezes under the Banking Act, S.6a. (421) - The Federal Office for the Protection of the Constitution (BfV) and the Federal Intelligence Service (BND) play key roles in investigating TF; both are represented at GTAZ and their duties and powers are governed by specific Acts cited in the source. (422) ### Ability to postpone or waive arrest/seizure (c. 27.2) - Authority to postpone or waive arrest of suspected persons, or seizure of money or both, is not expressly found in a law, but Germany’s law enforcement and prosecutorial authorities implement these measures in practice. Decisions are subject to tactical considerations and may be postponed to aid investigations or avoid interfering with prosecution. (423) - The public prosecutor’s office may decide at its discretion when to issue or repeal a warrant of arrest. Ability to postpone arrest or seizure can be exercised in controlled deliveries or undercover operations. (424) - Assessors could not confirm effective use because authorities did not provide statistics on frequency of application. (425) ### Special investigative techniques (c. 27.3 & c. 27.4) - Permitted special investigative techniques include: - telephone taps (Sections 100a et seq. of the CPC); - use of undercover agents (Sections 110a et seq. of the CPC); - use of informants (regulated in the individual guidelines for conducting investigations issued by each of the Land Prosecution Offices); - use of controlled deliveries (regulated in the individual guidelines for conducting investigations issued by each of the Land Prosecution Offices). (426) - No statistics are kept on the use of special investigative techniques for combating ML or TF other than telephone interceptions. Authorities stated law enforcement generally uses all available investigative techniques. Telephone interception is permissible for ML (Section 100a (2) no. 1m of the CPC) and TF (Section 100a (2) nos. 1a and 1d of the CPC). Use of undercover investigators is permissible for TF pursuant to Section 110a (1), first sentence, no. 2 of the CPC, and for ML pursuant to Section 110a (1), sentence 1, nos. 3 and 4 of the CPC, for ML involving aggravating circumstances. (427) ### Data on telephone interceptions for ML investigations - The Federal Office of Justice collected data on investigations where telephone interceptions based on Section 100a of the CPC were applied and where ML has been the reason or at least one reason (Section 100a. (1), no. 2 of the CPC). The table reported: - Year 2005: 48 investigations - Year 2006: 40 investigations - Year 2007: 45 investigations - Year 2008*: 93 (note: 2008 data refers to the number of rulings for telephone interceptions rather than number of investigations; change due to new Section 100b (6) of the CPC specifying what data must be collected) - Total: 226 (*The data for 2008 does not refer to the number of investigations but to the number of rulings for telephone interceptions. As there can be more than one ruling in an investigation, the number has increased. The change in statistics is due to the new Section 100b (6) of the CPC that explicitly states what data has to be collected.) (428) ### Specialized investigation groups & multinational cooperation (c. 27.5) - Specialized investigation groups exist at state and federal levels, including: - money laundering “clearing offices” (state level); - Joint Financial Investigation Groups (state and federal); - Asset recovery offices (state and federal); - Specialized anti money laundering investigation units (several states). (429) - At the international/multinational level, the BKA is the designated body to cooperate with law enforcement agencies of other countries; cooperative action is normally on the basis of mutual legal assistance requests. The FIU (located in the BKA) is designated and required to cooperate with the financial intelligence units of other countries. (430) ### Review of ML & TF trends by law enforcement (c. 27.6) - Authorities did not provide information about formal system-wide reviews of ML and TF trends. The BKA and BfV central functions include producing situation reports covering current modus operandi and analyzing trends in TF; production of reports requires regular meetings and close agency coordination. (431) - Informal review occurs in several fora: joint financial investigation teams at Federal and Länder level allow exchange and analysis of experiences/intelligence on methods, trends, and techniques of ML. Round-table discussions and project managers’ meetings among federal and state agencies are held regularly to discuss emerging trends, new practices, effective techniques, and challenges. (432–433) - Intelligence relevant to TF is exchanged at GTAZ; GTAZ was established in December 2004 as a platform where all state and federal agencies involved in combating radical Islamic terrorism work together, exchange information in real time, prepare joint analyses and coordinate operational responses. (434) ### Ability to compel production and searches (c. 28.1) and witnesses’ statements (c. 28.2) - Law enforcement agencies have overt and covert criminal procedure measures to gather evidence and take actions such as seizure, freeze, forfeiture, and confiscation, including: - powers to compel production of objects (Section 95 CPC), including records, data, files, documents, and information referred to under criterion 28.1; - requests for information by the public prosecutor’s office to other competent authorities (e.g., to obtain account records through BaFin, Section 161 of the CPC); - searches of persons and property (Sections 102 and 103 of the CPC), usually on court order; - seizures or freezing of evidence (Sections 94 et seq. of the CPC), usually on court order; - asset recovery (Section 73 et seq. of the CC and Sections 111b et seq. of the CPC); - telephone interception (Sections 100a et seq. of the CPC), usually on court order; - questioning witnesses or accused persons (Sections 58 et seq., 133 et seq. and 161 et seq. of the CPC); - use of undercover agents (Section 110a et seq. of the CPC). (435) - Public prosecutors may, if there are actual indications of unconstitutional (particularly terrorist) undertakings, seek information from credit institutions, financial services institutions and finance companies about accounts, account holders and other beneficiaries, other parties involved in payment transactions, and cash movements and investments (particularly account balances and incoming and outgoing payments). This power may only be exercised in such specific cases and the information gathered may only be used in the context of such cases. (436) - Pursuant to Sections 58 et seq., and 161 et seq. of the CPC, competent authorities have powers to take witnesses’ statements for use in investigations and prosecutions of ML, TF, and other underlying predicate offenses; these powers are used routinely. (437) ### Adequacy of resources to law enforcement and AML/CFT agencies (c. 30.1) - Primary law enforcement agencies: public prosecutor’s offices and the police (Land Police and the BKA). Other law enforcement agencies include the Customs Administration and Tax Authorities with tax investigation units; these agencies have police investigative powers and usually work under the direction of Land or Federal public prosecutors. (438) - Federal Prosecution Office in Karlsruhe: supported by 229 employees in total, including 104 prosecutors (in 2008). The Federal Prosecution Office consists of 3 Divisions; one Division terrorism with 8 sub-divisions is relevant to TF prosecution. In 2009, the volume of the budget of the Federal Prosecution Office was nearly €21 million ($29 million). (439) - BKA: approximately 5,500 employees; responsible for coordinating national fight against crime and investigating certain serious crimes with foreign connection; represents Germany as National Central Bureau within Interpol. The volume of the budget of the BKA was approximately €362 million ($504 million). (440) - BKA organizational details relevant to ML/TF: - nine large Divisions; two relevant to ML and TF: SO–Organized and Serious Crime; ST–State Security. - SO division (Economic and Financial Crime) consists of 5 sub-divisions. Subdivision SO 3 (Economic and Financial Crime) consists of 6 sections. Section SO 32 (Money Laundering, Joint Financial Investigation Group, FIU) embeds the FIU as a special subsection. (441) - Länder level: 245 staff involved in the Joint Financial Investigation Groups that investigate ML or TF; no information on funding disclosed. No organization charts or information to determine Länder police operational independence or autonomy were provided. This is pertinent given Länder police carry out most analysis of STRs to determine grounds to suspect ML or TF. (442) - FIU support: work is supported by the 245 employees in total (as of October 2008) of law enforcement agencies of the Federal States who comprise the Joint Police and Customs Financial Investigation Groups to combat ML. Joint Groups of the 16 Länder Bureaus of Criminal Investigation act as “clearing offices” reviewing STRs and other indications of ML; the Joint Police/Customs Financial Investigation Group of the BKA assists via prescribed channels, particularly for overseas investigations. (443) - German Customs Office: 26,000 officers across the country at airports, ports, and land-border entry points, as well as specialized investigative units. There are 43 “Main” Customs Offices across Germany. There are 1,000 customs officers dedicated to Frankfurt (primarily at the international airport there). (444) - Customs Criminological Office (Cologne): responsible for customs criminal investigations nationwide. In 2008, a staff of 3,137 was employed across the Customs Investigation Service: 714 officers at the Customs Criminological Office and 2,423 officers at customs investigation offices. It has eight local offices with specialized national responsibilities (e.g., Hamburg office responsible for investigations at all ports; Essen responsible for the Dutch border; Frankfurt responsible for the airport and along the French border up to the middle of Germany). (445) - ML investigations are embedded in Organized Crime teams across the country. Customs Investigation officers work in Joint Financial Investigation Groups of the 16 states and in the BKA; they have customs officer powers plus full police investigative powers all over Germany per Sections 1 (3a) and 12b of the CAA 111a and 12a of the Customs Management Law. They usually operate under state public prosecutor direction, and in some instances under federal public prosecutors. (446) ### Integrity of competent authorities (c. 30.2) - Federal Prosecutors at the Federal Prosecutors Office in Karlsruhe are carefully screened for entrance, usually recruited from Public Prosecutors from the Länder who have been monitored and trained during a three-year period at the Federal Prosecutors Office. (447) - All staff of the Federal Prosecutors Office undergo an extensive security check and are subject to a general duty of confidentiality. (448) *Source: content unit _cr1078 - 415. from the supplied IMF PDF content.* ### 449. Police officers at both the federal level and the level of the Länder are carefully screened for ### _cr1078 - 449. Police officers at both the federal level and the level of the Länder are carefully screened for ### Vetting, confidentiality, and ethics training - Police officers at both the federal level and the level of the Länder are carefully screened for entrance into police training preparatory to becoming police officers. They are monitored and evaluated during the recruitment and induction period, and their training pays considerable attention to ethics and conduct. (para. 449) - All staff of the BKA undergoes extensive security check. All staff of the BKA, including those of the FIU, is also subject to a general duty of confidentiality by virtue of their public office. (para. 450) - Ethical fundamentals and integrity training are conveyed in the diploma course of studies and in further training organized on occasion. Regularly (at least once per year), staff of the BKA receive training on secrecy regulations. Teaching of basics of professional ethics will be intensified in the change-over from a diploma system to a Bachelor course of studies in late 2009. (para. 451) - For authorities at the Länder level, information provided relates to screening on recruitment and subsequent law enforcement training. (para. 452) ### FIU and BKA staffing and training for financial investigations - Officers recruited to the FIU are assessed on entry, required to undergo orientation and a basic curriculum in relation to financial crimes and FIU roles and responsibilities, and encouraged to participate in financial crimes training programs available at the BKA, at the Länder Police, and at the international level. (para. 455) - The BKA and Länder Police continuing education programs offer directly relevant courses to ML and TF investigations, including: - financial investigations; - introduction to economic crime; - advanced course in economic crime (financing offenses, corruption); - asset confiscation and recovery; - counterfeit currency; - narcotics; - politically-motivated crime; and - proliferation. (para. 456) - The 16 Länder Bureaus of Criminal Investigation offer subject-specific further education (e.g., economic crime level 1 to 3 and financial investigations in Bavaria). Police academies (e.g., Police Academy of Hesse) also offer financial investigations courses. Land level police officers can avail themselves of many BKA programs. (para. 457) - Customs agencies train investigation staff: only civil servants with several years' experience are taken on for Customs Criminological Office and customs investigation offices; they undergo special training for Customs Investigation Service roles. The Customs Criminological Office holds an annual training course specialized in financial investigations; courses on asset recovery are offered annually. Customs Investigation Service officers also take part in specialist training sessions held by the police. (para. 458) ### Continuing education for judges and prosecutors - Employees of the Federal and the Länder judicial and law enforcement agencies have access to a comprehensive range of further education and training opportunities. (para. 453) - Deutsche Richterakademie offers annual courses on international legal cooperation in criminal matters; judges and prosecutors may attend European Law Academy courses. German EJN contact points meet once a year; officials responsible for mutual legal assistance and extradition meet biannually. The German academy (Trier and Wustrau) is responsible for continuing education of public prosecutors. In 2009, one-week conferences on ML-related topics were scheduled covering: - current developments in the law relating to economic crime, - organized crime, and - current developments in “criminalistics” and criminal justice. (para. 454) - The German Judges’ Academy and individual Länder offer continuing education courses to judges. (para. 459) ### Statistics on preliminary investigations and charges for ML (2004–2008) - Preliminary investigations initiated: 2004: 4,770; 2005: 6,692; 2006: 9,929; 2007: 13,593; 2008: 10,478; Total: 45,462. (table) - Charges brought: 2004: 144; 2005: 129; 2006: 259; 2007: 708; 2008: 766; Total: 2,006. (table) ### Analysis of effectiveness in ML investigations and prosecutions - Strengths: excellence of prosecutors, judges, and Ministry of Justice lawyers; strong knowledge of law and dedication provides a solid foundation. (para. 460) - Key effectiveness issues identified: - Prosecutors face difficulties investigating and prosecuting ML offenses. (para. 461) - Under Sections 160 and 163 of the CPC, public prosecutor’s office performs the investigation and supervises police; police must enter into contract with the public prosecutor’s office from investigation commencement and follow its orders. (para. 462) - Long lag between receipt of an STR by Land police and consideration of clearing process results: the clearing process usually takes between 3 and 6 months; prosecutors typically see the STR again only after clearing concludes, delaying use of intrusive probatory measures and greater prosecutor involvement. (para. 463) - Relatively few investigations into complex ML structures where professional launderers act separately from predicate offense perpetrators; emphasis tends toward self-launderers and predicate crime prosecution. (para. 464) - BaFin automated account access system is used by LEAs for ML and TF investigations, but BaFin cannot provide statistics or estimates on number of such investigations. LEAs do not have to name the underlying offense when making an inquiry; sometimes ML and TF are named. (para. 465) - More intrusive special techniques are used mainly for serious offenses; ML categorized as a “less serious offense” leads to limited use of special investigative techniques for ML. (para. 466) - Jurisdictions with sustained specialized units at law enforcement and prosecutor levels show greater success in achieving indictments for ML; spreading specialization may be useful. (para. 467) - Authorities did not provide statistics on ML or TF investigations and prosecutions, nor on the use of special investigative techniques; absence of such statistics limited assessment of Recommendations 27 and 28. (para. 468) ### Recommendations (to comply with FATF Recommendations 27 and 28) - To comply fully with Recommendation 27, Germany should: - Make more use of special techniques when conducting investigations into ML. - Undertake actions (awareness raising or training) to improve the focus of ML investigations and the amount of investigations conducted into more complex organized crime ML structures. (para. 469) - To comply fully with Recommendation 28, Germany should: - Maintain complete statistics on the use of powers to conduct ML or TF investigations and prosecutions. (para. 470) ### Compliance summary (Recommendations 27 & 28) - R.27: LC - The offense of ML is not being properly investigated. The focus is placed on self launderers with few investigations conducted into more complex organized ML structures. - The lack of complete statistics has prevented assessors from fully evaluating the effectiveness of this recommendation. (para. 2.6.3) - R.28: LC - The lack of complete statistics has prevented assessors from fully evaluating the effectiveness of this recommendation. (para. 2.6.3) ### Cross-Border Declaration or Disclosure (SR.IX) — legal framework and implementation - Germany has two legal requirements to monitor cross-border physical transportation of currency and negotiable instruments: - a declaration obligation for movements between Germany and non-EU countries (EU Regulation 1889/2005 applies to external borders); and - a disclosure obligation for movements within the EU (Sections 1 and 12(a) of the CAA). (para. 471) - EU Regulation 1889/2005 requires written declaration for travelers crossing EU external frontiers when transporting €10,000 ($13,917) or more in “cash.” Article 2 defines cash to include currency and bearer negotiable instruments in specified forms; Article 12a of the CAA requires the declaration be made in writing on entering or leaving the EU territory. (para. 471) - For movements within the EU, the CAA requires monitoring of “the movement of cash or equivalent means of payment” in excess of €10,000; travelers are required to make an oral disclosure when asked by a Customs officer. The decisive issue is whether movement is between Germany and non-EU countries (EU Regulation applies) or within the EU (CAA applies). (para. 471) - Authorities state “equivalent means of payment” corresponds with the FATF definition of “bearer negotiable instruments,” and also includes “electronic money.” Documents not falling within that term may nevertheless be seized or restrained if specific suspicion of ML/TF arises, with specific legal references cited in the Service Regulation and the CC and CPC. (para. 472) ### Mechanisms and observed implementation at borders - Declaration requirement implementation measures: posters, signs, and brochures are deployed at land and sea borders and, to varying degrees, at airports, informing travelers of the requirement to declare. (para. 473) - Observed weaknesses at airports: - Implementation is variable and problematic for incoming passengers. (para. 474) - Arriving air passengers are not supplied with a declaration form prior to landing and are not otherwise advised prior to arrival of their obligation to make a declaration. (para. 474) - Notices are posted in some airports but may not be conspicuous amid other signage; declaration forms are available in the Customs area but were not readily visible to assessors. Travelers are not automatically required to present a declaration form with travel documents when passing through first entry points. (para. 474) - Airport processing lanes: - After collecting luggage, travelers can pass through an unstaffed “Green” lane or a “Red” lane where declarations are made. The “Green” lane is monitored and attended by customs officers to check for passengers who have made a written currency declaration. (para. 475) - Passengers who choose the “Red” lane are subject to inspection and can be asked by Customs officers whether they wish to make a disclosure regarding currency and negotiable instruments in excess of the reporting threshold. Following a disclosure, baggage is routinely inspected to verify amounts and types of currency and instruments and to collect information to assist in validation of profiles. (para. 475) *Source: Excerpt from the referenced IMF assessment chapter.* ### 476. Section 10 (1), of the CAA (on the right to stop persons and vehicles) permits persons and ### _cr1078 - 476. Section 10 (1), of the CAA (on the right to stop persons and vehicles) permits persons and ### Legal basis for stops and geographic scope - Section 10(1) of the CAA permits persons and vehicles to be stopped for cash controls to perform tasks identified in Section 1(3a) of the CAA in conjunction with Section 12a(3) of the CAA at areas near to the EU’s external borders (Section 14(1) of the CAA). - The same powers apply to areas near to internal EU borders (Section 12a(3) of the CAA). - Section 10(2) of the CAA extends the powers in Section 10(1) to the national territory (beyond border areas) where there is reason to believe means of payment subject to customs supervision are being carried by persons. - Controls targeting movements of currency and negotiable instruments take place at the border (pursuant to Section 12(a) of the CAA) or within 30 km of the border pursuant to Section 14 of the CAA. - Section 10(2) permits customs controls to be conducted throughout the entire country provided there is reason to believe the border has been or will be crossed and that goods and cash subject to Customs supervision are being transported. ### Stops, disclosures, and thresholds - Travelers can be stopped by Customs officers at ports of entry or elsewhere and asked to make a verbal disclosure as to the amount, source, beneficial ownership and intended purpose of any currency or instruments they carry in excess of the €10,000 ($13,917) threshold. - Requests for disclosures are made based on the experience of the Customs officer and are not required to be based on suspicion; checks are conducted at random. - For movements from or to non-EU member states, declarations of movements of currency or bearer negotiable instruments are required to be made in writing pursuant to Section 12(a) of the CAA. - For movements from or to EU member states, travelers may be requested to make oral disclosures pursuant to Section 1 and 12(a) of the CAA. - Authorities were unable to clarify which definition of beneficial owner is applied in disclosure situations. ### Restraint, seizure, and administrative fines - Section 12a(4) and (4a) of the CAA: if there is reason to assume cash or equivalent means of payment are being transported for the purpose of ML or TF, customs officers may restrain the cash or equivalent means of payment and take it into custody for up to three working days to clarify source and intended purpose. - A court order of the county court in whose jurisdiction the restraint took place may extend the measure up to a month. - Law enforcement authorities must be informed immediately of any restraint by Customs. - Undeclared cash discovered but not suspected of being related to ML or TF is subject to administrative fines up to €1 million ($1.4 million) (Section 31a). - Customs officials on site may decide, without any specified or defined suspicions, to conduct a search and restrain funds; subjective criteria (appearance, demeanor, officer experience) play a role. All funds, not simply amounts above the reporting threshold, can be restrained. ### Mail, courier, and cargo inspections - Section 10(4) of the CAA authorizes Customs employees to open and check consignments presented to them. - Cargo shipments are subject to a risk-based inspection system for air and sea cargo, including x-ray inspection. - Mail or courier shipments are less amenable to risk-based inspection; about 85–90 percent of such shipments are subject to x-ray and other forms of inspection. - Authorities could not confirm whether mail and courier shipments are subject to a legal requirement for a written declaration at the time packages are handed over to post or courier. - All postal consignments entering or sent from the European Community are subject to customs supervision (Section 1(3a) and 10(1) and (2) of the CAA); privacy of correspondence and posts is restricted in relation to Customs supervision (Section 10(5) of the CAA). - Postal consignments transported within the single market are generally not dealt with by German Customs, but Section 5(1) of the CAA requires Deutsche Post AG to present consignments to customs where there are sufficient factual indications of prohibited or restricted goods; such consignments may be opened and inspected. ### Maritime controls (cruise ships, ferries, private maritime traffic) - Distinction between passing vessels and anchoring vessels (Article 52 of the Convention on the Law of the Sea) as applied on the North Sea and Baltic Sea: - Passing vessels are questioned via radio about port of departure, port of destination, and cargo; data are verified with the coast guard. - If reasonable suspicion arises (risk related to route, country of origin, nationality of passengers, etc.), ships are directed to a port for further questioning and customs inspection as for anchoring vessels. - For private maritime traffic, controls pay particular attention to crew and passengers. - On Lake Constance (Germany, Austria, Switzerland), passengers are inspected on a random basis when disembarking; crew are not subject to controls and controls cannot be conducted on the lake itself because national territory is not defined. ### Data collection, retention, forms, and access - Pursuant to Section 12a(5) of the CAA, German customs authorities may collect, process and use all data gathered from declaration or disclosure requirements, including information on false declarations, failure to declare, or suspicion of ML or TF, and may share such information with law enforcement and other competent authorities. - Reports and other data are entered into the Customs database, INZOLL, which in practice is accessible to Customs officers, the Customs Criminal Investigation Service, some Länder LEAs, and the BKA, including the FIU. - The data are stored for one year using a special protected access category; paper declarations are destroyed after one year. If criminal investigation(s) take place, data can be retained for longer than one year. - The one-year retention period considerably diminishes the utility of the database for analytic purposes by the FIU and other agencies. - Standard forms used by customs officers include: - Form No. 033008 “Control Report” - Form No. 0402 “Cash Control with Follow-Up Measures” - Form No. 0405 “Cash Control without Follow-Up Measures” - Forms collect information on: identity of officer and persons controlled; customs office; place, time and reason for control; means of transport; route; results of questioning regarding transport of cash; how cash is split; place cash is found; currencies; total amounts; discrepancies between traveler responses; control measures (seizure, collateral, administrative fine proceedings); transmission of data to relevant authority. - Completed forms are forwarded to the relevant unit (e.g., main customs offices, cash declarations unit at Hanover main customs office responsible for entering data into INZOLL, BaFin, Customs Criminological Office, customs investigation office, or other revenue authority of the Länder) for data entry and further processing. - Information about declarations, seizures, fines and other measures, including ensuing criminal investigations, is entered into INZOLL and can be accessed by the FIU for STR analysis; Länder-level investigative authorities and Joint Financial Investigations Groups include Customs investigators with direct INZOLL access. ### Domestic cooperation and investigative structures - Cooperation and coordination among Länder, BKA, Customs and related authorities on ML and TF matters has been well established for more than 10 years through: - Shared investigations and inter-authority agreements between Customs investigation services and police bodies at federal and state levels. - Institutionalized Joint Investigation Groups jointly staffed by Länder criminal police, Customs Criminal Investigation Office personnel, and staff from other investigative bodies; these groups investigate cases arising from border and inland cash control initiatives. ### International cooperation and information exchange - Articles 6 and 7 of EC Regulation No. 1889/2005 allow exchange of information with other EU member states and, under conditions, with non-EU member states; transmission of information gathered through declaration or disclosure is permitted when there are indications sums of cash are related to illegal activities. - Germany applies EC Regulation 515/97 on mutual assistance in customs matters. - Section 11 of the CAA permits German customs to transmit personal data to foreign customs, police, judicial and administrative authorities and other foreign public authorities responsible for prevention or prosecution of crimes where such information is “necessary” for tasks under the CAA, prosecution of crimes, or averting grave danger to public safety; a federal court has determined “necessary” if the foreign authority needs it to complete its case. - Customs Cooperation to combat ML also relies on: - Government agreements between police administrations (encompassing Customs). - Europol Convention. - Instructions from public prosecutor’s offices in judicial legal assistance. - Administrative provisions instruct customs offices to inform the Customs Criminological Office immediately about information that should be forwarded to other member states; that office examines permissibility and initiates transfers under the legal framework. - The Customs Criminological Office must be informed of transactions of interest to third countries and examines conditions for exchange and initiates necessary steps. - In addition to personal data exchange, general findings (e.g., places of concealment, special characteristics identified in cash controls) are shared with the World Customs Organization (Regional Intelligence Liaison Office for Western Europe), foreign customs liaison officers accredited in Germany, and liaison officers of the Customs Criminological Office deployed abroad. *Source: Excerpt from the provided IMF document text.* ### 506. Noncompliance with the obligations to declare or to truthfully disclose cross-border cash ### Noncompliance with the obligations to declare or to truthfully disclose cross-border cash ### Legal framework, penalties, and competent authority - Noncompliance with obligations to declare or to truthfully disclose cross-border cash transactions constitute administrative offenses pursuant to Articles 31a and 31b of the CAA. - Penalty available: a fine of up to €1 million ($1.4 million). - Competent authority to apply the sanction: the main local customs office. - Internal administrative instructions set that fines depend on the amount of the undeclared means of payment and on factual circumstances; in particularly severe cases the administrative fine may be set at the amount or value of the cash that the traveler failed to declare or disclose or did not declare or disclose in full. ### Liability of authorized representative bodies and managers - In the field of administrative offenses, authorized representative bodies (Section 30 (1) of the Administrative Offenses Act) of enterprises, investment companies, tax consulting or accounting firms, or other companies active in the financial services sector can be held liable for administrative offenses committed by themselves or subordinates. - Authorized representative bodies include chairpersons of the supervisory board, management boards, owners, persons with power of attorney, senior management—liable either for their own actions (penalties under Sections 9(1) number 1, 10, 17 and 30(1) of the Administrative Offenses Act) or via attribution of subordinates’ actions under Section 130 of the Administrative Offenses Act (in conjunction with Sections 9 (1) number 1, 10, 17 and 30 (1)). - In Germany this is treated under breach of duties of supervision (directors’ and officers’ liability); management is responsible for activities of employees. ### Enforcement statistics and outcomes (selected figures) - Administrative fines are used extensively, though in aggregate they amounted to less than 10 percent of the undeclared funds. - 2007: 265 administrative fines levied by Customs for reporting violations involving €14.7 million ($20.5 million) in undeclared funds; fines of just over €1 million ($1.4 million). Of 265 cases, 42 were recorded as “intentional” and 23 as negligent. - 2006: fines of €1.275 million ($1.8 million) levied in 272 cases. - 2008: Customs reports indicate 663 cases of undeclared cash or equivalents (160 intentional and 513 negligent); 673 fines levied valued at €1.485 million ($2.1 million) against €17.3 million ($24.1 million) being transported. - Period 2005–2008: 197 ML investigations processed on the basis of funds detected during cash controls; only one resulted in a conviction for ML. - Investigations by the public prosecutor triggered by cash controls — yearly quantities: - 2005: 53 - 2006: 37 - 2007: 62 - 2008: 45 ### Seizure and confiscation authorities and practice - Section 12a(4) of the CAA: if reason to assume cash or equivalents are being transported for purposes of ML or TF, Customs officers may seize or restrain the cash and take it into custody; law enforcement authorities are notified immediately and investigations ensue. - 2007: 136 instances of cash or equivalents detected as possibly connected to ML (75 on entry and 61 on exit) and 11 cases with indications of financing of terrorism; in 86 of these 147 cases the cash was seized and taken into Customs custody. - Confiscation under Sections 73 and 74 of the CC can be applied if money or bearer negotiable instruments are proved to be proceeds obtained from predicate, ML, or terrorism financing offenses. - Funds and assets used for TF are frozen according to EC Regulation No. 881/2002 (May 27, 2002) and EC Regulation No.2580/2001 (December 27, 2001). Assessors were unable to establish whether Customs has access to lists made pursuant to UNSCR 1267/881 and UNSCR 1373/2580 and Article 6 of the Banking Law or how they are applied at the border. ### Scope of reporting and precious metals/stones - Germany applies a €10,000 ($13,917) threshold for reporting cross-border movement of currency and bearer negotiable instruments. - Within the EC, reporting covers precious metals and stones; at EC external frontiers this does not apply, but a customs declaration is required when these goods are imported even if value does not exceed the threshold. - Customs provided information to Canada, Israel and Mexico about significant discoveries of precious metals and stones. ### Data protection, computerization, and information access - Cash declarations must first be recorded centrally at the main customs office in Hanover before data are entered in INZOLL. - Data protection inspections are conducted by the local data protection authority; administrative instructions for the cash declaration unit are subject to review for data protection compliance. Each authority has its own local data protection officer. - Reports and related information are entered in INZOLL and are accessible, in practice, to Customs officers, some Länder, the BKA (including the FIU), and prosecutors. Customs officers in Joint Financial Investigation units and the FIU have direct access. - Shortcoming: significant portions of the data are only stored for one year, and paper declarations are destroyed after one year (unless subject to criminal investigation), limiting utility for identifying cash couriers or trends. ### Training, targeting, and operational measures - Extensive training is provided to Customs Officers covering monitoring of cross-border cash movements, powers of inspection, limits on powers, mandatory prosecution, application of force, procedures for controls, indicators of ML/TF, follow-up measures, seizure procedures, reporting channels, and cooperation with police and Customs Investigation Service. - Specialized annual training: Customs Criminal Office holds annual courses in financial investigations; asset recovery courses are offered annually. - Controls are normally risk-based, with some targeted checks. Practical cash information updates and multi-regional training are provided. - Technical aids: x-ray machines (mobile and stationary), particularly at airports and on roads; Germany has seven specially-trained cash detection dogs. - Evidence handling: suspicious currency and negotiable instruments are examined in a special room; photos are usually taken; seized items are deposited in an evidence room at every customs office. ### Resources and organizational capacity - Customs Administration staffed with 34,102 officers across the country at airports, ports and land border entry points, and in specialized investigative units. - 43 “Main” Customs Offices across Germany. - 1,000 customs officers dedicated to Frankfurt (primarily at the international airport). - Customs Criminological Office based in Cologne with staff of 714; 8 local offices with combined staff of 2,433; some local offices have nationwide specialized responsibilities (e.g., Hamburg for ports; Essen for Dutch border; Frankfurt for airport and much of the French border). - ML investigations embedded in Organized Crime teams; customs investigators also work in Joint Financial Investigation Units of the 16 states and have full police investigative powers nationwide per Sections 1(3)a and 12b of the CAA. ### Operational effectiveness and identified weaknesses - Customs Administration responsible for cross-border movement law and regulations; Customs Criminal Investigation Office responsible for investigations. - Robust organization with 34,102 officers; responsibility for 71 land border-crossing points, 23 international airports, and 25 maritime ports. - Risk-based approach appears well-developed; access to INZOLL intelligence and technical inspection technologies supports operations. - Frankfurt airport example: a cash control unit of 15 officers checks incoming and outgoing flights on risk-assessed basis; on high-risk flights up to two-thirds of passengers are checked. Last year the cash control unit seized some €35 million ($49 million) in undeclared cash at the airport and identified about €100 million ($140 million) in legally-declared currency and instruments being transported by travelers. - Roving inland control teams: some 1,600 officers assigned to border and inland checks; powers permit stopping travelers without first establishing suspicion and searching for goods and currency; fast-track on-the-spot clarification process exists. - Mail, courier, and cargo shipments controls: authorities state some 85–90 percent of mail and courier shipments are checked; freight and sea cargo are checked on risk-based assessment and by document inspection and x-ray. - Notable weakness: traveler declaration forms are not distributed to travelers before arrival and not always readily visible at counters approaching the customs point; signage at Frankfurt Airport was difficult to distinguish from terminal advertisements and assessors did not notice similar signage at other airports. ### Special case: Büsingen enclave - Büsingen is not part of the EU’s customs territory under Article 3 (1), fifth indent of Regulation (EC) No. 450/2008. - Bilateral customs agreement (effective October 4, 1967) allows Canton of Schaffhausen police to carry out arrests in Büsingen and move arrestees into Switzerland; limits on number of Swiss police allowed in Büsingen at one time: 10; number of German officers set at three per every 100 inhabitants. - Swiss police competencies apply in fields where Swiss laws apply (customs, agriculture, hotel/restaurant industry); German customs officers have no powers in Büsingen. - First German customs control point: Gailingen-West customs office on the only road leaving Büsingen; travelers subjected to daily controls including cash controls. - Recent seizures in the last three years concerned cases of capital flight only; no seizures related to ML or TF were registered. - Swiss customs and commercial law apply in Büsingen apart from a few exceptions; direct taxes are paid to German revenue authorities. - Authorities indicate banks do not play a significant role in the 2,000–3,000 population of Büsingen and it has not become conspicuous for ML or TF crimes. *Source: _cr1078 - 506. Noncompliance with the obligations to declare or to truthfully disclose cross-border cash* ### 543. The authorities note that arrangements for displaying information notices alerting arriving ### _cr1078 - 543. The authorities note that arrangements for displaying information notices alerting arriving ### Information notices and traveler awareness - Arrangements for displaying information notices alerting arriving passengers must be worked out with individual airports; there is no power to impose specific requirements. - Some airports, such as Stuttgart, are cited as models; some airports are cooperative and helpful, while others may be less inclined to assist in the communications task. - Assessors were not able to view first-hand the effectiveness of declaration and disclosure processes at land and sea ports. - Given that the EU has largely eliminated border posts between member states, assessors judge it highly likely that there are many land border crossings where there is no effective scrutiny to require disclosures. - Assessors observed evidence that passengers departing the EU from German airports are alerted to the declaration requirement at check-in via LCD screens. ### Recommendations and prescribed actions (to comply with SR.IX) - Take steps to heighten arriving and departing travelers’ awareness of the declaration and disclosure requirements by making much more visible (and perhaps in multiple languages) the signage at ports of entry and exit alerting travelers to the requirement. - Extend the one-year period of retention of most data in the INZOLL database. ### Compliance with Special Recommendation IX (SR.IX) - Rating: LC - Summary of factors relevant to s. 2.7 underlying overall rating: - Weakness in measures for alerting air travelers arriving in Germany from outside of the EU as to their declaration obligations. - One-year period of retention of most data in the INZOLL database considerably diminishes the utility of that database for analysis. ### Preventive measures — financial institutions: law, regulation, and enforceable means - Main relevant texts: the AML Act, the Banking Act, the Investment Act, and the Insurance Supervision Act; all four passed by the Federal Parliament and constitute primary legislation for this assessment. - The AML Act is accompanied by an extensive explanatory memorandum that provides guidance on background and intention; memorandum may interpret provisions differently from the precise text of the law and is not regarded as other enforceable means (OEM) for this assessment. - The BaFin has powers under Section 16 and 17(4) of the AML Act to conduct AML/CFT supervision and to sanction noncompliance; it can issue rules, regulations or other enforceable instruments. - BaFin circulars and letters reflect administrative practices and lay out BaFin’s interpretation; for purposes of this assessment they are considered guidance only and do not constitute OEM. - Some BaFin circulars provide specific information which, if ignored, may lead to sanctions under primary legislation; in such limited respects circulars may have indirect enforceability and have been taken into account. ### Transition and guidance developments - Many prior BaFin circulars were withdrawn through BaFin Circular 2/2009 dated January 13, 2009 after entry into force of the 2008 AML Act because key elements are incorporated into primary legislation or legal bases changed. - BaFin advised institutions and auditors that contents of repealed circulars that do not conflict with the new AML Act or initial industry guidance will continue to be used in administrative practice pending comprehensive new guidance by industry associations; this caused confusion about which parts remain valid. - BaFin intends to develop comprehensive guidance through private sector associations; industry associations to formulate guidance with BaFin endorsement. - A comprehensive set of industry guidance expected by end-2009 or early-2010; interim documents previously published: - Central Association of the German Banking Industry (Zentraler Kreditausschuss, ZKA) Guidelines, issued on December 17, 2008; - Federal association of insurance companies (Gesamtverband der Deutschen Versicherungswirtschaft; GDV) document, issued on February 18, 2009; - Association of private building societies (Verband der Privaten Bausparkassen) and federal coordination office of the state building societies (Bundesgeschäftsstelle Landesbausparkassen) document, issued in February 2009. - These three guidelines are addressed to institutions that make up 90 percent of those covered by the AML Act. - Some credit institutions reported ZKA guidelines are difficult to understand due to tabular and bullet-point format and lack of specificity; ZKA believes guidelines provide basis for understanding BaFin’s likely stance. - For this assessment, industry guidelines and BaFin endorsement are not treated as OEM as defined by the FATF. ### Scope of the AML Act and supervisory coverage - The AML Act applies to credit institutions, financial services institutions, financial enterprises, insurance companies, insurance intermediaries and investment companies, as well as a broad range of nonfinancial sector persons or entities. - Pawnbrokers when they grant loans against pledges are excepted from definition of a credit institution and not subject to AML Act; pawnbrokers required under governing legislation to identify customers by an ID card or passport and to record name, given name, birthday, place of residence, address, type, and issuing authority of the document presented to verify identity. - Reliance on banking, insurance, and investment Acts for certain obligations does not constitute a material scope limitation. ### European “equivalence” and cross-border considerations - Section 2(2) of the AML Act allows exemptions by statutory instrument for persons engaging in occasional or very limited financial activity with little ML or TF risk; to date no specific exemption granted. - The report references designations within the AML Act that treat certain institutions, transactions, counterparties as originating from or based in other EU member states as “equivalent” under EU-wide regulations and directives. - German authorities instructed financial institutions (through circular 7/2008) that they may rely on the EU member states’ “equivalence list,” established on a voluntary basis by member states, comprising all non-EU member jurisdictions of the FATF and including French and Dutch overseas territories. - No independent risk assessment of countries on the EU “equivalence list” was undertaken by German authorities outside assessments by EU-member state representatives, including participants from the BMF and the BaFin. - Institutions reported they generally undertake their own risk assessment for all countries, including EU members, finding the blanket approach counter-intuitive. - In July 2009 (subsequent to the assessment mission), BaFin issued a circular clarifying that the third-country equivalence list does not mean institutions from listed countries can always be routinely assumed to present low risk; institutions expected to undertake appropriate due diligence if reason to believe enhanced risk exists; principles extended to business relationships or transactions with institutions based in other EU Member States; institutions referred to FATF’s mutual evaluations as material for risk analysis. - Assessors view generic categorization of all EU member states, EEA states and other FATF member jurisdictions as adequately applying FATF standards as unreasonable in absence of a proper risk assessment by German authorities. - Noted that four member states of the EU have still failed to implement the provisions of the Third EC Money Laundering Directive. ### Customer due diligence and record-keeping (legal framework and scope) - The AML Act sets out CDD and record-keeping requirements; the Act came into force on August 21, 2008 pursuant to Article 2 of the Act to Enhance the Fight against Money Laundering and Financing of Terrorism and replaced the 2002 AML Act. - The legislative package implemented Directive 2005/60/EC and Commission Directive 2006/70/EC into national legislation and included amendments to the Banking Act, the Insurance Supervision Act, the Investment Act, the CC (ML offense) and the CAA. - This assessment focuses on compliance with FATF standards, not effective transposition of the Third EC Money Laundering Directive. - All financial institutions carrying out activities captured by the AML Act are supervised by the BaFin for AML/CFT purposes, except: - the KfW (subject to MoF supervision but not for AML/CFT purposes); - three insurance companies active within single Länder (subject to Land insurance supervisors); - brokering of closed-end real estate funds; - pawnbrokers; and - insurance intermediaries. - The AML Act explicitly introduced a risk-based approach to implementation of CDD measures and strengthened CDD and record keeping requirements. - The AML/CFT preventive measures apply equally to all persons and entities subject to the Act; additional CDD provisions are in sector-specific laws (Banking Act, Investment Act, Insurance Supervision Act). *Source: IMF report excerpts (paragraphs 543–563 and related text).* ### 566. The current legal framework sets out identification requirements in a way that prohibits the ### _cr1078 - 566. The current legal framework sets out identification requirements in a way that prohibits the ### Identification requirements and legal basis - The Fiscal Code (Section 154), in force since 1932, provides that “no one may under a false or fictitious name, for [oneself] or for a third person, open an account or cause entries to be made in an account, give into safe custody or pledge valuables (money, securities, precious objects) or rent a safety deposit box”. - The Fiscal Code obliges those who keep accounts, hold valuables in safe custody or as a pledge, or rent out a safety deposit box “to make certain before doing so of the identity and the address of the authorized drawer” and to “record the relevant particulars in suitable form.” - The term “account” is interpreted broadly and covers sub-accounts and trust accounts held by notaries or lawyers. - Numbered accounts are not a feature of the German banking system. - The 2008 AML Act requires identification of contracting parties and beneficial owners; “identification” covers both establishment of identity by gathering information and verification of identity. ### When customer due diligence (CDD) is required (Section 3(1) and 4(1)) - CDD required under Section 3(2): - when establishing a business relationship, defined as “a business or professional relationship which is directly connected with the professional activities of the institutions and persons covered by [the] Act and which is expected, at the time when the contract is established, to have an element of duration.” - when carrying out occasional transactions amounting to €15,000 ($20,876) or more, whether in a single operation or several operations totaling €15,000 ($20,976) or more which appear to be linked. “Transaction” is defined as “any act aimed at or resulting in a transfer of money or a similar movement of assets.” - Exceptions: exchange companies and money remitters under Section 25f(3) of the Banking Act when transacting other than from an existing account: - exchange companies: threshold reduced to €2,500 ($3,479) in such circumstances; - money remitters: threshold reduced to zero. - For exchange companies and money remitters, full identification must be undertaken for each and every transaction, even if the customer has been previously identified. - when there is reason to suspect money laundering or terrorist financing, regardless of any derogation, exemption or threshold; - when there are doubts about the veracity or adequacy of data identifying the contracting party or the beneficial owner. - Article 5(2) of EU Regulation 1781/2006: payment services providers must identify all customers before transferring funds and verify identity where the transfer is for a value of €1,000 ($1,392) or more. - The AML Act explicitly waives broader CDD requirements in a large number of “low-risk” circumstances specified under the AML Act and sectoral Acts. ### Identification measures and verification sources (Section 4(3)–4(4)) - Information to be gathered to establish identity (Section 4(3)): - For natural persons: name, place and date of birth, nationality and address. The explanatory memorandum interprets “name” as full name (surname and at least one given name). - For legal persons or partnerships: company name or title, legal form, registry number if available, address of headquarters or head office, names of members of the representative body or legal representatives; if a representative is also a legal person, its name, legal form, registry number and address must be obtained. - Verification of identity (Section 4(4)): - For natural persons: a valid official identity card including the holder’s photograph that satisfies domestic requirements for identity cards or passports; examples include domestic passports, identity card or substitutes recognized or accepted under foreign laws. Identity documents required for all German citizens over the age of sixteen (Section 1 of the Passport Act), and for all foreigners with residency permits. Limited exceptions where potential customer lacks identification documents (minors, persons subject to custodianship). - For legal persons or partnerships: a copy of the relevant entry in the commercial register or register of cooperative societies or similar official register; foundation documents or equivalent documents. - Section 1(6) includes legal arrangements (trusts or Treuhand) within the definition of beneficial ownership, but defines the beneficial owner as the natural person(s) who exercises control over 25 percent or more of the property of a legal arrangement, or who is the beneficiary of 25 percent or more of such property. - This definition does not address the identity of the settlor. ### Identification of beneficial owners (Sections 1(6), 3(1), 4(5)) - General obligation: institutions must “clarify whether the contracting party is acting on behalf of a beneficial owner and, if so, to identify the beneficial owner” (Section 3(1) number 3); repeated under Section 4(1). - Section 1(6) definition of “beneficial owner” includes: - corporate entities not listed on a regulated market and not subject to disclosure requirements: natural person(s) who directly or indirectly hold more than 25 percent of the capital shares or control more than 25 percent of the voting rights; - legal entities, such as foundations, and legal arrangements, such as trusts: - a. the natural person(s) who exercises control over 25 percent or more of the property of a legal arrangement or entity; - b. the natural person(s) who is the beneficiary of 25 percent or more of the property of a legal arrangement or entity; - c. where beneficiaries are not yet determined, the class of persons in whose main interest the legal arrangement or entity is set up or operates. - Explanatory memorandum: cases are examples; some legal persons (e.g., civil-law partnerships) may lack transparency and warrant attention beyond the 25 percent threshold. - Section 3(1) number 3 requires taking adequate measures to understand ownership and control structure of clients; not applicable to specified low risk scenarios. - Section 4(5): institutions “shall find out at least the name of the beneficial owner and gather further identification depending on the level of risk of money laundering or terrorist financing in the individual case.” “Further identifying features such as address, date of birth, and nationality need only be gathered where appropriate.” - For verification, institutions “take risk-adequate measures to check the accuracy of the information gathered.” - This approach permits lower standards for beneficial owner verification than for contracting parties, potentially requiring only the name in normal-risk cases. - BaFin Circular 14/2009 (July 30, 2009): asserts that “take risk-adequate measures” requires that some measures to verify the identity of the beneficial owner must be taken in all cases, and counters ZKA guidance that verification may rely solely on information provided by the contracting party. - Observed market practice: considerable variety in interpretation and implementation concerning “drill down” to ultimate natural persons in multi-layer corporate structures; uncertainty about verification obligations resulted in unclear levels of implementation. ### Information on purpose and nature of the business relationship (Section 3(1) number 2) - Institutions are required to seek and obtain information on the purpose and intended nature of the business relationship “if the business relationship does not already make them clear beyond doubt.” - The requirement does not apply to defined “low-risk” situations. - ZKA guidelines: certain products (e.g., giro accounts for general payments or a securities account) are normally self-evident regarding purpose and would not require further enquiries; these cover much retail-level business with natural persons. ### Ongoing due diligence and monitoring (Section 3(1) number 4; sector-specific provisions) - The AML Act explicitly requires continuous monitoring of the business relationship, except for specified low-risk situations. Monitoring includes scrutiny of transactions to ensure consistency with the institution’s knowledge of the contracting party and beneficial owner, the business risk profile, and updating documents, data or information at appropriate intervals; and ensuring source of funds where necessary. - Credit institutions (Banking Act Section 25 c (2)): - must implement an appropriate data processing system to support monitoring; - must create and update internal policies and customer-related safeguards and conduct checks; - must operate and update IT systems enabling identification of business relationships and individual payment transactions that appear dubious or unusual; - must investigate such circumstances to assess risk and potential grounds for suspicion. - BaFin can define criteria exempting certain credit institutions from use of data processing systems and has done so for smaller cooperative banks. - Insurance companies (Insurance Supervision Act Section 80d(1)): - repeat the monitoring obligation and allow use of data processing systems, but these are not mandatory. - Exemptions for low-risk situations create uncertainty about ongoing monitoring obligations for such relationships. ### Risk—Enhanced due diligence for higher risk customers (Section 6) - Section 6(1): institutions must apply enhanced due diligence measures in situations assessed through their own risk analysis to be higher than normal risk. - Section 6(2): two specific circumstances requiring enhanced due diligence always: - politically-exposed persons (PEPs); - non-face-to-face relationships. - Authorities may specify additional high-risk cases, but only based on a decision of the European Commission; no such designations had been made at the time of the report. - Broader obligation (Section 3): institutions must be able to demonstrate to authorities that they have applied appropriate measures to risks identified in their business. The explanatory memorandum notes the high-risk situations specified are not exhaustive and gives country risk as an example. - ZKA guidelines provide further insight on identifying and addressing high-risk situations, but overall guidance is somewhat limited. *IMF staff report excerpt.* ### 585. The AML Act, the Banking Act, the Investment Act, and the Insurance Supervision Act ### The AML Act, the Banking Act, the Investment Act, and the Insurance Supervision Act ### Exemptions to Standard CDD Requirements and Resulting Concerns - Section 5(1) of the AML Act exempts institutions from Section 3(1) (verifying customer identity, identifying beneficial owner, obtaining information on purpose and intended nature of the business relationship, and conducting ongoing monitoring) in specified circumstances, unless the institution assesses higher risk of ML or TF or suspects a transaction is linked to such activities. - The exemption applies to: - German credit institutions, financial services institutions, financial enterprises, insurance companies, and insurance intermediaries, as well as credit or financial institutions from another EU member state or a third country that applies equivalent requirements and supervision to those applied in Germany; - listed companies whose securities are admitted to trading on the German market or in one or more EU Member state, as well as listed companies from a third country that are subject to disclosure requirements consistent with EU legislation; - domestic public authorities (both from the federal and Länder levels), as well as other EU member state public authorities or institutions provided that their identity is publicly available. - Exemption also applies to identification of the beneficial owner of third-party accounts of lawyers, when beneficial-owner identity is available upon request, and to similar accounts held for notaries and other independent legal professionals from an EU member country or a third country that applies AML/CFT measures and supervision consistent with the international standard. - Banking Act, Investment Act (Section 25d), and Supervision of the Insurance Industry Act (80e) extend the same exemption to a lengthy list of specific transactions subject to amount/type/residence/type-of-business limits. - Confusion exists about whether exemptions are mandatory or may be overridden by an institution’s higher-risk assessment: - The Act and explanatory memorandum indicate institutions should apply an override if they consider situations not low risk. - ZKA guidelines state discretion exists “with regard to all aspects of the customer due diligence obligations, provided there are no specific statutory requirements concerning high or low risks” (emphasis added). - Assessment assumes institutions will treat measures as discretionary within overall risk analysis, but guidelines would benefit from clarification. - Key concerns about exemptions: - The exemptions derive from the Third EC Money Laundering Directive: the Directive only mandates simplified procedures for credit/financial institutions within the EU or third countries imposing equivalent requirements; other concessions are national discretion. - No formal risk analysis by German authorities to confirm appropriateness of circumstances to the local environment. - FATF allows reduced or simplified measures in low-risk situations but implies some due diligence must be undertaken in all cases; AML Act exemptions appear to exempt institutions from the vast majority of key CDD elements in defined low-risk circumstances. - Section 4(1) repeats need to identify contracting party and beneficial owner outside exempted provisions, so basic identification appears assured. - Two particular problem areas: - Removal of obligation for ongoing monitoring of accounts: explanatory memorandum and ZKA guidelines suggest monitoring obligation remains, but this contradicts AML Act text; institutions may not be obliged to maintain documents/data up-to-date for exempt customers. - Exemption applies even where doubts exist about veracity or adequacy of customer/beneficial-owner identification; exemption not applicable if institution has reason to suspect transaction related to ML or TF. - Authorities have stressed need for effective monitoring systems for suspicious transactions regardless of strict interpretation of the law (in explanatory memorandum and ZKA guidelines). - In practice, exemptions in banking, investment and insurance legislation often have little practical application because institutions consider conditions too complex and costly to embed in controls; institutions typically treat such cases as standard risk. ### Timing of Verification of Identity - General rule: - Section 1(1) of the AML Act defines “identification” as both identification and verification. - Section 4(1) requires institutions to identify contracting party and beneficial owner before establishing a business relationship or carrying out a transaction, but allows completion while the business relationship is being established “if this is necessary to avoid interrupting the normal conduct of business and where there is little risk of ML or TF occurring”. - Exceptional timing rules: - Section 25e of the Banking Act and equivalent in the Investment Act: credit and financial institutions may complete verification “promptly after an account or deposit is opened.” - To mitigate risk, credit institutions must ensure no funds can be withdrawn before verification completed. - If identity cannot be subsequently verified, BaFin would expect institutions to return funds directly to the source, though this is not referenced in legislation; Civil Code, Section 812 ff on “unjustified enrichment” may prevent diversion to third parties. - Section 80f(3) of the Insurance Supervision Act: verification of identity of designated beneficiary may be undertaken after establishing relationship, provided verification completed before any benefits paid or before beneficiary claims rights under policy. ### Failure to Complete CDD and Related Obligations - Section 3(6) of the AML Act: if a person/entity covered by the Act cannot fulfill CDD requirements (other than exempted circumstances), it may not establish or continue a business relationship or carry out any transactions, regardless of legal or contractual provisions. - There is no statutory requirement to consider filing an STR in case of failure to complete CDD. - Authorities’ position: - Obligation to terminate relationship for failure to complete CDD is subject to the principle of proportionality and the risk-based approach, and to Germany’s general presumption of right of access to financial services. - Section 4(6) places obligation on customer to provide necessary information/documentation; institutions can refuse or close accounts when customer fails legal obligation. ### Existing Customers: CDD on Pre-existing Relationships - No explicit statutory requirement to conduct CDD on existing clients; reliance on Section 3(1) number 4 requiring institutions to “ensure that documents, data or information are updated at appropriate intervals.” - Explanatory memorandum interprets this as requirement to apply measures to existing customers at appropriate times. - In practice, procedures are risk-based; review intervals determined by customer risk category or occurrence of unusual event/transaction. - Authorities indicated a timeframe of two to ten years for a complete review for customers not posing high risk would not be unreasonable. - Assessment notes the outside time limit appears excessive given substantive new CDD elements in AML Act; institutions report applying much shorter timeframes. - Unclear expectations for “statutory” low-risk customers exempted from Section 3(1), though explanatory memorandum and industry guidelines suggest some ongoing monitoring is required. - Anonymous accounts: no history in Germany due to Fiscal Code; no measures required for identifying such account holders. ### Politically Exposed Persons (PEPs) - Section 6(2) requires risk-based measures to determine whether contracting party is a PEP. If so, prior to commencing relationship institutions must: - require staff to seek approval from an “immediate supervisor or next higher management level” before establishing the relationship; - apply appropriate measures to determine the origin of the assets to be used in the business relationship; - subject the relationship to continuous enhanced oversight. - No statutory obligation addressing when an existing customer becomes or is subsequently found to be a PEP; BaFin issued guidance in its circular of July 2009 indicating this should form part of normal risk management. - Specified approval procedures require referral to immediate supervisor or next level of management, which may permit approval by junior or middle-ranking managers; FATF requires approval by “senior management” though it does not define the term. - Definition and scope issues: - Section 6(2) defines a PEP by direct reference to the Implementing Directive for Third EC Money Laundering Directive: “natural persons who are or have been entrusted with prominent public functions and immediate family members, or persons known to be close associates of such persons.” - Obligation focuses on status of contracting party; no specific requirement to establish whether the beneficial owner of contracting party is a PEP. - Clarification required on close associates: reference limited to when association is public knowledge or institution has reason to believe it; EDD required where close associate is sole proprietor of a legal entity/arrangement set up for benefit of the PEP. - Section 6(1) limits PEP requirement to individuals “based outside the country,” and who have not been in a politically-exposed position for one year or more. - Persons residing in Germany who hold relevant positions would not be covered; neither would someone who retains proceeds of stolen state assets a year after leaving office. - BaFin’s July 2009 circular suggests institutions should categorize such circumstances as high-risk. - FATF plenary has considered a one-year limit in another EU member state’s report and concluded such threshold is not a material deficiency when a general obligation exists to apply enhanced due diligence to customers who present higher ML/TF risk regardless of timeframe. - Section 6(1) provides for a general obligation to apply enhanced due diligence to customers presenting higher risk. - Domestic PEPs: requirements described above have not been applied to domestic PEPs. - Merida Convention: Germany has signed, but not yet ratified, the Merida Convention. ### Cross-Border Correspondent Accounts and Similar Relationships - Section 25f(1) of the Banking Act requires credit institutions to apply enhanced due diligence in relationships with respondent institutions based in “third countries.” - Term “third countries” is not defined; authorities indicate it relates to respondent institutions in non-EU countries only. - No specific provisions address intra-EU relationships, which are deemed generically low risk under Section 5(2). - Section 25f(1) is specified to be in addition to enhanced due diligence obligations under Section 6 of the AML Act. - Section 6 generally references enhanced procedures but specifically details them only for PEPs and non-face-to-face relationships. - By reference to Section 3(4) of the AML Act, institutions may determine extent of due diligence measures on a risk-sensitive basis and must demonstrate to BaFin that measures taken are commensurate to risk. - Authorities intend flexibility to differentiate, e.g., between FATF countries and other non-EU countries. - Clarification required about expected measures under Section 25f(1) given the specific obligations in Section 25f(2), but this does not adversely affect overall intention of the section. - (The source outlines subsequent topics: Requirement to Obtain Information on Respondent Institution (c. 7.1); Assessment of AML/CFT Controls in Respondent Institution (c. 7.2); Approval of Establishing Correspondent Relationships (c. 7.3); Documentation of AML/CFT Responsibilities for Each Institution (c. 7.4); Payable-Through Accounts (c. 7.5).) *Source: The AML Act, the Banking Act, the Investment Act, and the Insurance Supervision Act (excerpt).* ### 609. Section 25f(2) specifies the procedures that institutions must adopt when engaging with a ### _cr1078 - 609. Section 25f(2) specifies the procedures that institutions must adopt when engaging with a ### Correspondent banking rules (Section 25f(2)) - Section 25f(2) requires credit institutions, both before establishing a correspondent business relationship and during such a relationship, to: - gather sufficient information about a respondent institution to understand fully the nature of the respondent’s business and management structure; to determine from publicly available information the reputation of the institution and the quality of supervision; and to assess the respondent institution’s controls to prevent ML and TF; - before establishing such relationships, define and document the respective responsibilities of each institution with respect to meeting due diligence requirements; - before establishing such a relationship, obtain approval from a superior or next level of management; - take measures to ensure that the respondent institution does not engage in or continue correspondent banking relationships with a bank that is known to permit its accounts to be used by a shell bank; and - take measures to ensure that respondent institutions do not allow transactions via payable-through accounts. ### Payable-through accounts and scope - The obligation on payable-through accounts appears to require the institution to establish whether its respondent institution is offering payable-through accounts anywhere, irrespective of whether this applies to the facility that the institution itself is providing to the respondent. - Section 25f of the Banking Act expressly prohibits establishing or managing accounts in the name of the credit institution or a third-party institution where the accounts may be accessed independently by customers to carry out their own transactions. ### Explanatory memorandum and prior guidance - The explanatory memorandum to Section 25f(2) repeats statutory concepts and indicates: - No correspondent banking relationships should be established with institutions located in third countries that are not subject to effective supervision, especially with regard to ML. - For existing relationships, enhanced due diligence is expected when the respondent bank is located in a country or region that is not a FATF member or does not comply with international AML/CFT standards. - BaFin’s predecessor issued a Circular dated November 6, 2000, containing requirements for correspondent banking relationships; BaFin deems this Circular still in force in the context of the new legislation. The Circular specifies cautionary measures with respect to institutional relationships (especially banks outside the EU, FATF or Basel Committee membership) and the transactions channeled through the correspondent account. ### Assessment against FATF standards and limitations - The Banking Act prescribes specific measures only for non-EU respondent banks, treating respondent institutions headquartered in the EU as low risk per the Third EC Money Laundering Directive. - This approach is assessed as falling significantly short of the FATF standard because: - FATF identifies correspondent banking per se as a high-risk activity requiring enhanced due diligence in all cases. - FATF does not provide for treating intra-EU correspondent relationships as outside the scope of Recommendation 7. - German authorities argue nonapplicability to EU correspondent relationships reflects FATF recognition of the EU as a single jurisdiction; assessors did not accept this argument. ### Misuse of new technology for ML/TF (c. 8.1) - No specific statutory obligations address risks from technological developments. - Reliance is placed on Section 9(1) of the Money Laundering Act, obliging financial institutions to take adequate internal measures to prevent misuse for ML and TF. - Circular 8/2005 advises institutions to create their own analysis of potential risks across the board, including risks stemming from services offered and means of delivery; BaFin expects new technology risks to feed into institutions’ risk analysis. - BaFin has provided guidance on new technologies, including translation and distribution of the FATF’s 2006 typology report on New Payment Methods (under Circular 7/2008) and access to the FIU’s Newsletter reporting on trends and techniques in crime, including AML/CFT typologies. ### Risk of non-face-to-face business relationships (c. 8.2 & 8.2.1) - Prior to the new AML Act (August 2008), identification and verification generally required in-person identification by document (passport or ID card); qualified digital signatures required prior in-person verification. - BaFin’s 1998 Guidelines established a general principle that customers should be identified in person by the institution or an authorized third party. - Since the new AML Act, Section 6(2) explicitly permits non-face-to-face identification but defines it as requiring enhanced due diligence involving: - Submission of the original of a document as defined in Section 4(4) of the Money Laundering Act (passport, ID card, etc.); - Submission of a certified copy of such a document; or - Presentation of a qualified digital signature as defined in Section 2 of the Digital Signature Act, where the institution must check the validity of the certificate, the certification service provider report in accordance with Section 4(3) of the Act, the integrity of the certificate, and its relation to the signed data. - In all non-face-to-face cases, the Act requires that the first transaction must be carried out through another account opened in the contracting party’s name with a credit institution covered by the Third EC Money Laundering Directive or a credit institution in a non-EU country subject to requirements equivalent to those of the EU Member States’ ‘equivalence list’ published by the BaFin. - Section 6(3) permits authorities to impose additional requirements by statutory instrument for non-face-to-face risks; no such additional measures have yet been introduced. ### Effectiveness of implementation (overall CDD measures) - Identified implementation issues relative to FATF standards include: - Very broad exemption for “low-risk” customers; - Treatment of EU member states and the third country equivalence list as a single risk category in certain scenarios; - Application of the principle that the EU is a single domestic market for correspondent banking obligations; - Unclear concept of “senior management” for approvals for PEPs and correspondent relationships. - Verification of beneficial ownership (including determining whether the beneficial owner might be a PEP) is a particular area of concern, with wide variation in interpretations under the risk-based approach of the new AML Act; overall approaches by institutions do not comply with FATF requirements that reasonable measures must be taken in all cases to verify the identity of the ultimate beneficial owner. BaFin issued a clarification in July 2009 that may assist. - Larger financial institutions report high appreciation of AML Act obligations; level of implementation in small regional and community banks is less clear. - BaFin reports annual external auditor work and its own analysis have failed to register systemic problems, but the new AML legislation only came into force in August 2008, so it may be too early to establish absence of widespread problems, particularly for risk-based measures. - Some institutions, particularly those without significant international experience, find the risk-based approach difficult in developing appropriate systems and controls. ### Recommendations and comments (to comply with Recommendations 5, 6, 7, and 8) - With respect to Recommendation 5: - Clarify the obligation with respect to the verification of beneficial ownership to bring it in line with the FATF standard, which requires that reasonable measures be taken to verify such ownership in all cases, including low risk. - Extend the concept of beneficial ownership of trusts and Treuhand to include the settlor and any additional parties who may have direct or indirect control over the administration of the trust. - Review the exemption for low-risk customers and transactions to ensure that: - The types of counterparty and the countries of origin are based on an appropriate risk-assessment by the authorities; - There remains an absolute obligation to monitor business relationships with such customers on an ongoing basis, and to keep records and information up to date; and - The exemption does not apply to circumstances where an institution has doubts about the veracity of information in its possession. - Require institutions to consider filing an STR in case of failure to complete CDD. - Review the timeframe (2–10 years) in which institutions are expected to apply the current CDD requirements to existing customers. - With respect to Recommendation 6: - Introduce an explicit requirement that the enhanced due diligence requirements apply in the event that a PEP is the beneficial owner of the contracting party. - Redefine the concept of a PEP to ensure that it does not exclude foreign PEPs who are resident in Germany. - Require “senior level” approval for establishment (and continuation) of a business relationship with a PEP, rather than simply the next level of management. - With respect to Recommendation 7: - Extend the special enhanced CDD measures to respondent banks within the European Union. - Require “senior level” approval for establishment of a correspondent banking relationship, rather than simply the next level of management. - With respect to Recommendation 8: - Introduce a specific obligation to have measures in place to prevent the misuse of technological developments. ### Compliance ratings with Recommendations 5 to 8 (summary) - R.5 — PC - Reasonable measures to verify beneficial ownership are not required in all cases; - Definition of beneficial ownership of a trust is incomplete; - Broad exemptions from CDD given for “low-risk” customers without apparent risk assessment; - “Low-risk” exemptions result in absence, in certain circumstances, of any obligation (i) to undertake ongoing monitoring of transactions and (ii) to undertake CDD when doubts arise about the veracity of existing customer identification; - No requirement to consider filing STR in case of failure to complete CDD; - No clear evidence of the overall level of implementation due to relatively recent enactment of new obligations. - R.6 — PC - No requirements with respect to PEPs when they are the beneficial owners of the contracting party. - Provisions do not apply to foreign PEPs residing in Germany. - Approval to commence or continue the business relationship is not specified to be at senior management level. - R.7 — PC - Special measures apply only to non-EU correspondent relationships. - Approval to commence the business relationship is not specified to be at senior management level. - R.8 — LC - No specific obligation to take measures to prevent the misuse of technological developments. ### Third parties and introduced business (R.9) — legal framework and reliance on third parties - The AML Act distinguishes two situations for third-party involvement in CDD: - Outsourcing where financial institutions transfer the task of fulfilling some or all elements of CDD (except ongoing supervision) to third parties under contract; measures taken by the third party are legally attributable to the institution (Section 7(2)). Such arrangements fall outside Recommendation 9. - Reliance on specified third parties to perform certain due diligence requirements under Section 7(1), specifically identification and verification of the contracting party and the beneficial owner; ongoing monitoring under Section 3(1) number 4 cannot be delegated. - Section 7(1) requires third parties to immediately forward to the financial institution the information gathered in fulfilling equivalent measures to Section 3(1), and, on request, forward copies of identification data and other relevant documentation on the identity of the contracting party or beneficial owner. - The legislation imposes these obligations directly on the third party; there is no explicit requirement that the financial institution must satisfy itself that the third party will comply, though authorities indicate an implicit obligation on the German institution to satisfy itself of the third party’s ability and willingness to fulfill responsibilities. - Section 7(1) defines types of third parties upon whom reliance may be placed, based primarily on an equivalence test. These expressly include: - credit institutions, financial services institutions, insurance undertakings, insurance intermediaries, lawyers, auditors, chartered accountants, tax advisers, and tax agents established in all EU member states; - excludes money transmission services providers and currency exchange businesses. - The list may extend, on a discretionary basis, to credit institutions, lawyers, notaries, auditors, tax advisers and insurance undertakings based in non-EU countries, if they: - conduct business covered by the Third EC Money Laundering Directive or provide accident insurance with premium redemption; - are subject to mandatory registration or authorization; - apply due diligence requirements and record-keeping requirements equivalent to those laid down in the Third EU Money Laundering Directive; and - are supervised accordingly. *Source: https://www.imf.org/-/media/websites/imf/imported-full-text-pdf/external/pubs/ft/scr/2010/_cr1078.pdf* ### 626. Where the introduction is made through a separately incorporated business entity in the same ### _cr1078 - 626. Where the introduction is made through a separately incorporated business entity in the same ### Third-party introducers, equivalence list, and reliance (Recommendation 9) - Where the introduction is made through a separately incorporated business entity in the same group as the financial institution, the overall requirements still apply. In the case of foreign branches, these are regarded as integral parts of the financial institution, and not as third parties. (626) - Categories of eligible third-party introducers are clearly defined by statute; the list is based on the collective view within the EU that such professions can usually be relied upon to undertake appropriate due diligence. In principle, an institution need not undertake any qualitative assessment when relying on a third-party based in the EU. (627) - In identifying non-EU third countries fulfilling the specified requirements, authorities expect financial institutions to rely firstly upon the European Union’s member states’ “equivalence list,” and secondly upon the result of the country assessments undertaken by the FATF, FSRBs, IMF and World Bank. (627) - Section 7 (3) of the Act permits the competent Federal Ministry, to implement a decision of the European Commission, to determine that financial institutions may not rely on other third parties located in certain jurisdictions outside the EU. No such regulation has been issued to date. (627) - BaFin issued circular 14/2009 clarifying that the general presumption that institutions established in other EU member states, or in jurisdictions on the equivalence list, undertake CDD obligations to a level equivalent to those expected in Germany could be overruled by information in country assessments undertaken by the FATF, FSRBs, IMF, and World Bank. (628) - Risk noted: unless institutions proactively search for negative information in those assessments, they may assume reliance is permissible based on the statutory geographical scope of introducers. (628) ### Ultimate responsibility for CDD - Section 7(1) specifies that while reliance may be placed on third parties in the defined circumstances, the ultimate responsibility for meeting the CDD requirements in general remains with the institution covered under the Act. (629) ### Effectiveness of implementation and industry practice - Larger financial institutions perceive the list of equivalent jurisdictions as excessively broad and not aligned with their own risk assessments; they tend to apply a more cautious approach to EU and third-country introductions than permitted under the AML Act. Example: the AML Act could permit reliance on legal professionals in two offshore financial centers included within the equivalence list, even though authorities consider such centers to pose a prima facie high risk. (630) - Use of third-party introducer facility by smaller institutions is likely very limited given their localized business. (630) ### Recommendation and compliance assessment (Recommendation 9) - Recommendation: Germany should implement a procedure to review the range of third party introducers and the composition of the EU equivalence list to ensure that it accurately reflects the authorities’ own assessment of the risks. (631) - Compliance rating: R.9 — LC - Summary factor underlying rating: No national assessment of the suitability of the specified institutions and professions which may act as introducers. (3.3.3) ### Financial institution secrecy / confidentiality (Recommendation 4) - German credit institutions generally have an obligation to maintain confidentiality of information acquired in course of business relationships; no specific legal provision on banking secrecy exists—confidentiality arises from contract (GTCB). Section 2 (1) of the GTCB for Banks permits departure from contractual confidentiality when: - the bank is obliged by law to provide customer information, - the customer consents to the disclosure, or - the bank is allowed to disclose customer information. (632) - Section 203 of the CC punishes violation of “private secrets” by several actors but does not apply to credit institutions; breaches of banking confidentiality are not criminally sanctioned and can only be raised in civil proceedings. (633) ### Access to information by authorities and limits on use of STRs - Confidentiality must be observed towards authorities but is overridden by specific legal requirements for disclosure. (634) - Banking confidentiality does not apply where there is a public law obligation to provide information to authorities duly authorized to request it, including BaFin and the Bundesbank in supervision (Section 44 (1) of the Banking Act). The only grounds for refusal to provide BaFin with requested documentation are private grounds listed in the CPC (Section 44(6) of the Banking Act). (635) - Credit institutions must provide relevant information for reporting obligations and may not refuse to file STRs on grounds of banking secrecy. Section 13 of the Act explicitly releases reporters from civil or criminal liability unless reporting was deliberately or grossly negligently false. (636) - In criminal proceedings, credit institutions must, if requested, give evidence to courts and public prosecutors and may not refuse to testify on professional secrecy grounds; Section 53 CPC lists those who may refuse but does not mention credit institutions. (637) - Prosecutors and law enforcement have direct powers to compel production of information held by the general public and other authorities, and request court orders to search premises and seize information/documents. The Federal Office for the Protection of the Constitution may request information from credit institutions in relation to accounts and transactions if there are actual indications of particular terrorist undertakings. (638) - Use of STR information is limited by law: Section 11(6) of the AML Act allows STR content to be used only for criminal proceedings relating to ML, TF and offenses liable to maximum punishment of more than three years imprisonment, for taxation proceedings, for supervisory tasks of competent authorities, and for threat prevention. This limitation ensures STR content remains with competent law enforcement agencies without limiting exchange between them. (639) - BKA or the FIU may transmit personal data to other authorities/public-sector entities, such as BaFin (Section 10 of the Federal Criminal Police Office Act in conjunction with Section 10 of the AML Act). The FIU may cooperate with foreign counterparts and provide banking information contained in an STR. (640) - BaFin may request information already provided to another competent agency by addressing a request directly to that agency (Section 44(2a) of the Banking Act). (641) - Institutions may, solely for preventing ML and TF, exchange information on STRs with other institutions within the same group or holding, and with institutions in Germany, other EU members, or third countries subject to similar requirements as the Third EC Money Laundering Directive, without constituting tipping-off (Section 12(1) of the AML Act). (642) ### Effectiveness conclusion (Recommendation 4) - Banking secrecy does not inhibit implementation of the FATF Recommendations by authorities. Law enforcement, FIU, and supervisory authorities have sufficient legal basis to request access to information held by credit institutions, and in practice encountered no difficulty obtaining information. Credit institutions are aware of disclosure obligations and cooperate with authorities. Authorities are satisfied that the current framework enables them to obtain all necessary information and that banking secrecy does not constitute an obstacle. (643) - Recommendations and Comments: None. (3.4.2) - Compliance rating: R.4 — C (This Recommendation is fully observed.) (3.4.3) ### Record-keeping requirements (Recommendation 10 & SR.VII) - Section 8(1) of the AML Act: all data collected and information gathered in fulfilling due diligence requirements (pursuant to Section 3(1) of the AML Act or in cases of simplified or enhanced due diligence) on contracting parties, beneficial owners, business relationships, and transactions must be recorded. (644) - Section 8(3): these records and other evidence pertaining to business relationships and transactions must be kept for at least five years, without prejudice to other legal provisions (e.g., Section 257 of the Commercial Code). For business relationships (including transactions), retention period begins at the end of the calendar year in which the business relationship was terminated. In other cases (one-off transactions), it begins at the end of the calendar year in which the information was obtained. (644) - Section 257 of the Commercial Code imposes additional record-keeping duties on “merchants” (including financial institutions): - Books of account, inventories, opening balances, management reports, annual accounts, corporate accounts, corporate management report and all working instructions necessary for their understanding as well as further organizational documents; - Any trade letters received (documents concerning a trading transaction); - Copies of trade letters dispatched; and - Receipts for bookings in the records which must be kept according to Section 238(1) of the Commercial Code (booking receipts). (645) - Retention periods per Section 257(4) of the Commercial Code: documents in the first and fourth bullets must be retained for 10 years; documents in the second and third bullets for six years. The period of storage commences with the end of the calendar year in which the relevant entry or document event occurred (Section 257(5)). (646) ### Wire transfer record retention and scope (SR.VII) - EU Regulation 1781/2006 on wire transfers: payment service provider must keep records of complete information on the payer which accompanies transfers of funds for five years (Article 5(5)). The payment service provider of the payee must keep records of any information received on the payer for five years (Article 11). (647) - Additional duties from tax and regulatory laws: Section 154(2) of the Fiscal Code, read with number 6 of the Fiscal Code Application Ordinance on Section 154, obliges credit institutions to record data established on opening of an account, securities account, or allocation of a safe deposit box and retain it for five years. Section 25a(1) of the Banking Act requires credit institutions and financial services institutions to have a proper business organization covering complete documentation of business activity to enable BaFin supervision; relevant records must be kept for at least five years. (648) - Section 8(2) of the AML Act requires that all records are accessible during the retention period and “can be made available at any time for reading, given reasonable advance notice.” BaFin administrative practice recommends alphabetical filing on a yearly basis for clear allocation; computer records must guarantee alphabetic traceability and high legibility. Section 8(4) provides that where records subject to retention must be presented to a public agency, Section 147(5) of the Fiscal Code applies as appropriate. Section 25a(1) of the Banking Act requires that all information held by financial institutions must be made available readily to the BaFin. (649) - Regulation 1781/2006 applies to transfers of funds, in any currency, sent or received by a PSP established in the EU; exemptions per Article 3 include transfers: - carried out using a credit or debit card when (a) the payee has an agreement with the PSP permitting payment for the provision of goods and services; and (b) a unique identifier accompanies such wire transfer (Article 3(2)); - using electronic money covered by that derogation, except where the amount transferred exceeds €1,000 ($1,392) (Article 3(3)); - by means of a mobile telephone or any other digital or IT device, when such transfers are pre-paid and do not exceed €150 ($209) (Article 3(4)); - by means of a mobile telephone or any other digital or IT device, when such transfers are post-paid and meet all of: (a) payee has an agreement with the PSP permitting payment for goods and services; (b) a unique identifier accompanies the wire transfer; and (c) the PSP is subject to the obligations set out in the Third EU Money Laundering Directive (Article 3(6)); and - where the payer withdraws cash from his or her own account; where there is a debit transfer authorization between two parties permitting payments between them through accounts provided a unique identifier accompanies the wire transfer; where truncated checks are used; to public authorities for taxes, fines or other levies within a Member State; and where both the payer and the payee are PSPs acting on their own behalf. (651) *Source: IMF assessment text (sections 626–651 of the provided content).* ### 652. Against this background, all credit institutions in Germany carrying out Giro business ### _cr1078 - 652. Against this background, all credit institutions in Germany carrying out Giro business ### Obtain Originator Information for Wire Transfers (applying c. 5.2 & 5.3 in R.5, c.VII.1) - Regulation 1781/2006 applies to: credit institutions in Germany carrying out Giro business (Section 1(1) number 9 of the Banking Act) and financial service institutions carrying out money transmission services (Section 1(1a) number 6 of the Banking Act). (652) - Article 5 requires the payer’s PSP to ensure transfers are accompanied by complete information on the payer. (653) - Article 4 defines “complete information” as, in principle, name, address, and account number; address may be substituted with date and place of birth, a customer identification number, or national identity number. Where the payer lacks an account number, the PSP must substitute a unique identifier to trace the transaction to the payer. (653) - Article 5(2): PSP must verify complete information on the payer on the basis of documents, data or information obtained from a reliable and independent source before transferring funds, except when the transfer value is less than €1,000 ($1,392), unless several smaller linked transactions. For verification, Section 4(4) of the AML Act applies. (654) - For natural persons: valid official identity card including holder’s photograph satisfying domestic identity card or passport requirements; domestic passports and passports, identity cards or substitutes recognized or accepted under legislation concerning foreigners. (654) - For legal persons or partnerships: copy of relevant entry in commercial register or register of cooperative societies or similar official register; foundation charters or equivalent documents; or access to the register data. (654) - Article 5(3): verification may be deemed to have taken place if: (655) - a. payer’s identity was verified when opening the account and information stored in accordance with Articles 8(2) and 30(a) of the Third EC Money Laundering Directive; or (655) - b. payer falls within Article 9(6) of the Third EC Money Laundering Directive (customer existed prior to Directive implementation but was subject to risk-based verification). (655) - Article 5(5): payer’s PSP must keep records of complete information on the payer for five years. (656) - Article 14: PSPs of both payer and payee must respond fully and without delay to requests for relevant information made by competent authorities. (656) ### Inclusion of Originator Information in Cross-Border Wire Transfers (c. VII.2) - Article 7(1): transfers where the payer’s PSP is situated outside the European Union must be accompanied by complete information on the payer. Transfers from one EU Member State to another are not considered cross-border under the Regulation. FATF treats transfers within the EU as domestic for SRVII purposes; limitation not considered a deficiency. Authorities indicated any transfer involving an initial intermediary in the EU before passing to a third country would be treated as cross-border by the initial payer’s PSP. (657) - Article 7(1) does not apply to individual transfers within batch file transfers from a single payer where payees’ PSPs are outside the EU, provided the batch file contains the information and individual transfers carry the payer’s account number or unique identifier. (658) ### Inclusion of Originator Information in Domestic Wire Transfers (c. VII.3) - Article 6(1): where both payer’s and payee’s PSPs are in the EU, transfers may be accompanied only by the account number of the payer or a unique identifier allowing traceability. (659) - Article 6(2): payee’s PSP has the right to request and obtain complete information on the payer within three working days after the request. (659) ### Maintenance of Originator Information (“Travel Rule”) (c.VII.4) - Article 12: intermediary PSP must ensure all information received on the payer is maintained with the transfer. (660) - Articles 13(1)–(3): intermediary PSP, when receiving a transfer from a payer’s PSP outside the EU, may use a payment system with technical limitations that prevent payer information from accompanying the transfer, unless it becomes aware information required under the Regulation is missing or incomplete. If missing/incomplete, intermediary PSP may only use such a system if it can inform the payee’s PSP of this fact within messaging/payment system or through another agreed procedure. (661) - Article 13(4): where an intermediary PSP uses a payment system with technical limitations, it must make available to the payee’s PSP, upon request, all information on the payer which it has received, irrespective of completeness, within three working days of receiving that request. (662) - Article 13(5) and Article 11: intermediary PSP and payee’s PSP must keep records of all information received for five years. (662) ### Risk-Based Procedures for Transfers Not Accompanied by Originator Information (c. VII.5) - Article 8: payee’s PSP must detect whether fields relating to payer information have been completed using characters/inputs admissible within the messaging or payment and settlement system and must have effective procedures to detect missing payer information: (663) - a. For transfers where payer’s PSP is in the EU: information required under Article 6. (663) - b. For transfers where payer’s PSP is outside the EU: complete information as in Article 4, or where applicable the information required under Article 13. (663) - c. For batch file transfers where payer’s PSP is outside the EU: complete information in the batch file only, not in individual bundled transfers. (663) - Article 9: if payee’s PSP becomes aware that complete information on the payer is missing or incomplete, it must either reject the transfer or ask for complete information. Under Article 10, missing/incomplete payer information must be considered in assessing whether the transfer or related transaction is suspicious and reportable; in Germany, reports go to law enforcement agencies and the FIU (Article 9(3)). (664) - Article 9(2)–(3): where a PSP regularly fails to supply required payer information, payee’s PSP must take steps (warnings, deadlines) before rejecting future transfers or restricting/terminating the business relationship and must report the fact to competent authorities. (665) - BaFin uploaded Guidance “Consultation on common understanding of the obligations imposed by European Regulation 1781/2006 on the information on the payer accompanying funds transfers to PSPs of payees” developed/published by the Anti-Money Laundering Task Force (CEBS, CEIOPS, CESR) in October 2008. (666) ### Monitoring of Implementation (c. VII.6) - Article 15(3): EU member states must appoint competent authorities to monitor compliance with the Regulation. Germany implemented this in Section 25b of the Banking Act: “BaFin supervises the compliance with the obligations contained in Regulation 1781/2006 by credit institutions and financial services institutions performing money remittance services according to Section 1(1a), second sentence, number 6 of the Banking Act.” (667) - BaFin uses institutions’ annual audit reports (Section 29(2) of the Banking Act) which must state whether the institution observed obligations under the Money Laundering Act, including Regulation 1781/2006. (667) ### Application of Sanctions (c. VII.7: applying c.17.1 – 17.4) - Article 15(1): member states must lay down rules on effective, proportionate, and dissuasive penalties for infringements of the Regulation. (668) - Section 56(4) of the Banking Act deems an administrative offense committed if Regulation 1781/2006 is contravened intentionally or by negligence in any of the following ways: (668) 1. Failing to ensure transfers are accompanied by complete information on the payer (Article 5(1)). (668) 2. Failing to verify complete information on the payer or to do so timely (Article 5(2) in conjunction with (4)). (668) 3. Failing to ensure transfers are accompanied by complete and accurate payer information (Article 7(1)). (668) 4. Failing to have effective procedures to detect missing required payer information (Article 8, second sentence). (668) 5. Failing to reject the transfer or ask for complete payer information, or to do so timely (Article 9(1), first sentence). (668) 6. Failing to keep records of any information received on the payer for at least five years (Articles 11 or 13(5)). (668) 7. Failing to ensure all information received on the payer that accompanies a transfer is kept with the transfer (Article 12). (668) - BaFin is the competent administrative authority for applying such sanctions under Section 36(1) number 1 of the Act on Administrative Offenses (Section 60 of the Banking Act). Penalty: payment of up to €50,000 ($69,585). No sanctions have yet been applied. (669) ### Additional elements: elimination of thresholds (c. VII.8 and c. VII.9) - Regulation 1781/2006: no thresholds with respect to the need for full and accurate originator information on both inbound and outbound transfers. (670) ### Effectiveness of implementation - Many institutions, particularly in banking, keep records for a longer retention period of ten years for practical reasons, given the plethora of legal requirements. Extensive record-keeping is a long-standing practice in German commercial law; no evidence institutions fail to meet obligations. (671) - One area of doubt: CDD exemptions for low-risk situations under Section 5 of the AML Act exempt institutions from Section 3(1), raising uncertainty about what information would be acquired and available to law enforcement. (671) - Bank compliance with the wire transfers regulation is covered in auditors’ annual AML/CFT reports; authorities indicated no significant incidents of failure to apply outward transfer requirements. Some outstanding issues remain with inward transfers from specific countries; audits suggest institutions are handling these in line with the Regulation. General awareness within financial institutions appears adequate and procedures are followed. (672) ### Recommendations and Comments - To comply fully with Recommendation 10, Germany should: (673) - Consider the potential consequences of the “low-risk” exemptions for the retention of meaningful information that can be made available to the competent authorities. ### Compliance with Recommendation 10 and Special Recommendation VII - R.10: LC — Uncertainty about what information would be acquired (and therefore retained) on “low-risk” customers. (3.5.3) - SR.VII: C — This Recommendation is fully observed. (3.5.3) ### Monitoring of Transactions and Relationships (R.11 & 21) — description and analysis - Legal provisions addressing monitoring and examination: (674) - Section 3(1) number 4 of the AML Act: requires covered institutions to “continuously monitor the business relationship, including scrutiny of transactions ... ensure that the transactions being conducted are consistent with the institution’s or person’s knowledge of the contracting party and beneficial owner, if applicable, the business and risk profile, including, where necessary, the source of funds and ensure that the documents, data, or information are updated at appropriate intervals”. (674) - Section 25c(2) of the Banking Act: credit institutions “shall operate and update appropriate data processing systems which enable them to recognize business relationships and individual transactions that should be regarded as suspicious or unusual ... Where such activity is detected, it shall be investigated ... in order to be able to monitor and assess the risk ... and to determine whether it constitutes suspicious activity;” (674) - Section 80d(1) of the Insurance Supervisory Act: similar requirement to the Banking Act. (674) - Section 6(5) of the Investment Act: Section 25c(2) of the Banking Act applies equally to investment firms. (674) - Assessors’ concerns: statutory “low-risk” customers are exempted from Section 3(1) number 4 (monitoring obligation), casting doubt on practical application of monitoring for such customers. Banking and insurance provisions are more direct and target institutions requiring sophisticated systems to monitor and analyze unusual transactions. (675) - Gap identified: current provisions do not require institutions to: (676) - record in writing their analysis of transactions identified by monitoring systems; and - retain those analyses for five years to provide competent authorities background on transactions not reaching the threshold of suspicious and therefore not reported to the FIU. (676) - Special attention to countries not sufficiently applying FATF Recommendations (c. 21.1 & 21.1.1): no specific provisions in the AML Act; reliance placed on the risk-based approach and Section 6(1) requirement to apply enhanced due diligence to high-risk situations. (677) *Italic: Source — _cr1078 - 652. Against this background, all credit institutions in Germany carrying out Giro business* ### 678. Section 6 (2) specifies mandatory measures only with respect to PEPs and non-face-to-face ### _cr1078 - 678. Section 6 (2) specifies mandatory measures only with respect to PEPs and non-face-to-face ### High-risk country measures and scope of mandatory measures - Section 6(2) specifies mandatory measures only with respect to PEPs and non-face-to-face business (para. 678). - The explanatory memorandum stresses that the cases in the Act are not exhaustive and highlights "business relationships with contracting parties based in countries or regions known to have lower or insufficiently effective standards of ML prevention compared to the international standards" as a category requiring special attention (para. 678). - Section 6(3) allows the Federal Minister of the Interior to designate additional cases requiring enhanced due diligence, but no such regulation has been issued to date within the context of the principles of Recommendation 21 (para. 678). ### BaFin circulars, guidance, and de facto measures - BaFin routinely publishes circulars identifying countries/territories with weaknesses in their AML/CFT regimes, including jurisdictions from the FATF’s NCCT exercise and those subject to FATF public statements since 2008 (para. 679). - Example circular issued in 2002 concerning the “Transdnistrian Moldovan Republic” and correspondent relations risks (para. 679). - Typical BaFin circular instructions include: - More stringent requirements for customer identification in business and financial transactions with individuals or legal entities or companies. - More stringent obligations to exercise due diligence in respect of business relationships, especially correspondent relationships. - More stringent control and reporting obligations for business relationships and financial transactions. (para. 679) - BaFin has applied de facto restrictions on transfers to certain jurisdictions by money remitters in response to the “financial agents” typology (para. 680). ### Examination and countermeasures regarding transactions from weak jurisdictions - No specific obligations exist to examine and retain a written record of findings for transactions from countries not sufficiently applying FATF Recommendations beyond general CDD obligations (para. 681). - Section 11(7) of the AML Act enables BMI and MoF to issue regulations deeming specific types of financial transactions suspicious (para. 682). No such regulations had been issued by the time of the on‑site visit (para. 682). - BaFin may act under Section 6 of the Banking Act (and similar Insurance Supervisory Act provision) to counteract undesirable developments and issue orders appropriate and necessary to stop/prevent violations or undesirable developments (paras. 683–684). - BaFin stated it would follow a step-by-step approach (suitable, necessary, proportionate) when applying countermeasures against countries with poor AML/CFT systems and indicated potential actions include: - Alerting financial institutions to relations/transactions with persons, companies or financial institutions from specified countries with few or no effective AML/CFT standards. - Requiring application of certain enhanced due diligence measures for such relations/transactions. - Requiring institutions to pay particular attention to respondent banks or transactions involving such countries and include lists of high-risk jurisdictions/NCCTs in internal AML/CFT systems. - Limiting or prohibiting business relationships or transactions with specified countries or persons in those countries. (para. 684) - To date, BaFin has used circulars for the first three steps but has never prohibited institutions from undertaking transactions with specific countries; circulars are generally not directly enforceable but are treated as instructions with a traceable path to enforcement under Section 6 of the Banking Act (paras. 685–685). ### Effectiveness of implementation (Recommendations 11 and 21) - Statutory provisions related to Recommendation 11 are generally weak and do not implement Article 20 of the Third EC Money Laundering Directive (para. 686). - Banking institutions are expected to have automated systems to detect complex, unusually large transactions or unusual patterns; a few smaller/restricted institutions have refrained from automated systems but must have procedures relevant to their scale and nature of business (para. 686). - Assessors could not establish whether monitoring for such transactions is widespread practice (para. 686). - For Recommendation 21, legal provisions are similarly deficient, but BaFin circulars provide specific guidance highlighting other countries’ AML/CFT weaknesses, often aligned with FATF public statements (para. 687). - Financial institutions reported being alert to risks from such countries and sometimes adopt a harsher line on country risk than authorities (para. 687). - BaFin’s ultimate ability to enforce its administrative ladder of countermeasures against jurisdictions with weak AML/CFT regimes remains untested (para. 687). ### Recommendations and required actions (to comply fully with Recommendations 11 and 21) With respect to Recommendation 11: - Introduce an explicit requirement that a written analysis should be undertaken and recorded (for a period of at least five years), of all complex, unusually large transactions and unusual patterns of transactions that have no apparent economic or lawful purpose. (para. 688) - Clarify what procedures are expected with respect to “statutory” low-risk customers. (para. 688) With respect to Recommendation 21: - Require institutions to pay special attention to business relationships and transactions with persons from or in jurisdictions that do not sufficiently apply the FATF standard, employing their own risk analyses, in addition to placing reliance on the circulars issued by the BaFin. (para. 688) - Introduce an explicit requirement that a written analysis should be undertaken, and recorded, of all such transactions. (para. 688) ### Compliance ratings and factors underlying ratings - R.11 — PC - Uncertainty about the ability of institutions to monitor statutory “low-risk” customers effectively. - No obligation to record and retain an analysis of transactions that have no apparent or visible economic or lawful purpose. (para. 3.6.3 summary) - R.21 — PC - No explicit obligation to pay special attention to relationships and transactions involving countries with inadequate AML/CFT standards. - No obligation to record and retain an analysis of transactions that have no apparent or visible economic or lawful purpose. (para. 3.6.3 summary) ### Suspicious Transaction Reporting (STR) framework — key elements and deficiencies - Reporting requirements are set out in Section 11 of the AML Act and apply uniformly to all financial institutions (para. 689). - Section 11 provides reporting obligation wording: “regardless of the amount involved, institutions and persons covered by this Act, having established facts which permit the conclusion that an act pursuant to Section 261 of the CC [i.e., the ML offense] or terrorism financing has been or will be committed or attempted, must report these facts without delay either orally, by telephone, in writing, by email, or through electronic data transmission, to the responsible law enforcement authorities with copy to the BKA/FIU.” (para. 690) - The linkage to Section 261 sets a more restricted trigger for reporting than the FATF standard, which refers to “proceeds of criminal activity.” (para. 690) - Divergence exists about the evidential basis for filing STRs: a strict legal reading appears to require a high degree of certainty, whereas authorities maintain the system has long been based on mere suspicion in line with Article 22(1)(a) of the Third EC Money Laundering Directive; practical experience suggests a high threshold is being applied (para. 691). - Two issues tied to Section 261: - Section 261 treats the ML offense as the act of ML itself (concealment of criminal proceeds), not directly linking the obligation to suspicions that funds are proceeds of crime. - The definition of predicate offenses for ML does not capture “insider trading and market manipulation,” nor “counterfeiting and piracy of products” as FATF requires. (para. 692) - TF reporting obligation is limited because the TF offense does not fully comply with the FATF definition (para. 692). - Federal law requires STRs be sent directly to law enforcement with a copy to the federal FIU; in practice reports go to Länder criminal police offices or, in two Länder, to public prosecutors; money services providers also file copies with the BaFin AML Unit under a 1998 instruction (para. 693). - Failure to submit an STR is an offense under Section 17(1) number 4 of the AML Act but applies only where failure was intentional or with gross negligence; no sanctions have been applied to date (para. 694). - STRs on TF: FIU annual report data show filings specifically identified as linked to TF or associated activities: - Financing of terrorism 345328 - Matches with listed persons 222821 - Criminal association or organization 92110 (para. 695 / table) - No reporting threshold: Section 11(1) specifies reporting applies regardless of the amount involved (para. 696). - Tax matters: Tax offenses, if committed on an organized or major scale, are predicate offenses to ML and do not preclude reporting (para. 697). - Protection for reporters: Section 13 provides reporters “cannot be held responsible” for reports suggesting Section 261 or TF unless made deliberately false or grossly negligent; covers criminal and civil liability and internal reporting to supervisors/in-house units (para. 698). - Tipping-off: Section 12(1) prohibits disclosing that a report has been filed, but does not restrict disclosure that a suspicious transaction has been identified and that an STR is being prepared; waiver permits sharing within a financial group and between institutions with common interest if the other institution is in an EU member state or a third country deemed equivalent — not strictly FATF-compliant but noted as a waiver considered reasonable in another EU evaluation (para. 699). *Source: _cr1078 - 678. Section 6 (2) specifies mandatory measures only with respect to PEPs and non-face-to-face* ### 700. Section 11(1) of the AML Act prohibits the execution of a suspicious transaction without the ### _cr1078 - 700. Section 11(1) of the AML Act prohibits the execution of a suspicious transaction without the ### Prohibition on executing suspicious transactions and tipping-off - Section 11(1) of the AML Act prohibits the execution of a suspicious transaction without the approval of the relevant state prosecutor, or within two working days of the report, if the prosecutor fails to respond within this time. - The two-working-day timescale is assessed as sufficiently short so as not to create a risk of inadvertent tipping-off. - Common practice in the financial sector is to suspend an account or terminate a customer relationship once an STR has been filed. This practice: - Is driven in part by a high degree of certainty by institutions that criminal activity underlies the STR. - Is reportedly not always welcomed by law enforcement authorities. - Risks being a trigger for inadvertent tipping-off, though authorities did not regard it as causing particular problems. ### Enforcement and investigations of tipping-off - BaFin, responsible under the AML Act for investigating potential tipping-off cases, reported: - Only a few investigations of alleged offenses under the new AML Act. - A number of potential cases under the 2002 Act, largely due to absence in that Act of the provisions permitting intra-group disclosures of STRs. ### Confidentiality and use of STR information (Additional Element—Confidentiality of Reporting Staff (c. 14.3)) - Permitted uses of STR information (Section 11(6) and Sections 15(1) and 15(2) of the AML Act; Section 16(2) of the Money Laundering Act): - Criminal proceedings specified in Section 15(1) and 15(2). - Criminal proceedings related to a criminal offense liable to maximum punishment of more than three years imprisonment. - Taxation proceedings. - Supervisory tasks of competent authorities pursuant to Section 16(2) of the Money Laundering Act. - Threat prevention. - Protection of the names and personal details of persons who make an STR: - STRs sent to law enforcement agencies automatically become part of the criminal investigation’s case file; access is restricted to a very limited number of persons (e.g., defense counsel or other agencies upon application of an attorney showing legitimate interest). The party charged has no right to inspect the file. Decision on access rests with the public prosecutor’s office during preliminary investigation and after a final and binding judgment; otherwise with the court. - Personal data of parties submitting an STR are not stored at the FIU or State Criminal Police Offices in researchable files. Recorded information is limited to the designation of the reporting party (e.g., name of the credit institution) and the party’s reference number, but not the names of ML officers. - All FIU employees are under a general duty of confidentiality by virtue of their public office. - BaFin requirement: - Financial institutions must file STRs only through the ML compliance officer without disclosing the officer’s name or the names of any members of staff involved in the case. ### Reporting thresholds and obligations (Consideration of Reporting of Currency Transactions above a Threshold (c. 19.1)) - There is no general obligation to report all transactions in currency above a fixed threshold. - The German legislature discussed the issue in November 1998 and decided the burden on the private sector would be excessive. This decision was reconfirmed during debate on both the 2002 and 2008 AML Acts. ### Feedback and guidance to reporting institutions (c. 25.2) - Two types of feedback are provided: - FIU-produced statistical analyses, typologies, and emerging trends in its annual report and newsletters; references to international bodies such as Egmont and the FATF; secure access section on the FIU website for confidential information. - Feedback from individual state prosecutors (pursuant to Section 482(2) of the CPC) on the fundamental quality and value of STRs submitted by institutions within their region. - Section 11(8) of the AML Act obliges the responsible public prosecutor’s office to inform the FIU about the charges and outcome of criminal proceedings instituted on the basis of an STR. - Responses from public prosecutors’ offices are collected at the FIU, recorded in a database, analyzed to assess STR significance for criminal prosecution, evaluate forensic added value, monitor trends and typologies, and initiate measures to optimize prosecutors’ reporting practice. Results are published in the FIU Annual Report. - Reporting institutions’ concerns: - Institutions reported inadequate or untimely feedback on specific transactions that would enable them to understand whether reports were valuable to authorities. - Institutions consider operationally valuable feedback should come from state prosecutors’ offices. - Some institutions view quality feedback as fundamental to the development of the STR regime. - FIU developed a model reporting form and distributed it; there is no obligation to use it and it is not widely used. ### STR statistics and reporting patterns (Statistics (R.32) and Effectiveness of implementation) - The FIU maintains and publishes comprehensive STR statistics in its annual reports: numbers of STRs, sources, geographical distribution, underlying predicate offenses, and investigations. - Assessors’ view: reporting threshold is far higher than suspicion or reasonable grounds to suspect; supported by two indicators: - Numbers of reports being filed. - Extent of pre-filing analysis and investigation undertaken by institutions. - Published STR data by the FIU (Statistical Table 20: STRs filed by the Financial Sector): - I. STRs submitted by financial sector institutions (2008 / 2007 / 2006) - Banks — Credit banks: 2102 / 2147 / 2882 - Savings banks and state central banks: 2495 / 2810 / 3072 - Credit unions and cooperatives: 1407 / 1993 / 1632 - Deutsche Bundesbank: 14 / 15 / 49 - Other: 334 / 328 / 508 - Total (banks category): 6352 / 7293 / 8143 - Insurance companies — Insurance companies: 37 / 39 / 35 - Insurance agents: - / - / - - Total (insurance): 37 / 39 / 35 - Financial service providers: - Financial transfer services: 838 / 1670 / 1779 - Currency services: - / 2 / 2 - Credit cards: 82 / 24 / 4 - Travelers checks: - / - / - - Other: - / 5 / 53 - Total (financial service providers): 920 / 1701 / 1838 - Investment companies — Total: - / 2 / 1 - Financing companies: - Factoring: - / - / - - Leasing: 3 / 4 / 1 - Other: - / 4 / 2 - Total (financing companies): 3 / 8 / 3 - II. STRs submitted by federal government authorities (2008 / 2007 / 2006) - BaFin: 1 / - / 4 - Federal tax authority: 261 / 359 / 335 - Total (federal government authorities): 262 / 359 / 339 - III. STRs submitted with respect to terrorist financing (included in total for item I above) (2008 / 2007 / 2006) - Matches with listed persons: 22 / 28 / 21 - Criminal association or organization: 9 / 21 / 10 - Other financing of terrorism: 34 / 53 / 28 - Total (terrorist financing): 65 / 102 / 59 - IV. STRs submitted with respect to “phishing” and “financial agents” (included in total for item I above) (2008 / 2007 / 2006) - “phishing”: 121 / 1648 / (value missing in source for 2006 cell) - Use of “financial agents”: 971 / 2525 / 265 - Total: 971 / 2646 / 1913 - Observed patterns and assessors’ analysis: - For Germany’s economy size and developed financial sector, the level of STR reporting appears unusually low. - One reporting institution accounts for approximately 10 percent of total STRs being filed. - A substantial number of STRs (29 percent of those filed by banks and financial services providers in 2007) concern “phishing” and the use of “financial agents” to transfer proceeds abroad. - Typology described: organized gangs use third-party accounts (“financial agents”) to receive stolen funds (in return for commission); funds withdrawn in cash by the agent and transferred abroad using licensed money remitters, mostly into Eastern Europe and Russia. - Netting out this typology, the underlying STR totals show decline: - 8,107 reports in 2006 to 6,398 in 2007 and 6,341 in 2008. - FIU attributes the 2006–2008 decline to three factors: increased complexity of ML techniques; improved security for online banking services; increased use of electronic banking systems. - First half of 2009: 6 percent increase in reports compared with same period in 2008. - International comparisons and normalized rates: - Comparative country totals cited (2006 / 2007 / 2008) - Germany: 10,020 / 9,043 / 7,312 - France: 12,047 / 12,481 / 14,565 - Italy: 9,601 / 11,987 / 14,069 - UK: 213,561 / 220,484 / 210,524 - Canada: 39,036 / 50,354 / 67,740 - Fund staff analytical benchmarks: - Most countries rated LC or higher for Recommendation 13 receive in the range of 15–50 STRs per $billion of GDP. - Germany’s STR reporting rate equates to 2.7 STRs per $billion of GDP. - Most countries rated LC or higher receive in the range of 40–200 STRs per 100,000 of population. - Germany’s STR reporting rate equates to 10.7 STRs per 100,000 of population. - For law enforcement type FIUs involved in investigating ML and TF, averages where rated LC or higher are: - 36.8 STRs per $billion of GDP. - 131.7 STRs per 100,000 of population. - Both averages are significantly above Germany’s STR reporting rates. - Assessors’ conclusions on effectiveness: - The assessors find it difficult to conclude that Germany’s level of STR reporting is adequate. - Identified contributors to low reporting: - Drafting of the legal obligation implies near certainty before reporting, an interpretation widely held by reporting institutions. - STRs are filed primarily with state criminal investigation authorities and therefore represent criminal complaints that must be investigated. - Institutions conduct substantial pre-filing investigations, often assembling large dossiers and sometimes medium- or long-term account monitoring, to establish a prima facie case before filing. - Institutions fear criticism if STRs fail to make a substantive case of ML; law enforcement expectations have risen, with an emphasis on evidence of the actual ML offense and identification of potential predicate offense. - FIU indicates less than 10 percent of STRs lead to closure of the case without any residual concern that the reported transaction is linked to criminal activity. - There is a reported high correlation between suspected predicates reported by institutions and offenses concluded by law enforcement; reporting institutions have been led to believe identification of potential predicate offense is essential to an STR. *Italic: IMF source document _cr1078 (excerpts provided).* ### 718. While this process undoubtedly leads to very high quality STRs (and the authorities correctly ### _cr1078 - 718. While this process undoubtedly leads to very high quality STRs (and the authorities correctly ### STR reporting quality, patterns, and limitations - High-quality STRs: - The process "undoubtedly leads to very high quality STRs" and authorities point to a "very high number of investigations that results from the STR submissions relative to other countries." - However, this approach "denies the FIU and the state law enforcement authorities important access to a wider intelligence base." - In fulfilling a quasi-investigator role, institutions may not be effectively complying with the obligation to file reports "immediately" when a suspicion arises, because constructing a criminal complaint can "involve extensive monitoring of transactions over a period of time." - Sectoral gaps in reporting: - Reporting has been "almost nonexistent from insurance agents and currency service providers (i.e., bureaux de change)." - There are only "22" independent currency service providers other than banks, and business has declined sharply since the introduction of the Euro in 2002. - Low awareness of AML/CFT issues may exist in these sectors. - Regional variations and reporting source distortion: - Comparative low numbers of STRs submitted in Hesse (host of Frankfurt) are "surprising." - The FIU "has undertaken extensive analysis" but "has been unable to identify any specific patterns or trends" explaining regional variations. - Institutions with regional or national AML/CFT compliance functions may file STRs from a central position, "thereby distorting the true source of the underlying report." - STRs filed in individual states (as presented in source): - Baden-Württemberg 1109934 790 - Bavaria 21642039 1518 - Berlin 573698 554 - Brandenburg 198234 138 - Bremen 13196 122 - Hamburg 420343 285 - Hesse 1074930 706 - Mecklenburg Western Pomerania 98104 89 - Lower Saxony 747692 658 - North-Rhine Westphalia 21421760 1553 - Rhineland-Palatinate 339294 222 - Saarland 91108 64 - Saxony 298370 178 - Saxony-Anhalt 171132 105 - Schleswig-Holstein 336221 250 - Thuringia 160125 117 - Total 100519080 7349 ### Recommendations and key assessment findings (Recommendations 13, 14, Special Recommendation IV, and 25) - Overarching assessment (paragraphs 721–722): - Quality of STRs is high and may contribute to "exceptional levels of ML convictions and orders obtained to forfeit and confiscate assets that are proceeds of crime by international comparison" though "there is no hard evidence to demonstrate this contribution." - The "high-quality" STR approach reduces the FIU/LEAs' broader intelligence base; a broader base "may help in efforts to fight more serious ML and also assist efforts to actually confiscate and forfeit more assets." - Combined legal/technical deficiencies and restricted intelligence suggest the framework "falls materially short of the standard, while still delivering some distinctly positive output." - Specific recommended actions for Germany: - With respect to Recommendation 13 and Special Recommendation IV: - "Establish clearly that the legal threshold for STR reporting is an obligation with respect to transactions where the institution suspects or has reasonable grounds to suspect that the transaction involves the proceeds of crime." - "Investigate the reasons for the exceptionally low level of reporting among certain institutions." - With respect to Recommendation 14: - "Extend the tipping-off provision to cover cases where transactions are being reviewed internally to determine whether an STR should be filed." - With respect to Recommendation 25: - "Discuss with the state prosecution authorities the introduction of a common approach to providing feedback to reporting institutions on both the overall quality of reports and their value in terms of investigations and prosecutions." - Compliance ratings and supporting factors (section 3.7.3): - R.13 — PC - Scope of reporting relates to ML only and not to proceeds of criminal activity. - Threshold for reporting requires a high degree of certainty of an offense, and the report constitutes a criminal complaint. - Reporting obligation does not cover "insider trading and market manipulation," nor "counterfeiting and piracy of products" as these are not predicate offenses for ML. - Material deficiencies in the TF offense limit the reporting obligation. - High threshold for reporting creates the need for investigation which in turn makes prompt reporting of suspicions impracticable. - Low level of reporting suggests that not all aspects of the regime are working effectively. - R.14 — LC - Tipping-off prohibition applies only to reports that have already been filed. - R.19 — C - "This Recommendation is fully observed." - R.25 — PC - "Very poor specific feedback on STRs filed with the Länder authorities." - Overall rating for this section: NC - SR.IV — PC - Threshold for reporting requires a high degree of certainty of an offense, and the report constitutes a criminal complaint. - Material deficiencies in the TF offense limit the reporting obligation. - High threshold for reporting makes prompt reporting of suspicions impracticable. ### Internal controls, compliance, audit, and foreign branch/subsidiary measures (Recommendations 15 & 22) - Legal framework and key obligations: - AML Act and sector laws (Banking Act, Insurance Supervision Act, Investment Act) require internal controls, policies and procedures. - Section 9(1) AML Act requires credit institutions, financial services institutions, and insurance undertakings to take "appropriate internal measures" ("internal safeguards") to ensure they cannot be misused for ML and TF. - Section 9(2) requires institutions: - To designate an ML compliance officer (including at group level) directly subordinate to management to act as contact for law enforcement, the BKA (FIU), and financial supervisors; and to provide the officer with means and procedures necessary to carry out responsibilities. - To develop and update internal policies, appropriate business and customer-related safeguards and controls to prevent ML and TF. - Section 9(4) permits supervisory authority to give instructions to implement internal safeguards and to permit risk-sensitive application of internal controls. - The foregoing provisions "do not apply to insurance intermediaries." - Compliance officer role and limitations: - The role is defined mainly "to act as contact for the law enforcement authorities and by the BKA (FIU) as well as for the BaFin." - No explicit legal obligation requires institutions to ensure compliance officers have timely access to CDD information, transaction records, and other relevant information. - Section 25c(2) of the Banking Act and similar provisions require appropriate data processing systems to recognize suspicious or unusual transactions. - In November 2005, BaFin specified financial institutions with income of "€250 million ($348 million) or less are not required to use such systems." All other credit institutions are subject to the obligation. - Section 80d(1) of the Insurance Supervision Act has a similar provision but "there is no requirement to implement the monitoring procedures through automated data processing systems." - The Explanatory Memorandum indicates the compliance officer is intended to be independent of management. - Independent audit, external auditors, and ongoing training: - Section 25a of the Banking Act requires a "proper business organization" including internal audit (Section 25a(1) sentence no. 3 no. 1). - Section 64a(1) number 4 in combination with Section 80c(2) of the Insurance Supervision Act require internal auditors and at least annual checks of ML/TF prevention compliance; audit reports must be presented to management board, ML compliance officer, and BaFin. - Section 9a of the Investment Act requires internal audit function for capital investment companies; Section 99(3) extends to investment stock corporations. - External auditors are required annually under the German Commercial Code and financial sector legislation; see section 3.10 (not reproduced here) for more discussion. - Section 9(3) of the AML Act obliges institutions to ensure employees involved in transactions and establishing business relationships "are aware of methods of ML and TF and of the requirements of the AML Act." - Employee screening: - No explicit statutory requirement to ensure high standards when hiring employees. - Explanatory Memorandum equates "controls" with internal principles, safeguards, monitoring systems, and "the reliability of company employees." - Financial institutions have discretion on frequency and instruments for checking employee reliability; regular checks during employment "are needed only in exceptional, justified cases." - Application to foreign branches & subsidiaries (including third states): - "Third state" defined as non-EU/EEA country. - Section 9(2) requires subsidiaries and branches to appoint ML compliance officers. - Section 25g of the Banking Act requires institutions to: - Create group-wide internal safeguards under Section 25c(1). - Ensure compliance with due diligence requirements of Sections 3, 5, and 6 of the Money Laundering Act and Sections 25d and 25f of the Banking Act. - Ensure compliance with record-keeping requirements of Section 8 of the AML Act. - Financial holding companies and mixed holding companies as defined under the Banking Act are explicitly subject to the AML Act and supervised by BaFin. - If measures are "impermissible or 'not actually practical'" under third-state law, the parent institution "must ensure that the subsidiary or branch in such state does not establish or continue business relationships and does not undertake transactions" (third sentence of Section 25(g) of the Banking Act). - If stricter requirements apply at the registered office abroad, "such stricter requirements shall be met there." - The prohibition and duty to terminate relationships in Section 25g entered into force on "March 25, 2009," less than two months prior to the on-site visit; practical implications were not yet observable. - Section 80d(3) of the Insurance Supervisory Act requires insurance parent companies to: - Create internal safeguards under Section 9 of the AML Act for branches/subsidiaries. - Ensure compliance with Sections 3, 5, and 6 of the AML Act by branches/subsidiaries. - Ensure compliance with Section 80e (simplified due diligence requirements) of the Insurance Supervisory Act. - These measures "must be taken when permitted by the legislation of the country in which the subsidiary or branch is located." - No provisions explicitly require attention to the principle of equivalency to German standards for subsidiaries/branches in EU/EEA states that do not fully apply FATF Recommendations. - Requirement to inform home supervisor: - Section 80d(3) Insurance Supervisory Act: where third-country law does not permit application of measures, the insurance undertaking or parent "shall immediately inform its supervisory authority (in almost all cases, the BaFin) and take additional measures." - Section 25g of the Banking Act previously required notifying BaFin when foreign branches/subsidiaries were unable to implement AML/CFT measures; current wording (since March 25, 2009) explicitly prohibits establishing/continuing relationships in such circumstances. ### Effectiveness of implementation and supervisory challenges - Observations on effectiveness: - Legal obligations on internal controls, compliance management, and internal audit are "in some places narrowly focused," with gaps in group-wide standard application. - Lack of legal obligation ensuring compliance officers have timely access to CDD and transaction records is a concern, despite intended independence of compliance officers. - Transition to a risk-based approach poses challenges for institutions used to rules-based regulation; smaller institutions seek more BaFin guidance. - There is "a certain degree of concern that there will be a difference of interpretation between the regulators and individual institutions over what constitutes an adequate set of internal controls and procedures." - BaFin will begin receiving audit reports on the first full year of implementation of risk-based measures in "2010"; it is "too early to assess the effectiveness of the internal controls and cross-border measures as they apply to such measures." *Source: IMF assessment text from content unit _cr1078 (paragraphs 718–748).* ### 749. The legal obligation to provide employee training is specifically directed at those employees ### The legal obligation to provide employee training is specifically directed at those employees ### Employee training and internal controls - Legal training obligation directed at employees “involved in carrying out transactions” and for “initiating and establishing business relationships.” - Requirements do not explicitly require: - that employees be kept informed of new developments including information on current ML and TF techniques, methods, and trends; - that there is a clear explanation of all aspects of AML/CFT and suspicious transaction reporting. - Assessors’ impressions from private sector meetings: - Larger financial institutions likely apply a broader interpretation of legal requirements. - Smaller firms tend to take a narrower approach consistent with legislated standards. - Due to the large size of the financial sector, numbers of regulated institutions, and wide range of institution sizes, no overall view of sector-wide implementation of internal control requirements was possible. ### Derogations for branches and subsidiaries (Rec. 22) - Significant derogations apply to branches and subsidiaries located in EEA or EU member states with respect to implementation of group-wide standards. - At time of on-site visit: - 331 branches of German financial institutions outside Germany. - 226 (nearly 70 percent) of these were located in EEA or EU member states. - Banking Act measures with respect to branches and subsidiaries outside Germany had only come into effect shortly before the on-site visit; effectiveness could not be assessed. ### Recommendations and enforceable measures With respect to Recommendation 15: - Ensure that the compliance officer is required to have timely access to relevant CDD information. - Introduce enforceable measures requiring financial entities to provide AML/CFT training to all staff; to require that employees be kept informed of new developments including information on current ML and TF techniques, methods, and trends; and to require that there is a clear explanation of all aspects of AML/CFT and suspicious transaction reporting. - Introduce enforceable measures requiring financial institutions to apply screening procedures at the time of hiring all staff. With respect to Recommendation 22: - Introduce enforceable measures requiring all financial institutions to pay particular attention to branches and subsidiaries in countries that do not, or insufficiently, apply the FATF Recommendations. - Ensure that the provisions of section 25g of the Banking Act apply to subsidiaries and branches located in EEA and EU states. - Ensure that uniform standards are applied in the three principal sectors (banking, insurance, and investment firms). - Implement an enforceable obligation for banks and investment firms to inform German supervisory authorities immediately when a foreign branch or subsidiary (including those in EEA states) is unable to observe appropriate AML/CFT measures. ### Compliance with Recommendations 15 & 22 — ratings and underlying factors - R.15 — PC - The compliance officer measures do not apply to the insurance intermediaries sector. - No legal obligation to ensure that the compliance officer has timely access to relevant CDD information. - No obligation to provide training to staff other than those involved in dealing with customers or carrying out transactions. - No legal obligations imposed on financial institutions requiring them to put in place screening procedures to ensure high standards when hiring employees. - Application of measures across corporate groups is new and effectiveness could not be assessed. - R.22 — LC - Scope limitations: - No measures which explicitly require financial institutions to pay particular attention to their branches and subsidiaries in EU or EEA member states that do not, or insufficiently, apply the FATF Recommendations. - Obligation to notify authorities of inability to implement AML/CFT measures does not apply to EU or EEA financial institutions other than insurance undertakings. ### Shell banks (Recommendation 18) — description, powers, and compliance - Prohibition of establishment: - BaFin does not permit establishment of shell banks within Germany; no statutory prohibition but licensing and supervisory processes preclude shell operations (e.g., Section 33(1) of the Banking Act). - Prohibition of correspondent banking with shell banks: - Initiating and continuing correspondent or other business relationships with a shell bank are explicitly prohibited under Section 25h of the Banking Act. - ‘Shell bank’ defined in context as a credit institution or equivalent incorporated in a jurisdiction in which it has no physical presence or meaningful mind and management, and unaffiliated with a regulated financial group. - Requirement to satisfy respondent institutions / prohibition on use of accounts by shell banks: - Section 25f (2) of the Banking Act: credit institutions must ensure respondent institutions do not engage in or continue correspondent relationships with a bank known to permit its accounts to be used by a shell bank. - Obligations apply only with respect to relationships with financial institutions outside the EU, on basis that EU institutions are prohibited under the Third EC Money Laundering Directive from providing such facilities to shell banks. - BaFin administrative arrangements require institutions to obtain a contractual declaration from non-EU credit institutions stating they are not a shell bank, do not permit their accounts to be used by a shell bank, and have no other business relationships with shell banks. - R.18 — C (This Recommendation is fully observed.) - No recommendations and comments recorded for this section. ### Supervisory and oversight system — competent authorities, powers, resources (R.23, 29, 17 & 25) - Designation and powers: - Section 16(1) of the AML Act designates competent authorities and provides they “may take the appropriate and necessary measures and orders to ensure compliance with the requirements of this Act. To do so, they may exercise the authority granted to them for other supervisory tasks”. - BaFin responsibilities and scope: - BaFin is federal prudential supervisor for virtually all financial institutions in Germany. - Section 16(2) gives BaFin AML/CFT supervisory responsibility for all credit institutions (apart from the Development Loan Corporation—KfW), financial services institutions, domestic branches of credit institutions and financial services institutions with head offices abroad, investment companies, and investment management companies. - BaFin is designated authority for all private-sector insurance companies and public-sector insurance companies that operate in more than one Land. Public-sector insurance companies operating in one Land are supervised by local Land authorities. - Insurance intermediaries operating throughout Germany fall to the Länder authorities for AML/CFT supervision; Länder responsibilities typically housed in “Regional Commissions.” - Federal Ministry of Finance (MoF) responsible for AML/CFT supervision of the KfW; MoF confirmed no active supervision of the KfW at time of visit. KfW transferred most active lending into a new banking subsidiary supervised by BaFin. - Bundesbank is subject to the AML Act but is not supervised; holds accounts for its employees only. - Supervisory powers and cooperation: - Section 16(1) allows sector regulators to take appropriate measures and exercise authority granted for other supervisory tasks. - Sector laws provide BaFin broad prudential regulatory tools (e.g., Section 44(1) Banking Act obliges institutions to provide information and documentation on request; BaFin authorized to perform audits with or without cause; power may be delegated to Bundesbank). - BaFin and Bundesbank cooperate under Section 7 of the Banking Act; Bundesbank assesses capital and risk management and appraises audit findings; BaFin must generally base prudential measures on Bundesbank appraisals. - Prudential guidelines issued by BaFin must be agreed by Bundesbank; AML/CFT guidance does not require Bundesbank agreement. - BaFin independence, budget, recruitment, confidentiality: - BaFin is a federal public agency overseen by Federal Ministry of Finance but operationally independent (Section 2 of the Financial Services Supervisory Authority Act). - Total budget: €120.4 million ($168 million) for 2008; anticipated €135.3 million ($188 million) for 2009. Increase attributed to staff count and salaries. - BaFin covers expenses from its own revenues (fees, cost recovery, cost allocation to supervised sector). - Recruitment: selection, written and oral presentations, assessment center, language test (English); minimum grades and personal integrity requirements; criminal background checks via police clearance certificates. - High standard of confidentiality enforced through Section 9 of the Banking Act, Section 84 of the Insurance Supervision Act, and Section 5b of the Investment Act; employees must sign individual confidentiality agreements. - BaFin structure for AML/CFT: - Since 2003, all BaFin responsibilities on AML/CFT and financial fraud are grouped in Money Laundering Prevention Group (MLPG) within Corporate Services Directorate. - BaFin’s Prudential Supervisory Directorate staff complement: 841. - MLPG staffing and sections: - MLPG has about 90 staff and six sections: - Section GW 1 (10 staff): legal, international and policy matters, interpretation of AML/CFT provisions. - Section GW 2 (14 staff): monitors AML/CFT obligations for all credit institutions (2,048 entities) and 4 credit card businesses; also regular supervisory duties under Banking Act (nominal time relative to AML/CFT supervision). - Section GW 3 (18.5 staff): monitors AML/CFT obligations from AML Act and Banking Act for financial services institutions and insurance undertakings (156 insurance companies and 720 financial services institutions - not including financial leasing and factoring firms); supervises 39 money transmission businesses and 18 currency exchange businesses; prosecutes unlicensed money transmission service, currency exchange, and credit card businesses. - Section GW 4 (33 staff): manages automated account access system established April 1, 2003 under Section 24c of the Banking Act; applies special measures per Section 6a of the Banking Act. - Section GW 5 (8 staff): prudential and AML/CFT supervision of 318 financial leasing and factoring firms in southern Germany. - Section GW 6 (7 staff): prudential and AML/CFT supervision of 245 financial leasing and factoring firms in northern Germany. - Training and resourcing: - BaFin’s general training program includes a special module on AML/CFT. - New MLPG employees participate in a dedicated training program and are introduced to practical work by colleagues. - MLPG divisions present training on new AML/CFT developments (example: new AML Act). - MLPG representatives participate in international training programs, working groups, and conferences. - Overall assessment: MLPG appeared well resourced by high-quality staff, all specialists in AML/CFT. *Italic: Extracted from the provided IMF assessment text (content unit: _cr1078 - 749).* ### 771. With respect to supervision of the insurance sector that does not fall under the BaFin, the ### Supervision of the insurance sector not under the BaFin ### Supervisory resources and priorities - An appropriate level of resources appears to be assigned to AML/CFT supervision of the three public sector insurance companies supervised by Saxony Anhalt and Lower Saxony. - BaFin’s procedures and processes seem to be followed by those Länder authorities supervising the three public sector insurers. - Supervision of insurance intermediaries and financial enterprises was not detailedly assessed; available facts indicate the Länder authorities (Regional Commissions) assign a low level of priority to ensuring that insurance intermediaries (approx. 72,000) comply with the AML Act. - Supervision of insurance intermediaries is typically a part time job for those responsible. ### Sanctions framework — designated authority and available powers - The BaFin is the designated competent AML/CFT supervisory authority with the powers to apply sanctions for noncompliance with the AML Act and sector-specific laws (Banking Act, etc). - Sanctions topics covered: Powers of Enforcement & Sanction (c. 29.4); Availability of Effective, Proportionate & Dissuasive Sanctions (c. 17.1); Designation of Authority to Impose Sanctions (c. 17.2); Ability to Sanction Directors and Senior Management of Financial Institutions (c. 17.3); Range of Sanctions—Scope and Proportionality (c. 17.4). ### Administrative fines (AML Act and sector laws) - Administrative fines governed by the Administrative Offenses Act; procedure follows CPC where the Administrative Offenses Act does not rule otherwise, and is subject to the principle of certainty in criminal law anchored in Article 103(2) of the Basic Law. - Because of the requirement that all elements of an offense be clearly specified, there is a limited catalogue of AML/CFT administrative offenses. - Section 17(1) of the AML Act: anyone who intentionally or by gross negligence commits one of the following will be liable for a fine of up to €100,000 ($139,170): - failure to identify a contracting party; - failure to record information correctly or completely; - failure to keep records and other evidence of business relationships and transactions; or - failure to report suspicious activity. - Section 17(2) of the AML Act: anyone who commits one of the following intentionally (viz., excluding gross negligence) will be liable for a fine of up to €50,000 ($69,585): - failure to clarify whether the contracting party is acting on behalf of a beneficial owner; - failure to find out the name of the beneficial owner; - failure to verify the identity of a contracting party or to ensure that the first transaction is carried out through an account opened in the contracting party’s name; or - disclosure of information relating to an STR to the customer concerned or to institutions or persons other than those permitted. - Sector-specific administrative fines (examples): - Banking Act, Section 56 — maximum fines: - Failure to comply with an enforceable order to dismiss a manager etc.: a maximum fine of €500,000 ($695,850); - Failure to maintain a data file for the automated account access system, or not doing so correctly or completely; or failure to ensure that the BaFin has access at all times to the financial institution’s data files through the automated account access system: a maximum fine of €150,000 ($208,755); - Establishment or continuation of a correspondent or other business relationship with a shell bank: a maximum fine of €150,000 (pursuant to Section 143(3) no. 1 of the Investment Act this fine is also applicable to investment companies); - Establishment or continuation of a payable-through account: a maximum fine of €150,000 ($208,755); - Intentional or negligent failure to comply with Regulation 1781/2006 on wire transfers: a maximum fine of €50,000 ($69,585). - Insurance Supervision Act, Section 144 — administrative fines for failure to comply with an enforceable order to dismiss a manager, etc.: a maximum fine of €150,000 ($208,755). - Investment Act — similar provisions with a maximum fine of €100,000 ($139,170); plus a maximum fine of €150,000 ($208,755) for failure to maintain automated account access system data file/access. - The only sector-specific AML obligation in the Insurance Supervisory Act and the Investment Act is an obligation to implement appropriate internal safeguards; non-compliance does not attract an administrative fine because the obligation is not sufficiently precise to qualify under the principle of certainty. ### Liability of legal persons and individuals in management positions - General principle: no criminal liability for legal persons under German law, but both natural and legal persons are subject to administrative fines for AML/CFT failures. - Sections 30 and 130 of the Administrative Offenses Act regulate liability: - Section 30: regulatory fines may be imposed on legal persons where someone acting in prescribed capacities has committed a criminal or regulatory offense resulting in the legal person violating a provision. Prescribed capacities include: a. entity authorized to represent a legal person or member of such an entity; b. Chairman of the executive committee of an association without legal capacity or member of such a committee; c. partner authorized to represent a partnership with legal capacity; d. authorized representative with full power of attorney or managerial positions such as procura-holder or commercial power of attorney of a legal person or association; e. another person responsible on behalf of the management of the operation or enterprise (including supervision of the conduct of business or other exercise of controlling powers in a managerial position). - Section 130: neglect of duty to supervise by the owner of a company (including certain representatives) that enabled or considerably facilitated an offense constitutes an administrative or regulatory offense and can form the basis for liability of the legal person under Section 30. Section 130 does not apply to members of supervisory boards. ### Administrative payments (Zwangsgeld) and supervisory measures - Under Section 17 of the Financial Services Supervisory Act, the BaFin may impose administrative payments to a maximum of €250,000 ($347,925). - Administrative payments are a supervisory tool distinct from administrative fines and are designed as an incentive to good behavior. - There is no limit on the number of repeated administrative payments which may be applied to the same failure. - The BaFin’s MLPG uses the threat of administrative payments about 20 times each year, mainly to enforce supervisory orders (including formal administrative requests to provide information and documents). - BaFin issues “serious warning” letters where no specific administrative fine applies or where an institution approaches criteria for dismissal of a manager; such letters typically require immediate remediation under threat of an order enforceable by an administrative payment. - BaFin may only order revocation of licenses or dismissal of managers under sector-specific laws (e.g., Sections 35 and 36 of the Banking Act; Section 87 of the Insurance Supervision Act; Sections 17a, 97(3), and 17(2) of the Investment Act). “Reliability” (Zuverlässigkeit) of managers is a licensing/prudential criterion; loss of reliability (including violations of business related laws such as the AML Act) can justify dismissal. Banking Act Section 36 explicitly mentions “intentional or reckless” contravention of the AML Act as a reason for dismissal. - Under Section 81 of the Insurance Supervision Act BaFin may issue orders to prevent or remedy irregularities; Section 87 provides legal basis to issue written warnings, dismiss managers, or withdraw licenses where: 1. The insurance undertaking no longer satisfies the requirements for authorization; 2. The insurance undertaking seriously breaches its obligations under the law or the operating plan; and 3. There is evidence of irregularities so serious that continuation of business will jeopardize the interests of the insured. - These causes of action do not explicitly include AML/CFT violations. ### Application of sanctions and enforcement experience - Since 2001 the BaFin has applied one (1) administrative fine for an AML/CFT failure (under predecessor legislation to the AML Act). - The BaFin has never applied fines or dismissed any managers for AML/CFT failures under sector-specific regulatory laws (though it threatened dismissal on two occasions). - Since 2003 the BaFin has revoked the licenses of five financial services institutions (money remitters and bureaux de change) for violations of reporting and other AML/CFT obligations. - No other sanctions beyond written warnings have been applied for failures to comply with AML/CFT obligations; same appears to be the case for Länder authorities overseeing insurers not subject to BaFin supervision, and for insurance intermediaries and financial enterprises. ### Written warnings issued by BaFin (AML/CFT) - Yearly numbers of written warnings on AML/CFT issued to financial institutions by the BaFin: - Year 2004: 3 - Year 2005: 12 - Year 2006: 10 - Year 2007: 16 - Year 2008: 14 - Year 2009 (to March 09): 9 *Source: _cr1078 - 771. With respect to supervision of the insurance sector that does not fall under the BaFin, the* ### 796. The German Parliament has enacted a new Payment Services Supervisory Act which is ### The German Parliament has enacted a new Payment Services Supervisory Act which is ### Legislative changes and scope - The Payment Services Supervisory Act is anticipated to enter into force in November 2009. - Money remittance businesses will no longer be defined as financial services institutions under the Banking Act, but as payment institutions under the Payment Services Supervisory Act. - The Payment Services Supervisory Act will contain identical provisions on market entry as the Banking Act. - Payment institutions will remain under the supervision of the BaFin. ### Definition and notification rules for qualified participating interests - A qualified participating interest is deemed to exist if at least 10 percent of the capital of, or the voting rights in, an enterprise is held directly or indirectly through one or more subsidiaries or a similar relationship, or through collaboration with other persons or enterprises, in the holder’s own interest or in the interest of a third party; or if a significant influence can be exercised on the management of another enterprise. - The definition of “holding” includes not only the immediate holder but also the beneficial owner of such interests. - If any holder of a qualified participating interest subsequently intends to increase the amount of the interest over certain thresholds (20 percent, 33 percent, or 50 percent of the voting rights or of the capital), they must notify the BaFin about their intentions without delay. ### Licensing application requirements for institutions with qualified participating interests - Applicants must submit all relevant data: names of holders, amount of participating interests, professional qualifications and trustworthiness of holders or of the legal representatives or of the general partners. - For credit institutions, financial services institutions, and insurance undertakings, if holders belong to a group, details of the structure of the group and their annual audited accounts for the last three financial years must be supplied. - Holders must submit a declaration on: - their criminal record, with information on any pending or previous criminal proceedings, including ones related to administrative fines concerning business activities, as well as any sentence or another sanction applied; - involvement as a debtor in insolvency proceedings or proceedings regarding the provision of a sworn statement of assets or comparable proceedings; and - the respective case and underlying facts in detail, providing meaningful and viable documents as well as convictions that would not be mentioned in a police clearance certificate because they fell short of the relevant degree of penalty. - The BaFin is authorized at its discretion to demand further information and documents if necessary for assessing trustworthiness and reliability, specifically requiring a complete curriculum vitae (full personal details and description of professional situation) and an updated police clearance certificate in connection with previous convictions and any previous self-employed business. - The BaFin must refuse the license if facts indicate the holder of a qualified participating interest is not trustworthy or fails to satisfy requirements relating to sound and prudent management (examples: criminal record linked to offenses against property, or legal regulations, especially in the field of business and trade law, competition law or tax law). - The BaFin may refuse a license if there is evidence to suggest that the funds raised to purchase the qualified participating interest have been acquired by an action which objectively constitutes a criminal offense. ### Fit-and-proper rules for managers and supervisory boards - An institution applying for a license must submit details about the background and qualification of its managers and directors. - Business managers must submit the same set of information required for controlling shareholders; BaFin can require further information and refuse authorization to take up the management position. - At the time of the on-site visit, BaFin was not assessing trustworthiness and professional qualification of members of the supervisory board because they were not included in the definition of senior managers. - Amendments to the Banking Act and to the Insurance Supervision Act added provisions requiring fit-and-proper tests for members of supervisory boards; the amendments entered into force on August 3, 2009. - There is no requirement to review automatically all existing supervisory board members; reviews are applied only on an exceptional basis. - There is no equivalent fit and proper provision within the Investment Act, but BaFin has applied an administrative practice since 2007 requiring submission of fit and proper data. - It is not clear to the assessors whether BaFin has the legal authority to prevent appointment or remove unacceptable individuals in all cases; authorities are firmly of the opinion such authority exists through administrative procedures. - Once a license has been granted, BaFin can exercise the same powers with respect to controlling shareholders, business managers, and members of the supervisory board. - Institutions, their management, and holders of a qualified participating interest must report immediately to BaFin the appointment of a new business manager, new member of the supervisory board, and acquisition or disposal of a qualified participating interest; such changes are then subject to the same approval process. ### European passport and limitations on BaFin’s powers - Credit institutions, financial services institutions, and insurance undertakings domiciled in another state of the EEA may provide financial services in Germany through a branch or subsidiary without a BaFin license, provided they are licensed and supervised by their home competent authorities in accordance with relevant Directives (the “European passport”). - In such cases, BaFin does not carry out fit and proper tests on holders of a qualified participating interest, business managers, or members of supervisory boards, nor does it have authority to order dismissal of local managers and directors if they are neither trustworthy nor professionally qualified. - Under the European passport arrangements, BaFin must exercise supervision for AML/CFT of local branch operations and can exchange related information on the basis of relevant directives or a specific MOU with the home supervisory authority. ### Role of external auditors in AML/CFT supervision - External auditors of financial institutions supervised by BaFin and the Länder: - produce annual AML/CFT audit reports for all supervised institutions under a specific statutory authority and provide that report to BaFin; - can carry out specific on-site AML/CFT inspections at the behest of BaFin. - Under Section 340k of the German Commercial Code, all financial institutions subject to BaFin or Länder supervision are required to have their financial statements audited annually, to standards prescribed by the German Auditors Association. - External auditors are either independent accounting firms (commercial banks and insurance undertakings) or members of auditing associations (“Prüfungsverbände”) associated with regional associations of cooperative and savings banks. - The annual audit must include a requirement to audit all financial institutions for AML/CFT compliance. - Under Section 29(2) of the Banking Act, external auditors of credit institutions and financial services institutions are required to examine whether such institutions have complied with AML obligations under the AML Act, the Banking Act, and EC Regulation 1781/2006 (relating to wire transfers). This obligation does not apply to branches of institutions from other EEA member states. - Under Section 30 of the Banking Act, BaFin is authorized to instruct individual financial institutions as to the scope of the external auditors’ work and may require thematic issues to be addressed across the board. - Under sections 5 and 17(1) of the Auditors Report Regulation, auditors must address a broad range of AML/CFT and related requirements, specifically: - the filling of the senior executive positions (including the ML compliance officer) and their deputies, their position in the organizational structure, and any changes made; - the identification requirements of the Tax Code; - the identification of the economic beneficiary (the beneficial owner); - the recording and preservation requirements; - the obligation to report suspicious transactions; - the creation of an internal system for reporting suspicions; - internal reports on suspicious cases made during the period under review; and - the STRs filed with the LKAs with copies filed with the FIU, and the accounts closed and customer relationships terminated as a result of suspicion of ML transactions. - Under Section 17(2) of the Regulation, internal monitoring systems must be discussed and assessed, especially: - the activities of the compliance officer during the period under review; - the principles, procedures, and security systems to prevent ML for transactions and for business judged to be risky in terms of ML, and changes made during the period under review; - the nature and frequency of briefings of the institution’s staff on ML methods that have come to light; - the precautions taken by the appropriate office of the credit institution to file STRs; - the internal audit division’s audit activities and their results (number and nature of the findings); and - an assessment of whether the internal audit division’s audit work in compliance with their obligations was adequate, whether written reports on this monitoring were prepared, and whether these reports were submitted to the executive board. - The same system of external audit reports is required for prudential supervisory purposes, pursuant to Section 29(1) of the Banking Act. - The AML/CFT audit report does not form part of the formal audit opinion, which remains linked purely to the financial position of the institution. - The report must be filed within three months of the financial year-end (mostly end-December for German banks); if auditors find serious failings they are obliged under Section 29 of the Banking Act to report facts immediately to BaFin, which may require further information. In such cases auditors are given statutory protection from potential breaches of professional secrecy. ### Issues and developments in audit regulation - The specific areas to be covered in the audit are laid down in the Auditors Report Regulation, but there are only limited agreed procedures or auditing standards for the work. - The regulations have been outdated by the new AML Act and the introduction of the risk-based approach; authorities indicated plans to update the Auditors Report Regulation, but at the time of the on-site visit discussions had been ongoing for some time without resolution. - The auditor sector has published articles and checklists in the German audit journal describing proper processes under the new legislation. - The private commercial banks and insurance undertakings choose their own external auditors (formally appointed by shareholders). - Savings banks and cooperative banks are members of regional banking associations which provide external auditing services through regional auditing associations; institutions in these sectors have no discretion as to appointment of auditors. - There are 18 regional auditing organizations: 7 for the cooperative banks and 11 for the public sector savings banks, providing services to approximately 1,700 institutions (more than 80 percent of all banks in Germany), accounting for more than 75 percent of all assets in the banking sector. - Auditors interviewed confirmed professional standards applied by auditing associations’ auditors are the same as those of independent external auditors. ### BaFin’s risk-based AML/CFT supervisory approach - BaFin concentrated AML/CFT supervisory responsibilities within the MLPG, with liaison to the Prudential Supervisory Directorate where relevant. - BaFin adopted a risk-based approach to its AML/CFT supervisory program in 2006. - Under this approach, BaFin allocates the highest levels of AML/CFT supervisory attention to financial institutions exhibiting the highest levels of assessed net risk as evidenced by auditors’ reports. - BaFin reads at least the Executive Summary of every audit report. - Financial institutions are analyzed and rated (low, average or high) against five essential inherent risk criteria: - location (e.g., criminal areas, business areas) - scope of business (regional, national, international) - product structure (e.g., money remittance, private banking) - customer structure (e.g., nonresidents, PEPs) - distribution structure (e.g., branches, brokers, online-services) - The quality of an institution’s AML/CFT measures and safeguards, as described in its audit report, is assessed and rated by BaFin based on compliance with three categories of responsibility: “internal safeguards,” “customer due diligence,” and “other duties.” - Certain control categories have different weights when establishing the resultant risk matrix; categories relating to the role of the Money Laundering Compliance Officer, transaction monitoring and understanding the customer’s business are especially important. - For final net risk classification, BaFin assigns each entity ratings based on inherent risk and quality of controls, which in turn drives a net risk ranging from 1A (low risk-high quality of controls) to 3D (high risk–low quality of controls). ### Statistical AML/CFT risk profiles (as reported) - Statistical Table 21: AML/CFT Risk Profiles of Credit institutions on the basis of the evaluation of reports of 1,353 out of 2,048 institutions - Quality of AML/CFT-prevention: A (high), B (medium-high), C (medium-low), D (low) - Potential threat of ML/TF: - 3 (high): A 2%, B 2%, C <1%, D <1% - 2 (medium): A 71%, B 10%, C 2%, D 1% - 1 (low): A 13%, B 1%, C <1%, D <1% - Statistical Table 22: AML/CFT Risk Profiles of money remittance services and currency exchange on the basis of evaluating 42 out of 57 annual audit reports - Quality of AML/CFT-prevention: A (high), B (medium-high), C (medium-low), D (low) - Potential threat of ML/TF: - 3 (high): A -, B 5%, C 2%, D 7% - 2 (medium): A 31%, B 33%, C 7%, D - - 1 (low): A 7%, B 5%, C -, D 2% - Statistical Table 23: AML/CFT Risk Profiles of financial services institutions (other than those under Table 2) on the basis of the evaluation of reports of 635 out of 720 institutions - Quality of AML/CFT-prevention: A (high), B (medium-high), C (medium-low), D (low) - Potential threat of ML/TF: - 3 (high): A <1%, B -, C -, D - - 2 (medium): A 37%, B 28%, C 4%, D <1%- - 1 (low): A 11%, B 17%, C 3%, D 2% - Statistical Table 24: AML/CFT Risk Profiles of insurance undertakings (life insurance and accident insurance with premium redemption) on the basis of the evaluation of reports of 117 out of 134 institutions - Quality of AML/CFT-prevention: A (high), B (medium-high), C (medium-low), D (low) - Potential threat of ML/TF: - 3 (high): A -, B <1%, C <1%, D - - 2 (medium): A 21%, B 33%, C 4%, D - - 1 (low): A 11%, B 27%, C 3%, D - *IMF staff report content.* ### 818. The above ratings are based purely on the assessed AML/CFT net risk and do not include any ### _cr1078 - 818. The above ratings are based purely on the assessed AML/CFT net risk and do not include any ### Supervisory ratings and levels - Ratings are based purely on the assessed AML/CFT net risk and do not include broader prudential aspects. - The MLPG liaises with BaFin’s Prudential Supervisory Directorates so prudential supervisors understand the AML/CFT net risk profile; MLPG operates independently of prudential supervision. - Broad supervisory levels produced by the MLPG: - Simplified basic supervision for low-net risk entities (1A, 1B and 2A). - BaFin applies sufficient supervisory attention to ensure an adequate response to any identified medium or high-risk findings. - Basic supervision for medium-net risk entities (1C, 1D, 2B, 2C, 3A and 3B). - Institutions generally subject to a basic supervision plan (e.g., timetable for corrective measures, transmitting internal audit report certifying corrective measures taken, or both). - Enhanced supervision for high-net risk entities (2D, 3C and 3D). - Typical measures: - Several phone calls and letters to ensure corrective measures are adequate, timely, and successful. - Ordering regular reports. - Supervisory visits (“special audits” or “audit accompaniments”). - Summoning management to the BaFin. - Due to inherently higher ML/TF risk, large credit institutions receive at least a medium or high level of supervision; a category 3 institution cannot qualify for the lowest level of supervision. ### Supervision of branches, subsidiaries, and cross-border arrangements - For branches of EEA-domiciled financial institutions under the European Passport arrangement (which does not include provision of external auditors’ reports to BaFin), BaFin applies compensatory supervisory measures: - Rotating meetings with such branches and regular meetings with foreign banks industry association at least annually. - Requests for results of spot checks and internal audit reporting to the extent these cover AML/CFT requirements. - Ability to initiate special audits where shortcomings are suspected; receives information from home EEA supervisors if needed. - Numerical counts: - There are 96 branches of EEA financial institutions located in Germany. - According to the Banking Act, branches of German financial institutions domiciled abroad are included in consolidated supervision and subject to annual auditor reports. - There are 331 branches and subsidiaries of financial institutions outside Germany located in 50 jurisdictions, of which 26 are EU or EEA states. - In the two years preceding the on-site visit, BaFin conducted two on-site visits to such branches: one in Austria and one in Switzerland. ### Special audits and audit accompaniments - BaFin can commission its own audits (“special audits”) and can use third persons to perform duties. - For credit institutions, BaFin normally instructs institutions’ external auditors to carry out special audits. - For insurance undertakings and other financial services institutions (including money remitters and currency dealers), audits are usually led by BaFin. - Auditors accountable to BaFin for special audits but not authorized to issue orders or take supervisory measures. - Special audits are conducted regularly at institutions receiving the highest level of supervision. - Special audits by year (table as provided): - Year 2003 2004 2005 2006 2007 2008 - Credit institutions 23 18 23 18 14 8 - Money transmission services, currency exchange and credit card businesses - 2 5 7 4 7 - Insurance undertakings - 1 3 2 3 3 - Capital investment companies and stock investment corporations - - - - - - - Total 23 21 31 27 21 18 - Audit accompaniments: - BaFin conducted 17 “audit accompaniments” in 2007 and 14 in 2008. - Eleven are planned for 2009. - Primary objective: get a picture of the AML/CFT situation and undertake routine sampling of the quality of the basic audit work. - Audit accompaniments are led by the external auditor and include MLPG staff. - On-site visit totals: - A total of 38 on-site visits of both types were conducted in 2007 and 32 in 2008. ### Audit report analysis, guidance, and quality issues - BaFin does not analyze in depth all audit reports each year but reviews at minimum the content of executive summaries. - In 2008, BaFin analyzed in detail 1,182 reports out of a total of 3,203 institutions under supervision in the same period. - Under the 2007 risk-based approach and resource constraints: - Reports for larger institutions are aimed to be reviewed annually. - Reports for smaller institutions are actively reviewed about every three years. - For small cooperative and savings banks, BaFin decided not to receive all reports each year, taking half in alternate years. - Assessors observed wide variety in scope and depth of audit reports, especially in assessment of CFT measures. - Reporting by auditing associations of regional cooperative banks appeared less comprehensive than reports by independent external auditors in the private commercial bank sector. - Chamber of Auditors has established generally accepted auditing standards applicable to AML/CFT audits, but differences in quality potentially weaken BaFin’s supervisory approach. - BaFin has sought to engage cooperative banks’ auditing associations with limited success. - Guidance and circulars: - BaFin issued guidance and circulars selectively over the years; key historical document: circular of March 30, 1998 concerning measures to be taken by credit institutions to combat and prevent ML. - In early-2009, BaFin abrogated a considerable part of its guidance papers and circulars, notifying institutions that abrogated guidance would continue to provide a basis for its supervision where not conflicting with new legal provisions. This caused confusion in parts of the financial sector. - New ZKA guidance focuses on aspects new under the 2008 AML Act, including how financial institutions should implement the risk-based approach. - ZKA guidance is not fully rolled out nor comprehensive; ZKA anticipates publishing an expanded version in 2010. - BaFin and MoF have formally endorsed the ZKA guidance and indicated BaFin will use ZKA guidelines as the basis for administrative practices. - German Insurance Association (GDV) published its own guidance for insurance undertakings, also endorsed by BaFin. - Association of Building Societies and Federal Headquarters of State Building Societies have taken similar action. ### Länder supervision and resource constraints - Supervision of financial institutions is concentrated at federal level through BaFin. - Insurance intermediary sector and three small public sector insurance undertakings are regulated by the Länder. - Assessors interviewed Hesse authorities as representative Land supervision sample. - In Hesse, the Chamber of Industry and Commerce (supervised by Hesse Ministry of the Economy) supervises insurance intermediaries and financial enterprises. - Authorities appeared relatively unfamiliar with AML/CFT requirements and reported significant resource shortages to enforce the AML Act in the insurance intermediaries sector. - The Länder authorities have not issued any guidance applicable to the 72,000 insurance intermediaries in Germany. ### Effectiveness of implementation and Recommendation 17 - Statutory powers provided to BaFin are wide-ranging and appropriate. - The reliance-based methodology used by BaFin starting in 2003 served well in the rules-based AML/CFT framework prior to 2008. - Assessors’ observations and implications: - Advent of the risk-based approach and relatively low number of on-site visits with MLPG participation suggest BaFin should modify on-site supervision to include more financial institutions with higher inherent risk profiles. - Such changes may have resource implications. - Auditing standards may need review to ensure auditors can determine whether risk-based measures adopted by banks comply with AML/CFT requirements. - Länder resources for supervising insurance intermediaries appear low relative to approximately 72,000 intermediaries. ### Sanctions, enforcement, and observed practice - Administrative fines: - Relatively few violations of the AML Act attract specific administrative fines. - Higher-penalty administrative fines apply where violations are caused by gross negligence or deliberate intent (basic failures to collect client data or complete records). - Lower penalties are applied against more serious breaches (e.g., failure to identify beneficial owner), and these cannot be applied other than in cases of deliberate intent. - Assessors note the relatively low levels of available administrative fines, especially for serious violations such as failure to identify the beneficial owner, are not dissuasive given large sizes of many German banks and other financial institutions. - Historical use of sanctions and actions: - BaFin has only ever imposed one administrative fine for a violation of the (previous) AML Act. - Länder authorities have never imposed a fine for violations set out in the AML Act. - BaFin has only ever issued two supervisory instructions relevant to AML/CFT under the Banking Act, in 2005 and 2009, respectively. - BaFin was aware of only two or three cases over the last five years where suspicious activity came to its attention which should have been reported by financial institutions; such omissions specifically attract administrative fines under the AML Act but did not attract an administrative fine under the old AML law. - Neither BaFin nor the Länder authorities have ever issued any orders or dismissed any managers under Section 87 of the Insurance Supervision Act. - Administrative payments: - Administrative payments are not administrative fines and are used to enforce supervisory measures; they can only be applied indirectly for failures to comply with the AML Act. - They are considered an acceptable form of sanction so long as there is practice of using them for failure to comply with AML/CFT requirements. - Supervisory letters and warnings: - Supervisory letters are basic regulatory compliance tools and are issued where external auditors identify noncompliance. - If no action is taken, a second/warning letter is issued by BaFin. - BaFin imposed 14 warning letters in 2008 compared to a total of 3,452 supervised institutions. - Assessors consider it unlikely that the very small volume of warnings and related threats of administrative payments reflect a very high level of compliance across the large German financial sector. - Use of dismissal and threats: - BaFin used the threat of dismissal twice in the past few years: - In one case, a bank board member was warned following a year-long investigation and resigned before dismissal. - In another, letters of warning were issued to two management board members following identification of serious internal safeguard deficiencies; had the institution failed to comply, only an administrative payment (not a fine) would have been available. - Assessors expressed doubts about enforceability of dismissal as an AML/CFT sanction. *Source: Extract from the supplied IMF assessment text (content unit: _cr1078 - 818).* ### 844. The BaFin argues that it is rarely necessary to consider the application of direct sanctions ### _cr1078 - 844. The BaFin argues that it is rarely necessary to consider the application of direct sanctions ### Effectiveness of sanctions and supervisory measures - BaFin position: rarely necessary to apply direct sanctions (administrative fines) under Section 17 of the AML Act because the threat of powers against management under sector laws (administrative payments) suffices to bring about compliance. - Assessors’ view: - Administrative payments have seldom been applied in practice. - The number of on-site inspections involving BaFin staff directly is too low to assess the effectiveness of BaFin’s strategy and is itself an indicator of lack of effectiveness. - AML Act administrative fines cannot be used to enforce supervisory measures. - Specifics of AML Act fines: - Address violations associated with implementation of CDD and reporting measures implemented by managers/management board, not members of the supervisory board. - Assessors believe threats of financial penalties against supervisory board members for management’s AML/CFT compliance failures would more directly address effectiveness of implementation of “internal safeguards.” - Legal constraints and risk-based approach impact: - Concepts of “specificity” and “certainty” in German criminal law limit effective application of administrative fines due to a limited range of specified offenses. - Migration to a risk-based approach embedded in the AML Act may exacerbate issues of specificity and certainty because there may be no clear benchmark against which to judge the specific degree of noncompliance required before formal actions can be taken. ### BaFin resources and supervisory approach (Recommendation 23) - Supervisory universe and staffing: - Nearly 3,500 institutions under supervision as of February 2009. - Total BaFin staff assigned directly to AML/CFT monitoring and supervision: 47.5 FTE. - Resulting ratio: about 73 financial institutions per FTE. - MLPG unit supervising more than 2,000 credit institutions has only 14 staff, or a ratio of about 150 entities per FTE. - Implications: - Ratios suggest a lack of resources and may explain a light AML/CFT supervisory touch. - Reliance on external auditors is systemic; BaFin restricts direct supervisory intervention to a very small number of institutions with the highest net risk profile. - Low numbers of direct interventions limit BaFin’s ability to directly assess controls at higher-risk institutions and to provide informed guidance. - Engagement with auditors: - BaFin has engaged in bilateral and industry discussions with the IDW and one regional auditing association. - AML Act took effect in August 2008; auditors’ reports on the first full year’s implementation of the risk-based approach will not be available to BaFin for analysis until 2010. ### Risk-based approach, audit reliance, and guidance (Recommendation 25) - Transition challenges: - Institutions need clarity on how BaFin will interpret and apply the risk-based approach; auditors must move to a more risk-based assessment. - BaFin should engage in significant outreach, especially to smaller banks. - Guidance issues: - Decision to abrogate most of BaFin’s guidance, while stating it would remain in effect unless it clashed with the new AML Act, caused some confusion. - Private sector introduced replacement guidance (endorsed by BaFin), but scope is limited. - Insurance intermediaries: - No comprehensive guidance issued to approximately 72,000 insurance intermediaries despite specific German typologies (one of two suspected Al-Qaida terrorists took out life insurance in Germany in 2004 and planned to fake his own death to raise funds). - GDV guidance (endorsed by BaFin) in the insurance undertaking sector may address key issues for intermediaries. ### Prudential powers and audit report concerns (Recommendation 29) - BaFin powers and funding: - BaFin has adequate prudential supervisory powers and AML Act authorization to apply administrative fines. - BaFin sets its own budget and can assess the financial sector for necessary funding. - Audit report reliance and concerns: - Systematic receipt and evaluation of external audit reports is valuable for monitoring AML/CFT implementation. - Concerns exist about the depth and breadth of audit reports, particularly in certain geographical areas in the cooperative banking sector. - Auditing standard changes related to the current AML Act (risk-based approach) require methodological changes to ensure audit reports remain reliable for BaFin use. ### Recommendations (to comply fully with Recommendations 17, 23, 25, and 29) - Add specific administrative fines for AML violations into the Insurance Supervision Act and the Investment Act. - Increase the range of specific administrative fines under the AML Act and also lower application thresholds (negligence or deliberate intent). - Increase the amounts of specific administrative fines under the AML Act for the more serious violations set out in Section 17(2) of the AML Act and extend their applicability to gross negligence. - Ensure that members of the (supervisory) Board of Directors are explicitly subject to appropriate administrative fines for failure to supervise managers responsible for compliance. - Introduce legal provisions that explicitly allow the BaFin to dismiss managers and members of (supervisory) Boards of Directors for AML/CFT violations. - Review the adequacy of the frequency with which the high-risk institutions are subject to on-site inspection by the BaFin and the consequential impact on resources. - Address the issue of guidance on audit report quality as a priority with the auditing organizations in the cooperative banking sector. - Ensure that Länder authorities are sufficiently aware of their AML/CFT supervisory responsibilities and apply sufficient resources to supervise insurance intermediaries. - Arrange for Länder authorities to issue guidance to insurance intermediaries. ### Compliance ratings and factors underlying ratings - R.17 — PC - Administrative fines are not proportionate (very low number of administrative fines available under the AML Act) nor sufficiently dissuasive; maximum amounts of fines under the AML Act are low. - High penalties can only be applied for gross negligence or deliberate intent due to criminal nature of penalties. - Administrative fines are not applied effectively—the BaFin has only ever applied one administrative fine many years ago. - Due to the constitutional principle of specificity, no administrative fines for violations of obligations to establish appropriate internal safeguards under all sector-specific laws; enhanced due diligence obligations in Banking and Investment Acts not fined. - Uncertainty whether administrative fines apply to individual supervisory board members failing to supervise management. - R.23 — LC - Uncertainty about legal basis for BaFin’s ability to apply fit and proper testing for members of supervisory boards of investment companies. - Lack of effectiveness in supervisory practice: - Lack of effective sanctions for noncompliance with AML/CFT requirements. - Issues about uncertain quality of audit reports for some cooperative banks; AML/CFT auditing standard had not been updated. - Länder authorities seem unfamiliar with their AML supervisory responsibilities and apply insufficient resources to supervise many insurance intermediaries. - Fit and proper requirements for supervisory board members have not been applied to existing board members due to newness of requirements. - R.25 — PC - Uncertainty in parts of the financial sector on the status of abrogated circulars. - New private sector replacement guidance (approved by BaFin and the MoF) is limited in scope. - Lack of comprehensive guidance for the insurance intermediaries sector. - R.29 — LC - BaFin has adequate supervisory powers, but weaknesses exist in the effective use of such powers in practice. - Fit and proper requirements for supervisory board members have not been applied to existing board members due to newness of requirements. - Rating for this section: PC ### Money or Value Transfer Services (SR.VI) — summary (c. VI.1–VI.4) - Legal/regulatory framework and licensing: - MVTS providers are “financial services institutions” as defined in Section 1(1a) of the Banking Act and include “the execution of payment orders (money transmission services).” - MVTS providers have been supervised by BaFin since 1998. - At time of on-site visit, there were 39 licensed money remitters in Germany, in addition to banks providing such services. - MVTS operators are licensed under the Banking Act with conditions including sufficient capital, business resources, organizational requirements, and “fit and proper” requirements for owners and senior managers. - Head office of licensed financial services businesses must be located in Germany; under Section 33(1) of the Banking Act, money remitters cannot be sole proprietorships. - BaFin may limit licenses to certain types of businesses, including geographical restrictions (e.g., limits on sizes of transfers to particular jurisdictions). - BaFin guidance on licensing updated most recently on February 21, 2008; guidance interprets legal requirements and does not add enforceable obligations. - Licensing refusals (pursuant to Section 33(1) of the Banking Act): - License must be refused where facts suggest applicant or its managers are not trustworthy. - License must be refused where holder of a qualified participating interest or legal representative is not trustworthy or fails to satisfy requirements for sound and prudent management. - License must be refused where proprietor or managers lack professional qualifications necessary for managing the institution. - License must be refused where an institution authorized to obtain ownership or possession of funds or securities of customers does not have at least two managers who work not merely in an honorary capacity. - License must be refused where the institution has its head office outside Germany. - License must be refused where institution is not prepared or not in a position to make necessary organizational arrangements. - License must be refused where the applicant is a subsidiary of a foreign credit institution and the competent foreign supervisory authority has not given consent to establishment. - Supervision and enforcement: - BaFin routinely visits a new licensee within four to six months after licensing to verify systems and control procedures; thereafter reliance is placed on the annual AML/CFT audit. - Six persons assigned full time in the MLPG to supervision of money remitters and enforcement against illegal remitters. - BaFin authority: enter premises, access books and records, seize evidence, and take statements when investigating illicit activity. - When illicit activity is identified, BaFin issues ‘cease and desist’ orders (initially orally with a written administrative decision shortly thereafter); persistent illegal activity is referred to the public prosecutor. - Illegal remittance activity and enforcement statistics: - 2008: BaFin investigated 129 unlicensed remitters (171 in 2007). - BaFin has investigated between 100 and 200 cases of illegal remittance activity per annum in Germany over the past few years and shuts down around 15 operators each year. - Most illegal remittance activity is concentrated among various ethnic groups and is relatively small in volume, although a few years ago an illegal operator was shut down whose volume was about €6–7 million per year ($8–10 million). - Relatively few illegal operations are initially identified by police or prosecution; most are identified by BaFin through open-source scanning or whistleblowers (especially competitor operations). - Illegal operations are most commonly found among travel agents, import-export companies, and small retail outlets. - Application of FATF Recommendations: - Full range of measures under Recommendations 4 to 11, 13 to 15, 21 to 23, and SRI to IX apply to money remitters, except certain measures that apply only to credit institutions and insurance companies (e.g., obligation to have data processing systems that recognize customer relationships). - BaFin imposes suitable data processing requirements as a condition of granting a license. - Remaining exclusions are assessed as not material to the overall regime. *Source: IMF staff report text as provided.* ### 863. All licensed MVT operators file a list of their cooperation partners (staff and managers that ### _cr1078 - 863. All licensed MVT operators file a list of their cooperation partners (staff and managers that ### Licensed Money or Value Transfer (MVT) Operators — Licensing, Reporting, and Prohibition of Agents - All licensed MVT operators file a list of their cooperation partners (staff and managers that run operations) in Germany and abroad; this filing is a licensing requirement imposed by the BaFin by administrative practice and is captured as part of the annual audit report process. - Maintenance of lists of cooperation partners is not explicitly addressed in the Banking Act or the Auditor Regulations (it used to be but was repealed). - The BaFin requires, through regular supervision administrative practice, money remitters to notify it when new cooperation partners are appointed, through a monthly reporting process. - Under the Banking Act persons must be directly licensed (including where services are only partially provided in Germany); agents (self-employed traders under franchise-type arrangements) are not allowed. - All MVT operators are required to settle transactions through regulated credit institutions. ### Sanctions, Best Practices, and Compliance Assessment (SR.VI) - The range of sanctions derived from the AML Act and sanctions applicable to financial services institutions under the Banking Act (as described under Recommendation 17), and their identified deficiencies, also apply to money remitters. - Germany’s MVT licensing regime appears to be compliant with the FATF Best Practice paper on SR.VI. - SR.VI Rating: LC - Effectiveness: deficiencies in regulations or other measures in the areas of CDD, reporting of suspicious transactions, and sanctions. - Additional Element—Applying Best Practices Paper for SR VI (c. VI.6): Germany’s MVT licensing regime appears to be compliant with the FATF Best Practice paper on SR.VI. ### Effectiveness of Implementation and Resourcing - Germany has a reasonably effective regulatory framework for monitoring money remitters, but weaknesses in CDD requirements, STR reporting, and availability/use of sanctions reduce overall effectiveness. - The assessors considered factors underlying the ratings of Recommendations 5, 13, and 17 when evaluating compliance with SR.VI. - Demand drivers: the size of the German economy, coupled with high levels of foreign workers, appears to generate high demand for remittance services outside the regular banking sector. - Enforcement resourcing: the BaFin has an enforcement unit of 6 FTE which has been identifying and closing a steady stream of illicit remittance activity since 1998. - Assessors note the consistent volume of illicit activity, at levels significantly higher than licensed activity, and recommend consideration of more resources to this work. - Although no explicit ongoing statutory requirement exists for MVTS operators to maintain lists of cooperation partners (aside from the filing required upon licensing and information in annual audit reports), the licensing and audit processes capture cooperation partners and the BaFin can and does obtain updated information on demand. Given the relatively small number of licensed remitters, assessors are satisfied that BaFin access is effective. ### Recommendations and Comments (SR.VI) - The recommendations and comments applicable to Recommendations 5, 13, and 17 apply where applicable to the MVTS sector in accordance with the FATF methodology. - The authorities should consider applying more resources to identifying and closing illicit money remittance operations. ### DNFBPs — Customer Due Diligence (CDD) and Record Keeping (R.12) — Legal Framework and Scope - The customer due diligence and record-keeping requirements for DNFBPs are set out in the AML Act; with minor variations these are the same as for financial institutions. - The AML Act applies to the following German nonfinancial institutions (Section 2 numbers 7 to 12 of the Act) when they assist in the planning or execution of specified transactions: - Lawyers, legal advisers who are members of a chamber of lawyers and registered persons as defined in Section 10 of the Legal Services Act, patent attorneys and notaries when they assist in specified transactions (buying/selling real property or business entities; managing client money, securities or other assets; opening/management of bank, savings, or securities accounts; procurement of funds for creation/operation/management of companies; creation/operation/management of trusts, companies, or similar structures; when acting on behalf of and for their client in any financial or real estate transaction). - Auditors, chartered accountants, tax advisers and tax agents. - Trust or company service providers not already covered under the previous two items when providing specified services for third parties (a through f enumerated). - Real estate agents. - Gambling casinos. - Persons trading in goods. - TCSP requirements generally fall under obligations applicable to legal and accounting professionals; office services (accommodation mailing addresses, mail and answering services) are covered under general TCSP provisions of the AML Act but no arrangements have been made for compliance supervision. - In some cases the German specification of DNFBP activities covered by the AML Act is slightly broader than the FATF specification (e.g., AML Act applies to accountants in all their activities and includes tax advisers; real estate agents are included without limitation to transactions concerning the buying and selling of real estate; all persons trading in goods are included, not just dealers in precious metals and precious stones). ### DNFBP Risk-Based Measures and Specific CDD Exemptions - Risk-based measures introduced in the AML Act apply to DNFBPs; risk sensitivity depends on contracting party, business relationship, product, or transaction (AML Act, Section 2.4). Section 2.4 requires institutions and persons covered by the Act to demonstrate to competent authorities that the extent of measures is appropriate in view of ML and TF risks. - Exemptions narrowing scope for certain DNFBPs: - Persons trading in goods: Section 3(2) narrows CDD obligation to cases where cash payment is accepted in amounts of €15,000 ($20,876) or more—apart from cases where there is reason to suspect ML (Section 261 StGB) or TF (Section 3(2), third sentence). - Gambling casinos: Section 3(3) requires casinos to verify identity of customers buying or exchanging gambling chips with a value of €2,000 ($2,783) or more; this may be met by verifying identity of customers when they enter the gambling casino. - Legal advice exemption: Section 3(6) permits establishment or continuation of a relationship for the purpose of legal advice or representation in proceedings even where CDD cannot be fulfilled, unless the person knows the client is utilizing legal advice for ML or TF; legal advice is interpreted broadly in Germany and the exemption appears more expansive than contemplated in the Methodology. ### Casinos — Regulatory Framework and CDD Implementation - Internet Casinos: - Casino regulation is governed by Länder legislation harmonized by the State Gambling Treaty effective January 1, 2008; the Treaty prohibits internet casinos (paragraph (4) of Section 4). - Prohibition reinforced by German CC: offering internet casinos is a prohibited organization of public games of chance (Section 284 CC); use is participation in prohibited public games of chance (Section 285 CC). Offenses apply regardless of operator seat if accessed within German territory. - Land-Based Casinos: - Under the AML Act all casino customers are identified when they enter the casino; basic details recorded including passport number or similar identification number. - Some casinos use electronic readers for German identity cards and passports; frequent visitors may obtain casino cards with machine readable identity information; re-swiping on departure or noting time of exit is common. - Casinos exchange information among themselves about barred patrons via an online database; database now includes individuals barred from state lotteries and is consistent with European privacy and data protection laws. - Identification threshold: €2,000 ($2,783) or more for chip purchases/exchanges; identification-on-entry commonly used to meet this requirement. - Practice shortcoming: identify-on-entry arrangements generally do not ensure linking of customer due diligence information to particular transactions within the casino (c. 12.1.a, footnote 21). - Payouts and verification: - Large payouts may be made by check for security reasons and may entail additional identity verification. - Casinos do not issue winnings receipts; checks do not indicate they represent winnings. - In exceptional circumstances winnings may be wire transferred to customer bank accounts subject to full documentation and additional verification. - Operational notes: casinos generally operate cash-in, cash-out; only Euros are used; foreign currency is not accepted. Casinos do not provide house credit but accept credit cards; large or unusual credit card purchases may trigger additional scrutiny primarily for credit risk purposes. - Operators report average client net expenditures are now under €150 ($209). No national statistics available on extent payouts are by check or wire transfer. *Source: Provided content from the IMF assessment PDF content unit* ### 888. Casino operators generally were of the view that because they operated primarily on a cash- ### Section 888–909: Casinos; Real Estate Agents; Dealers in Precious Metals and Stones; Legal Professions ### Casinos - Casino operators believed that because they operated primarily on a cash-in, cash-out basis, the risks of ML in German casinos were relatively low. - German casinos do not cater to more vulnerable clients such as high rollers and casino tourism. - The German criminal provision prohibiting casinos unless formally licensed applies to German high-seas cruise ships, since they qualify as German territory (Section 4 of the CC). - Despite structural features that may mitigate vulnerabilities, operators did not appear alert to complex and sophisticated arrangements for using casinos to launder money, such as those discussed in the March 2009 FATF Report “Vulnerabilities of Casinos and Gaming Sector.” - While some transactions and some customers may trigger some enhanced due diligence, no systematic risk rating procedures have been developed to recognize and identify clients that pose a high ML risk. ### Real Estate Agents - Legal and licensing framework: - Under Section 34c, (1), no. 1 of the German Trade Regulations Act (GewO), real estate agents are subject to business licensing requirements for professionally brokering contracts involving real property, rights equivalent to real property, commercial space or residential space, or documenting in the ordinary course of business, contract-making opportunities. - The GewO is administered by trade supervisory offices at the Länder level, typically under the authority of the regional Ministry of Economy or, for some purposes, under a regional court. - A business license shall be withheld if there are grounds indicating the applicant or management is not reliable or the applicant is in a precarious financial situation. - A person shall be deemed to lack necessary reliability if convicted in the last five years before application of specified crimes (including ML). - Transactional and structural features limiting agent exposure and incentives: - All real estate transactions are required to be notarized and all escrow arrangements are handled by a notary. - Real estate agents do not receive or hold client’s funds. - The agent’s role is to bring together buyer and seller and mediate provisional terms; a formal contract is executed under the agency of a notary. - Dual agency is the rule; exclusive listings for fixed periods are exceptional; sellers may list property with multiple agents. - ML/TF vulnerability implications: - These market features limit the extent to which an agent undertakes due diligence on clients in the normal course of business. - A listing agreement appears to constitute “establishing a business relationship” and may meet the test of carrying out an occasional transaction above the threshold of €15,000 ($20,876), but lack of exclusivity limits the agent’s incentive to fully identify clients at engagement outset. - Frequent disputes about commissions and the practice of different, but affiliated, buyers or sellers meeting the notary to conclude a contract can enable straw man transactions, undermining the value of CDD carried out prior to contract conclusion. - The notary’s responsibility for complete due diligence reduces the agent’s incentive to identify clients fully. - Nonetheless, agents need sufficient information to represent buyer suitability and seller ownership. - Sector awareness and guidance: - Real estate agents who met assessors were aware they were subject to the AML Act, generally believing they were not expected to undertake regular due diligence because they do not accept client funds and notaries and banks are involved. - Their current practices fall short of FATF standards, which require CDD “when they are involved in transactions for their client concerning the buying and selling of real estate” without regard to whether client funds are handled or whether other parties are involved. - Regional authorities have not issued guidelines to real estate agents on AML Act compliance, nor undertaken awareness-raising campaigns. - Approximately half of the 12,000 agents in Germany are members of a national association of real estate agents; the association notified members of the 2008 AML Act and that AML information is available on the FIU website, but was not aware of published typologies or risk rating systems for the sector. ### Dealers in Precious Metals and Dealers in Precious Stones - Scope and legal trigger: - Germany includes all “persons trading in goods” within the scope of preventive measures under the AML Act, including dealers in precious metals and precious stones. - Under Section 3(2) of the Act, persons trading in goods are required to carry out due diligence “only when accepting cash amounting to €15,000 [$20,876] or more,” “whether the transaction is carried out in a single operation or in several operations totaling €15,000 or more.” - Regulatory context: - Dealers in precious metals and stones are not specifically regulated professions but fall under Trade Law. - Administration of Trade Law is the exclusive responsibility of the 16 Länder; the federal government cannot regulate supervisory competencies in this area. - Administration typically comes under the authority of the Länder Ministry of Economy and is carried out through district or municipal offices. - Awareness and supervisory information gaps: - Almost no information was available to the mission on sector practices with respect to AML Act compliance. - At least two associations represent the sectors, but they were not available to meet with the mission. - Länder Ministries contacted did not identify officials knowledgeable about these businesses. - Länder officials were not aware of steps to ensure compliance by “persons trading in goods” with CDD obligations under the AML Act. ### Legal Professions (Lawyers, Patent Attorneys, Notaries, Auditors, Accountants, Tax Advisers) - Scope of AML obligations: - The structure of AML/CFT obligations is identical across lawyers, legal advisers who are members of a chamber of lawyers, registered persons per Section 10 of the Legal Services Act, and patent attorneys. - Under Section 2(7) of the AML Act, due diligence obligations arise “when they assist in the planning or execution of the following transactions for their clients: - a. buying and selling of real property or business entities, - b. managing of client money, securities, or other assets, - c. opening or management of bank, savings or securities accounts, - d. procurement of funds required for the creation, operation or management of companies, - e. creation, operation or management of trusts, companies or similar structures, or - f. when they act on behalf of and for their client in any financial or real estate transaction.” - This specification includes all situations specified in Recommendation 12. - Section 3 (1) of the Act spells out general due diligence and addresses all criteria of Recommendation 5. - Legal professional privilege and carve-outs: - Under Section 3(6) of the AML Act there is a carve-out from the general requirement to terminate a relationship in cases where CDD cannot be completed “when the contracting party seeks legal advising or representation in proceedings.” - The exemption language for “legal advising” is broader than the “ascertaining of the legal position of their client” language in FATF Interpretative Note 16 (IN 16). - IN 16 indicates it is for each jurisdiction to determine matters falling under legal professional privilege; privilege normally covers information lawyers, notaries or other independent legal professionals receive in ascertaining the legal position of their client or in defending/representing that client in proceedings. - IN 16 contemplates inclusion of accounting professions; the assessors found auditors, chartered accountants, and tax advisors appearing to take an expansive view of privilege coverage. - No general guidance has been provided regarding what matters are or are not included within the carve-out for “legal advising.” - Professional secrecy and its impact on AML/CFT: - Lawyers, patent attorneys, notaries, auditors, accountants, and tax advisers are subject to strict professional secrecy obligations; legal advisers registered by local courts are not subject to statutory professional secrecy. - Under the CC, violations of professional secrecy are subject to criminal sanctions. - Customer identification information is understood to be covered by professional secrecy; professions will only provide CDD details to another party if the client specifically authorizes release. - A court order is required for law enforcement to obtain CDD information from these professionals; they are not permitted to give testimony in legal proceedings about client information subject to professional secrecy, including CDD information. - As implemented, legal professional secrecy provisions undercut full compliance with Recommendation 12 in two respects: - (a) The overly broad interpretation of “legal advising” allows a broad exemption from requirements to terminate a relationship when full CDD cannot be completed (c 5.15 and 5.16). - (b) Restrictions on release of CDD data inhibit compliance with c. 10.3, which calls for customer and transaction records and information to be available on a timely basis to domestic competent authorities upon appropriate requests. - Lawyers (practice and oversight): - Lawyers are only engaged to a limited extent in activities bringing them under the preventive measures sections of the AML Act because notarization and notaries handle many relevant transactions. - Managing of client money, securities or other assets is frequently handled by banks or notaries; lawyers do maintain lawyers trust accounts at banks. - Under Section 4 (2) of the Lawyers Rules of Professional Practice, client funds are to be passed on immediately; when not possible they should normally be held in a separate account on behalf of one individual client, where the name of the client is identified to the bank by the lawyer. - Amounts held in a collective clients’ account cannot exceed €15,000 ($20,876) and are not to be held for more than one month. - Responsibility for management and oversight of lawyers rests with regional Chambers of Lawyers; the Federal Chamber acts as an umbrella. - Outreach: Federal Chamber provided information notices, newsletters, magazine articles, speeches, semi-annual meetings discussion; limited training sessions mainly for larger law firms; no specific guidance yet issued by the Federal Chamber, though a paper is being prepared. - A 2004 study “Money Laundering Vulnerability of Lawyers, Tax Advisors, Notaries and Auditors” was published by the Max Planck Institute for Foreign and International Criminal Law; in October 2003 the FIU published guidance on “Possible money laundering indications in accordance with Section 261 of the CC relevant to newly-obliged parties…” - Regional chambers have SRO authority but do not have authority for routine file examinations to monitor compliance; therefore no direct independent evidence on lawyers’ effective implementation of due diligence is available. - Chamber officials report that investigations of lawyers undertaken because of complaints have not generally revealed problems with AML compliance and consider due diligence customary in practice. - There is a prevalent view among some chambers and practitioners that the profession is low risk for ML/TF, in part because lawyers typically do not handle client funds; assessors view this as an overly facile assumption suggesting a need for additional training. - Patent Attorneys: - AML/CFT due diligence framework for patent attorneys is identical to that for other lawyers. - Patent attorneys are specialized in intellectual property law and organized under the Chamber of Patent Attorneys. - Because of specialization, patent attorneys do not typically become involved in most activities listed in Recommendation 12 (buying and selling real estate, management of client funds, management of financial accounts). - They advise and participate in negotiation and contracting for purchase and sale of intellectual property rights. - Chamber representatives state they are not aware of German patent attorneys being involved in lodging intellectual property rights in special purpose vehicles or negotiating transfer prices in such arrangements. - Patent attorneys typically work with a stable list of clients, many listed companies; it is generally accepted in Germany that patent attorneys have a low vulnerability to ML or TF and Chamber representatives were not aware of typologies linking intellectual property transactions to ML. *Source: IMF assessment text (excerpt covering paragraphs 888–909).* ### 910. Based on discussions with the Chamber, patent attorneys are aware that they have obligations ### _cr1078 - 910. Based on discussions with the Chamber, patent attorneys are aware that they have obligations ### DNFBP sectors and legal/professional obligations - Patent attorneys: aware of obligations under the AML Act; specific compliance measures not adopted because likelihood of involvement in scoped transactions considered remote. The Chamber has formal oversight responsibility but cannot undertake routine compliance examinations; can review compliance only in context of an investigation initiated for other reasons and has not done so to date. - Notaries: - Most involved in transactions itemized in Recommendation 12, item d. - Required to notarize contracts for purchase and sale of real estate and of companies; advise and attest to legal validity and carry out legally required due diligence. - Represent both sides in a disinterested manner; not generally involved in procurement of funds, creation/operation/management of trusts, or tactical/strategic transaction structuring. - Play escrow role; commonly hold client funds and securities pending settlement, including holding client funds in notaries trust accounts at banks. - Have well established procedures and considerable experience in carrying out due diligence required under the FATF Recommendations and the AML Act; Chamber of Notaries and practicing notaries demonstrated a thorough understanding of obligations. - Legal advisers who are members of chamber of lawyers: - Included as covered parties under the AML Act. - Historical context: until 1980 legal advisers recognized under the 1935 Legal Consultancy Act but not chamber members; in 1980 the profession was closed and those admitted up to 1980 could join chamber of lawyers; very few remain active today. - Same AML/CFT obligations as fully-qualified lawyers; supervised by the Chamber of Lawyers for AML/CFT compliance. - Registered persons (Section 10 of the 2007 Legal Services Act (LSA)): - LSA enforced since July 2008, replaced the 1935 Legal Consultancy Act; regulates out-of-court legal advice by non-chamber parties. - Registration not required where legal advice is part of another profession’s activity (e.g., architect or engineer). - Registration required for: (a) debt collection services, (b) pension consultancy, (c) consultancy on foreign law; registration administered by a regional court which is also the supervisor for compliance. - Registered persons fit a reasonable interpretation of legal professionals; may carry out activities listed in criteria 12.1d. - AML compliance regime application is relatively new; limited experience on familiarity with CDD obligations and operational practices; oversight practices not yet developed though Act provides authority for oversight. - Registered legal advisers have contractual confidentiality but not the same strict statutory professional secrecy as other legal professions; AML Act extends same exemptions to them as to professions subject to professional secrecy obligations. - Accounting professions (auditors, chartered accountants, tax advisers, tax agents): - CDD legal framework identical to lawyers, except AML/CFT obligations apply to all activities of accounting professions rather than enumerated activities. - Chamber of Auditors (SRO) circulated notices of obligations under the 2008 Act; Institute issued May 2009 guidance on implementation (advisory only) including risk-based approach discussion; training for chamber members planned later this year. - Institute researching ML and TF vulnerabilities but no reports issued to date. - Chambers developed quality assurance programs with on-site visits that can include due diligence compliance; Chamber members stated no CDD compliance issues emerged from reviews. - Tax advisers and tax agents: - Regional chambers are SROs; chambers issued notices advising obligations under the AML Act. - Federal Chamber published guidance in April 2009 on implementing AML Act requirements for tax advisers and posted various references. - No systematic review of sector ML vulnerabilities; chambers do not have authority for routine on-site compliance examinations; no independent evaluation of tax advisers’ CDD implementation. - Tax agents are discontinued category absorbed into Chamber of Tax Advisers and subject to same obligations. - Trust and Company Service Providers (TCSPs): - AML Act Section 2(9) applies if not already covered by legal or accounting professions and when providing specific services listed in Recommendation 12; in Germany such services typically provided by legal/accounting professions or banks; authorities have not identified other groups offering these services regularly. ### Application of R.6, R.8–R.11 to DNFBPs (criteria and implementation) - Political Exposed Persons (R 6): - DNFBPs have same PEP obligations as financial institutions under the AML Act; effectiveness discussion referenced from Section 3. - No specific requirement imposed on DNFBPs to put in place risk management systems to determine whether customers or beneficial owners are PEPs. - DNFBPs, unlike financial institutions, are exempted from requirement to have a compliance officer. - Chambers’ instructions have exempted member firms with 10 or fewer professionals from compliance with other safeguards in Section 9 of the Act, including exemption from requirement for “developing and updating internal principles, appropriate business and customer-related safeguards and controls to prevent ML and TF.” - Only very largest law firms, notaries, and accounting firms appear to subscribe to PEP data services. - No specific requirement for senior management approval for establishing business relationships with a PEP beyond Section 6(2)(a) (consent of immediate supervisor of next management level for intermediated relationships); Criteria 6.2 requires senior management approval for all PEP relationships. - Large firms typically have client acceptance policies requiring senior management approval for PEPs; smaller practices do not. - Non-face-to-face transactions and new technologies (R.8): - No requirements beyond those set out in the AML Act. - Intermediaries/Introduced business (R.9): - DNFBP procedures for intermediaries/introduced business follow AML Act; German professions rely on published lists of equivalent jurisdictions to assess counterpart supervision and may not perform additional CDD if counterpart deemed adequately supervised. - Recordkeeping (R.10): - AML Act requires due diligence data/information on contracting parties, economic beneficiaries, business relationships and transactions be recorded and retained for five years; imposes standards on format and retrievability. - Professional secrecy regime restricts provision of customer and transaction records/information to competent authorities under strict conditions. - c.10.1.1 requires transactional records sufficient to permit reconstruction of individual transactions as evidence for prosecution; professions may maintain records but are unlikely to be allowed for use in criminal proceedings because of professional secrecy. - Monitoring (R.11): - DNFBPs subject to same AML Act requirements to pay attention to complex, unusual, large transactions as financial institutions. - Five-year record retention applies equally. - Professional secrecy provisions pose significant impediments to authorities’ access to legal and accounting profession records. ### Analysis of effectiveness - Implementation across DNFBP sectors is uneven: - Casino sector: identification practices fall well short of Recommendation 12.1; monitoring for ML has significant weaknesses. - Dealers in precious metals and precious stones: no procedures appear in place to promote compliance with identification requirements for cash transactions in excess of €15, 000 ($20,876). - Real estate agents: aware of AML Act but not taking systematic compliance steps; requirements do not fit customary business practices and supervisory arrangements underdeveloped. - Legal and accounting professions: awareness, policies, and procedures better developed, but complexities of beneficial ownership identification not widely appreciated. - Strongest implementation among notaries due to CDD as core element of work, proactive Chamber of Notaries role, and independent court supervision. - Supervisory limitations and attitudes: - Supervisors lack authority for routine AML/CFT examinations of lawyers and tax advisers—no independent evaluation of CDD compliance. - Common assumption across professions that ML/TF vulnerabilities are low because professions are well regulated and do not deal in cash; narrow focus on placement stage with less attention to layering/integration techniques. - Few professions have systematic procedures to identify and monitor ML/TF risks of clients/services. - DNFBPs generally aware of additional CDD obligations in set circumstances but have not put in place additional safeguards. - No risk management requirement for PEP identification; identification not a high priority. - Exemptions from requirement to have a control officer and exemptions for smaller firms from internal safeguards dilute compliance incentives. - Lack of systematic oversight of CDD compliance makes evaluation of compliance with Recommendations 6 and 8–11 difficult. ### Recommendations and comments (actions to achieve full compliance with R.12) - Regulatory and supervisory measures: - Casinos should be required to adopt policies and procedures to link individual transactions to identified clients. - DNFBPs should be required to have procedures for identifying PEPs. - Implement recommended actions in Section 3 with respect to R 5, 6, 9–11 for DNFBPs, including: - requirement to consider filing an STR in case of failure to complete CDD, and - verification of beneficial ownership in all cases. - Registered legal advisers (not subject to statutory professional secrecy) should be excluded from the carve-out for legal and professional privilege. - Carve-out for legal and professional secrecy should generally be limited to information: - (a) obtained in the course of ascertaining the legal position of a client, or - (b) in performing task of defending or representing that client in or concerning judicial, administrative, arbitration, or mediation proceedings. - Implementation actions: - Put arrangements in place to monitor and ensure CDD compliance by TCSPs; strengthen routine CDD compliance monitoring by authorities responsible for real estate agents, dealers in precious metals and dealers in precious stones, lawyers, auditors, accountants, and tax advisors. - Outreach and awareness raising: - Develop outreach campaigns specifically to raise awareness of CDD obligations of real estate agents and dealers in precious metals and precious stones and, more generally, to raise awareness of ML and TF risks in all DNFBP sectors. - Training: - Casino staff and managers should be given additional training in ML techniques and risks. - Implement CDD training requirements for real estate agents and dealers in precious metals and precious stones. - Intensify CDD training programs for lawyers, notaries, and auditors. ### Compliance with Recommendation 12 — Rating and summary factors - Rating: R.12 NC - Summary of factors underlying overall rating: - No arrangements for casinos to link identification-on-entry data to individual transactions within the casino. - Low awareness of CDD obligations and ML vulnerability among real estate agents and no oversight of compliance with CDD obligations of real estate agents and dealers in precious metals and precious stones. - No arrangements to promote and ensure AML/CFT compliance by TCSPs. - Inadequate awareness of ML and TF risks by casino operators, real estate agents, lawyers, notaries and auditors; underdeveloped risk assessment procedures. - Registered legal advisers are not subject to professional secrecy; they should not be included in the carve-out for legal and professional privilege. - No requirements for procedures to identify PEPs, or to consider filing an STR in cases where CDD cannot be completed, or to establish beneficial ownership in all cases. - Professional secrecy provisions are interpreted broadly by the liberal professions, posing a significant impediment to providing records as evidence for prosecution (c.10.1.1) or keeping findings available for competent authorities (c.11.3). *Source: _cr1078 - 910.* ### 938. The requirement for covered persons to file STRs is set out in Section 11 of the AML Act. ### _cr1078 - 938. The requirement for covered persons to file STRs is set out in Section 11 of the AML Act. ### Legal framework and scope of Section 11 - The requirement for covered persons to file STRs is set out in Section 11 of the AML Act. - The general requirements of Section 11 and the day-to-day operation of the reporting regime (analyzed in Sections 1, 2, and 3 of the source) are equally applicable to DNFBPs, with two significant differences: - Section 11(3) provides a carve-out for legal privilege and professional secrecy. - Section 11(3) allows members of professional chambers to transmit their STRs to their competent federal chambers. ### Carve-out for legal privilege and professional secrecy - Section 11(3) exempts persons from reporting if suspicion is based on information from or about their client obtained while providing legal advice or legal representation in court for that client. - The exemption is subject to the condition: “The obligation shall remain in effect if the persons referred to in the first sentence know that their client is deliberately using their legal advice for the purpose of ML or TF.” - The scope of the exemption—for legal advice and representation in court proceedings—and the condition for exception go beyond the norms in Interpretative Note 16. ### Professions covered by the carve-out - Under Section 11(3) the carve-out covers: - lawyers, - legal advisers who are members of a chamber of lawyers, - registered persons as defined in Section 10 of the Legal Services Act, - patent attorneys, - notaries, - auditors, - chartered accountants, - tax advisers, - tax agents. ### Professional secrecy obligations in statutes and codes - Federal Lawyers’ Code, Section 43a, paragraph 2: “A lawyer has a duty to observe professional secrecy. This duty relates to everything that becomes known to [the lawyer] in the course of the practice of [the] profession. This does not apply to facts that are common knowledge or that do not need to be kept secret given their significance.” - Patent Attorneys Code: Section 39a (2) uses identical language. - Federal Notaries’ Code: Section 18 uses virtually identical language. - Legal Services Act (2008) created “registered legal advisers”; they are subject to contractual confidentiality but do not have the same statutory professional secrecy requirements and are not monitored by public authorities for compliance with professional secrecy, nor sanctioned under professional or criminal law for failure to comply. - Inclusion of registered persons in the list of exempted persons appears inappropriate under Interpretative Note 16 given their lesser statutory protections. ### Confidentiality duties and criminal sanctions - Auditors’ duties of confidentiality arise from: - Sections 323 HGB, 43, (1), sentences 1, 50, 56, (2), 57b and 62, (2) of the German Public Accountant Act (WPO), - Section 9 of the Professional Charter for Auditors and Chartered Accountants. - Violations of professional secrecy are criminally sanctioned by Section 203, (1) no. 3 of the German Criminal Code (CC). - Tax advisers and tax agents: Section 57 paragraph 1 Tax Consulting Act states: “Tax advisers and tax agents shall practice their profession independent, conscientious and with professional secrecy.” - Under Section 203 of the CC, violations of professional secrecy carry criminal penalties of up to one year imprisonment or a fine. - CPC, Civil Procedure Code, and Tax Code include provisions that persons subject to professional secrecy cannot be compelled to provide evidence about matters learned under professional secrecy. ### Tension between reporting obligations and professional secrecy - The AML Act overrides professional secrecy in the case of reporting suspicious transactions; for lawyers and other professions the duty to report STRs is qualified by exceptions for providing legal advice and representing clients in court. - In practice: - Legal and accounting professionals tend to take a broad view of what constitutes legal advice. - Notaries consider almost all their activities as involving legal advice. - Tax advisers often consider preparing tax returns to involve legal advice on clients’ tax obligations. - The combination of: - a relatively demanding specification of “suspicion” in German law, - a wide carve-out for legal privilege and professional secrecy across legal and accounting professions, - and broad interpretations of legal advice, - cumulatively narrows the range of transactions reportable by legal and accounting professions. ### Transmission of STRs via federal professional chambers - Section 11(4) requires lawyers, patent attorneys, registered legal advisers, auditors, and tax advisors to transmit STRs to the competent federal professional chamber. - Such chamber may comment on the report and “shall immediately transmit the report with its comments” to the competent law enforcement agency, with a copy to the BKA. - In practice: - Members actively use chamber arrangements to file STRs through their federal chamber. - Chambers provide guidance on whether transactions meet the reporting threshold and advise on conflicts with professional secrecy, but “only provide advice and do not ‘clear’ the STR.” - Once an STR is submitted, it is forwarded promptly to the authorities, usually within 24 hours, and frequently with comments. ### Application of STR obligations and protections to DNFBPs - Under Section 11 of the AML Act, all DNFBPs are required to file STRs; standards for ML and TF suspicions are the same as for other reporters (as analyzed under Recommendation 13). - Exceptions for legal privilege and professional secrecy affect when legal and accounting professions must file STRs. - Protection for making STRs and prohibition on tipping-off are provided in Sections 12 and 13 of the AML Act and apply to all covered persons, including DNFBPs. ### Internal controls, compliance management, and exemptions (R.15 criteria) - Section 9 of the AML Act sets requirements for internal safeguards: appointment of a compliance officer, internal controls, and employee training. - Gaps: - Article 2(1) of Section 9 (appointment of a compliance officer at management level) does not apply to DNFBPs; no alternative compliance management arrangement is explicitly required. - Explanatory Notes justify exemption as relief for small and medium-sized businesses; exemption extends to all nonfinancial institutions. - The Act does not specifically obligate DNFBPs to “develop appropriate compliance management arrangements,” as required by c.15.1. - Because DNFBPs are not required to have a compliance officer, c.15.1.2 (timely access to information) is not satisfied. - Section 9 safeguards under Articles 2(2) and 2(3): - 2(2): “developing and updating internal principles, appropriate business and customer-related safeguards and controls to prevent ML and TF.” - 2(3): “ensuring that employees responsible for carrying out transaction and for initiating and establishing business relationships are aware of methods of ML and TF and of the requirements pursuant to this Act.” - No provisions specifically address: - c.15.2 (audit function), - c.15.4 (screening procedures for hiring employees). - Several professional chambers have used discretion to exempt firms with 10 or fewer professionals from internal safeguard requirements. ### Supervisory discretion and risk-sensitivity concerns - Article 2(4) allows supervisors to give instructions tailored “on a risk-sensitive basis due to the type and amount of business conducted.” - Instructions by chambers exempting firms with 10 or fewer professionals cite the absence of risk of loss of information in small units rather than ML/TF risk; examples: - Federal Chamber of Lawyers explanation: small units have “no risk of a loss of information relevant in terms of ML” and preventive measures would be disproportionate in effort and expense. - No ML/TF risk assessment was undertaken to justify exemptions. - Exemptions are sweeping and cover the vast majority of professionals in the legal and accounting sectors: - Chamber of Tax Advisers: 75 percent of the 85,000 tax advisers are sole practitioners or work in firms of no more than 2 or 3 professionals. - Frankfurt Chamber of Lawyers: approximately 150,000 lawyers in Germany, half of whom work in firms of 10 or fewer members. - German auditors: 12,000 auditors; audit firms tend to be somewhat larger, so likely a minority work in firms of 10 or fewer professionals. - Notaries almost always work as sole practitioners and almost never in groups of more than 2 or 3 professionals. ### Sector-specific implementation (Casinos, Real Estate Agents, Dealers in Precious Metals/Stones) - Casinos: - Subject to STR reporting obligations of Section 11 and monitoring under Section 3(4). - Exempted from requirement to have a control officer but subject to other safeguard measures in Section 9. - All regulation and oversight of casinos is a Länder responsibility; no federal regulation. - Länder regulatory requirements generally do not include a specific AML focus; many rules overlap with AML/CFT measures. - No specific requirements for internal control and audit functions under c.15.1 and c.15.2. - Training requirements exist; managers state they train staff in AML/CFT procedures and controls. - Screening of owners, operators, and staff to prevent criminal involvement is standard and well structured in jurisdictions visited. - Real Estate Agents: - Subject to STR reporting obligations of Section 11 and monitoring under Section 3(4). - Exempted from requirement to have a control officer but subject to other safeguard measures in Section 9. - Business is subject to trade licensing administered at Länder level. - No official measures to promote compliance by real estate agents with AML Act obligations; measures for internal policies and controls, screening, training, and audit from R.15 have not been applied. - Dealers in Precious Metals and Dealers in Precious Stones: - AML Act applies to STR reporting, monitoring, and internal controls except for control officer requirement when engaging in cash transactions of €15,000 ($20,876) or more. - Small scale dealers have not been exempted from internal safeguard requirements. - These businesses are not regulated beyond trade laws administered by the states. - No information available on AML/CFT practices of dealers in precious metals and stones. - No measures have been put in place to promote their compliance with AML Act obligations, including STR reporting. ### FATF-related obligations and DNFBPs - No specific requirements for DNFBPs to pay special attention to business relationships and transactions with persons from countries which do not or insufficiently apply the FATF Recommendations. - No requirement to maintain written records of cases where such deficiencies are identified. - Analysis under R.21 for FIs applies equally to DNFBPs. ### Statistics: STRs Filed by DNFBPs (Statistical Table 26) - Lawyers: - 2004: 11 - 2005: 11 - 2006: 3 - 2007: 5 - 2008: 9 - Patent Attorneys: - 2004: 0 - 2005: 0 - 2006: 0 - 2007: 0 - 2008: 0 - Notaries: - 2004: 1 - 2005: 1 - 2006: 0 - 2007: 1 - 2008: 5 - Auditors: - 2004: 3 - 2005: 2 - 2006: 2 - 2007: 3 - 2008: 3 - Tax Advisers: - 2004: 1 - 2005: 6 - 2006: 2 - 2007: 3 - 2008: 5 - Real Estate Agents: - 2004: 0 - 2005: 0 - 2006: 1 - 2007: 0 - 2008: 0 - Other Business Persons72: - 2004: 4 - 2005: 4 - 2006: 2 - 2007: 11 - 2008: 9 - Casinos: - 2004: 5 - 2005: 6 - 2006: 4 - 2007: 7 - 2008: 4 ### Effectiveness and implementation findings (summary) - The legal framework requires STR reporting by DNFBPs but carve-outs for legal privilege and professional secrecy, broad professional interpretations of legal advice, a relatively high suspicion threshold, and extensive exemptions for small firms collectively narrow reporting from legal and accounting professions. - Significant gaps exist between the AML Act’s requirements and the c.15.1–c.15.4 criteria: - No universal requirement for DNFBPs to appoint compliance officers or to establish compliance management arrangements. - Timely access to information and audit/screening functions are not specifically mandated for DNFBPs. - Supervisory discretion and chamber-issued exemptions apply widely without documented ML/TF risk assessments. - Sector-specific supervision and regulatory arrangements (casinos, real estate agents, dealers in precious metals/stones) show uneven application of R.15 measures and limited promotion of compliance. *IMF Staff report content as provided in the source document.* ### 965. Very few STRs are filed by any of the DNFBPs. To some extent, this seems to reflect an ### Very few STRs are filed by any of the DNFBPs. To some extent, this seems to reflect an ### Awareness and reporting by DNFBPs - Very few STRs are filed by any of the DNFBPs. - Inadequate awareness of ML techniques and ML risks: - Many DNFBPs had a narrow perception of ML and TF risks, focusing primarily on the placement stage and neglecting layering and integration stages. - Significant number of DNFBPs held views that if client funds were not handled they would not be involved in ML transactions, or that regulation or client familiarity implied low ML risk. - Consequence: underreporting and limited compliance with STR obligations across DNFBP sectors. ### Casino sector: vulnerabilities and supervisory weaknesses - Inadequate awareness of the variety of ways casinos can be abused for ML purposes, as catalogued in the recent FATF report on vulnerabilities of the casino sector. - Casino regulations do not sufficiently integrate AML/CFT controls into the regular control regime; controls do not give sufficient priority to ML and TF considerations. - Surveillance and monitoring limitations: - Video recording systems are used, but the general lack of live electronic surveillance systems limits the ability to monitor and detect ongoing activity indicative of ML. - Identification required when clients buy Euro or more in chips (Hesse Casino Act), but identification only required upon entry and no formalized systems to link CDD information to transactions. - Monitoring relies on visual observation by staff; procedures for detecting activity indicative of ML are not well-developed. - Supervisory practice: - Licensing requirements and police background checks for owners, operators, senior managers, and employees are energetically enforced. - Supervisory attention focuses on verifying identification procedures and financial controls; implementation of safeguard provisions is spotty. - Fines under the AML Act (Section 16): - Up to €50,000 ($69,585) for specified administrative offenses. - Up to €100,000 ($139,170) for other specified administrative offenses. ### Precious metals, precious stones, and goods dealers - No measures have been taken to promote AML/CFT compliance by dealers in precious metals and precious stones, or dealers in goods more generally. - Lack of reporting and scarce information about cash handling in these sectors suggest little spontaneous compliance with obligations under the AML Act. - Supervisory responsibility for these sectors resides at Länder level; assigned administrative bodies are typically thinly staffed, administer numerous laws, and lack ML expertise. - No effective steps have been taken to promote, supervise, or enforce AML/CFT compliance in these sectors. ### Real estate agents - Real estate agents have a general awareness of responsibilities under the AML Act to report suspicious transactions, but limited awareness of the various ways they could be used to facilitate ML. - Virtually no STRs filed by real estate agents; no official measures have been taken to promote compliance with STR reporting obligations. - Suggests little compliance with internal control, monitoring, and training requirements. ### Legal and accounting professions: detection, reporting, and structural impediments - Very low volume of STRs filed by lawyers, notaries, auditors, and tax advisors — suggesting they are not detecting and reporting ML suspicions at an expected level. - Structural and legal constraints on reporting: - Relatively demanding legal specification of suspicion. - Carve-out for legal privilege and professional secrecy extends across legal and accounting professions. - Broad interpretation of what is considered legal advice, cumulatively narrowing reportable transactions. - Professional context: - High professionalism and codes of conduct mean these professions are generally attuned to following policies and procedures to satisfy regulatory obligations. - Parties interviewed showed an underdeveloped appreciation for multiple ways the legal and accounting professions can be misused for ML or TF. - Professions have not organized themselves to undertake meaningful risk assessments as recommended in the 2008 FATF risk-based assessment guidance papers. - Exemptions and safeguards: - General exemption of large sections of legal, notary, auditing, and tax advisor professions from internal controls expected under R.15 is an unhelpful relaxation of safeguards. ### Recommendations and comments (to comply with Recommendation 16) - DNFBPs should be required to have some form of risk-based compliance management arrangements. - The authorities should undertake a systematic assessment of the ML and TF vulnerability of the DNFBP sectors. - Authorities should develop programs to raise DNFBP’s awareness of AML/CFT risks and improve DNFBP’s ability to identify and report suspicious activities. - Exemptions from the safeguards requirements of the AML Act, or blanket simplified procedures, should be based on evaluation of ML and TF risks. - All DNFBPs should be subject to requirements to screen new hires for high standards, to train staff, and to have an AML/CFT audit function. - All casinos, real estate agents, and dealers in precious metals and stones should be required to have AML/CFT internal controls. - Authorities should review the scope of the carve-out from legal and professional privilege and the stringency of professional secrecy requirements with a view to permitting the professions to play a more forthcoming role in the reporting of suspicious transactions. ### Compliance with Recommendation 16 — summary factors underlying rating R.16 NC - No requirement to have compliance management arrangements. - Discretionary exemption of most professions from safeguards based on firm size but not risk of ML or TF. - No risk assessments to justify safeguards exemptions or simplified measures. - In absence of safeguards, no training requirement. - No requirement to screen to insure high standards when hiring. - No audit function for DNFBPs. - No specific requirement for casinos to have AML/CFT internal controls or to have an audit function. - No supervisory framework for real estate agents and dealers in precious metals and stones and, hence, no specific requirements for internal policies and controls and screening and audit. - Inadequate awareness of potential ML vulnerabilities contributing to underreporting. - Inadequate risk assessment procedures among professions, leading to inadequate monitoring and underreporting. - Broad carve-out for legal and professional privilege combined with strict professional secrecy requirements place significant impediments to STR reporting. ### Regulation, supervision, and monitoring (R.24-25) — legal framework and supervisory arrangements - Casinos, real estate agents, and persons trading in goods are subject to preventive measures requirements of the AML Act (Article 2 (11) of Section 2) and are required to be supervised; supervision is a Länder, not federal, responsibility. - Section 16(9) of the AML Act designates the competent authority for enforcing compliance as “the authority responsible under federal or state (Land) law.” - Länder arrangements vary in designating competent authority; example (Hesse): - Office of the Regional Commissioner assigned competency under the AML Act. - Casino supervision assigned to Department for Public Security and Order (supervised by Hesse interior ministry). - Real estate agents and dealers in precious metals/precious stones assigned to a department responsible for administering Trade Law (supervised by Hesse economics ministry). - Responsibility for AML/CFT compliance under the 2008 AML Act had not been definitively decided in three Länder at the time of assessment. - For lawyers, patent attorneys, notaries, registered legal advisers, auditors, and tax advisers: - Section 16(2) designates competent authorities by profession (e.g., regional bar associations for lawyers; Chamber of Patent Attorneys for patent attorneys; president of regional court for notaries; Chamber of Auditors for auditors; competent Chamber of Tax Advisers for tax advisers). - These professions are regulated by federal statute and require membership in a professional chamber; chambers generally act as SRO supervisors. - Hesse Casino Act provisions (illustrative): - Art 15: supervision of casinos under Interior Ministry; objective to ensure operations are correct in economic terms. - Art 15.2: specific supervision as required under Section 16 of the AML Act. - Art 15: conditions include licensing, fixed locations, identification of clients when they buy Euro or more in chips, and identification upon entry. - Art 4 and Art 5: owner and operator authorization, operator resource/knowledge requirements, proof of legal source of wealth upon request, police background clearance, notification of shareholder changes. - Casino supervisor can issue orders up to revoking a license. - Internal safeguards required: (a) compliance officer, (b) internal principles (internal control framework), (c) training, (d) monitoring, and (e) vetting. - Chambers of lawyers: - Have sent notices to members explaining AML Act provisions, published a paper on indicators of ML, and make BKA information available; a guidance manual is under preparation. - Chambers do not have authority to conduct routine compliance examinations; they can investigate in response to complaints or indications of infractions. - Inability to conduct routine or spot checks is inconsistent with c.24.2.1.a of the methodology requiring SROs to have adequate powers to monitor compliance. - Disciplinary sanctions available include reprimand, Lawyers’ Disciplinary Court procedures, and sanctions up to a fine of € 25,000 ($34,793), bans for one to five years, and exclusion from the profession. - Chamber of Patent Attorneys supervisory arrangements and powers parallel those of the Chamber of Lawyers. *Source: IMF assessment text (excerpt).* ### 982. Under the Federal Statute on Notaries, notaries are holders of a public office and as such ### _cr1078 - 982. Under the Federal Statute on Notaries, notaries are holders of a public office and as such ### Notaries — supervisory structure and practices - Notaries are holders of a public office and exercise public duties under the Federal Statute on Notaries. - The President of the Regional Court (not the Chamber of Notaries) is the supervisory authority for notaries with business offices within the district of the Regional Court. - The supervisory judge: - Is particularly familiar with specific legal regulations for notaries. - May assign other judges to assist. - Examination regime: - Notaries are required to undergo a full examination of their practices at least once every four years. - Judges conduct on-site examinations of notary offices and have access to all notary files. - On-site examinations typically last two or more days and include review of AML/CFT compliance. - A report of examination is produced, including a section on AML/CFT compliance. - Deficiencies and follow-up: - If the report finds deficiencies, the notary is requested to comment and resolve the deficiencies. - The supervisory body may conduct further inspections to verify rectification. - Sanctions (Statute on Notaries and AML Act) for serious deficiencies include: - Admonition or statement of disapproval, - Reprimand, - Fine of up to €50, 000 ($69,585), or in certain cases of inappropriate benefit, a fine of up to two times the benefit even if that exceeds €50,000, - Removal from current official office, - Permanent removal from office. ### Auditors — regulatory and supervisory framework - Legal framework: - Under the Professional Accountants Statute, the chamber of auditors is responsible for regulating professional obligations of auditors. - There is a single national Chamber of Auditors. - AML/CFT compliance is a professional obligation; the Law on Audits cross-references relevant provisions of the AML Act. - Under the AML Act, the chamber is the designated competent SRO authority for supervision of AML/CFT compliance of auditors. - Supervisory forms: - Disciplinary professional supervision: - Initiated on complaints or other indications of infractions. - May investigate auditor activities, require documents, or conduct on-site examinations of files. - Procedures may include examination of AML/CFT compliance. - Available sanctions under the Professional Accountants Act include: - Reprimand, - Fines of up to €50,000 ($69,585), - In serious matters, review by a special court with authority to impose fines of up to €500,000 ($695,850) or to impose a temporary or permanent ban. - Preventive supervision: - Quality assurance program focusing on audit quality. - Intensive on-site review of audit work once every six years. - Spot, unannounced inspection at least once every three years. - Audit procedures include steps to cover AML/CFT compliance; quality assurance provides opportunity to verify AML compliance. - Deficiencies identified may be referred to disciplinary process. - Additional fines: - For administrative offenses specified in the AML Act, the relevant competent authority may impose the €50, 000 and €100,000 ($69,585 and $139,170) fines allowed in Section 16 of the Act. ### Tax Advisers — structure, guidance, and supervisory limits - Institutional structure: - Under the Tax Consulting Act, the Chamber of Tax Advisers regulates professional obligations of tax advisers. - There are 21 regional chambers and a Federal Chamber of Tax Advisers; all regional chambers belong to the Federal Chamber. - A single code of conduct governs all tax advisers; by-laws issued by regional chambers must be uniform nationwide. - AML/CFT compliance is a professional obligation; under the AML Act, the chamber is the designated competent SRO authority for supervision of AML/CFT compliance of auditors (text repeats auditors here). - Outreach and guidance: - On enactment of the AML Act, information was circulated to members on new law impacts. - April 2009: chambers published a guide to the AML Act with implementation recommendations. - Regional and federal chambers’ websites provide AML/CFT information, typologies, new methods, and BKA reports. - Chambers publish journals and weekly newsletters with ML-related topics. - Supervisory powers and limitations: - Regional chambers do not have authority to conduct routine examinations of tax advisers. - Chambers may investigate based on complaints or indications of infractions, including request for documentation or onsite examinations that may review AML/CFT compliance. - The inability to conduct routine or spot checks is inconsistent with c.24.2.1.a of the methodology, which calls for SROs to have adequate powers to perform monitoring. - Where AML deficiencies are identified via investigation, the Tax Consultancy Code provides for the same range of sanctions as available to the Chamber of Auditors. - For administrative offenses under the AML Act, the regional tax office is the competent authority to impose sanctions under Section 16(1) and (2). ### Guidelines for DNFBPs and feedback mechanisms - Guidelines: - 2006: BKA issued guidelines for liberal professions covered by the previous Act; general ML provisions remain applicable. - 2008 AML Act implementation guidelines are being developed and issued by professional chambers. - April 2009: Federal Chamber of Tax Advisers and regional chambers issued Guidelines. - May 2009: Chamber of Notaries and Chamber of Patent Attorneys issued Guidelines. - Federal Chamber of Lawyers and Chamber of Auditors: Guidelines under development. - New guidelines were only issued at the time of assessment and only in German; qualitative evaluation of content is beyond assessment scope. - No comparable guidelines available for casino operators (some regional casino supervisors issued instructions on AML requirements and suspicious activities). - No guidelines prepared for real estate dealers or dealers in precious metals and stones. - Feedback from FIU: - FIU provides feedback to reporting parties, including DNFBPs. - October 2003: FIU published “Possible ML indications in accordance with Section 261 of the CC relevant to newly obliged parties” with numerous indicators for DNFBPs. - Updated information is provided in periodic Situation Reports; annual FIU report includes trends and STR analysis by sector. - STR filing and guidance: - Lawyers, patent attorneys, registered legal advisers, auditors, and tax advisers file STRs with their respective federal professional chambers. - Chambers report members rely on federal chambers for guidance on whether transactions meet reporting thresholds under German law. ### Adequacy of resources and effectiveness of supervision (R.30, implementation) - Resources: - Professional chambers have adequate resources funded by member contributions set to permit regional chambers to perform supervisory functions. - Chambers employ professional staff; supervisory functions often carried out by chamber members or committees. - Casino supervisors are Länder officials; offices appear adequately staffed and resourced partly because functions include significant revenue collection. - Departments of Regional Commissioners Offices assigned oversight of real estate agents and dealers in precious metals and stones received no additional resources, training, or ML experience; they are frequently stretched and operate ad-hoc. - Effectiveness and uneven implementation: - Supervision varies significantly across DNFBP sectors: - Real estate agents and dealers in precious stones: effectively no supervision despite formal legal framework. - Independent TCSPs: effectively no supervision. - Casinos: AML supervisory framework reasonably well established focusing on licensing, integrity checks, and customer identification on entry; less attention on effective policies and controls to monitor, detect, and report ML-suspicious activities. - Regulatory organizations for professions have more structured arrangements, but oversight quality and thoroughness are uneven. - Most thorough practices: - Notaries: direct compliance monitoring by judges with periodic on-site examinations, file review, and written reports including AML compliance. - Chamber of Auditors: quality assurance program provides periodic AML compliance examination opportunities. - Insufficient practices: - Regional chambers of lawyers, chamber of patent lawyers, and regional chambers of tax advisers do not allow periodic on-site examination of files; no systematic independent check on preventive measures compliance. - Inspections triggered by complaints detect weak AML practices in specific cases but do not permit evaluation of general effectiveness as required by c.24.2. - Risk-based measures and exemptions: - AML Act introduces risk-based considerations systematically; Section 2.4 requires covered institutions and persons to demonstrate appropriateness of measures to competent authorities mentioned in Section 16(2). - Risk assessments are not well developed among professions; some information circulated on how to handle assessments. - Exceptions and restraints: - Except for notaries and auditors (explicit authorization for periodic routine on-site inspections), lawyers, patent attorneys, auditors, and tax advisers are restrained by professional secrecy in demonstrating appropriateness of risk-based measures. - DNFBPs are exempted from the requirement to appoint a compliance officer at management level (explained as relief for small and medium-sized businesses). - Supervisors exempted lawyers, notaries, auditors, and tax advisors employed in firms of 10 or fewer from the general obligation to adopt internal AML/CFT safeguards; exemption based on type and amount of business without ML/TF vulnerability consideration. - Federal Chamber of Lawyers’ explained rationale: in units of this size there is no risk of loss of information relevant to ML due to limited division of labor; preventive measures would be disproportionate in effort and expense. ### Recommendations and compliance assessment (Recommendations 24 & 25) - Recommendations to comply fully with Recommendations 24 and 25 (cr. 25.1): - Clarify Länder-level AML/CFT supervisory responsibility for real estate agents and persons trading in goods and ensure adequate resources and capacity to carry out these responsibilities. - Strengthen AML/CFT supervisory capacity of casino supervisors. - Take steps to ensure that Chambers of Lawyers, the Chamber of Patent Lawyers, and Chambers of Tax Advisors have adequate authority to conduct routine AML/CFT compliance monitor of their members. - Authorities should issue up-to-date guidance for all DNFBPs. - Authorities should carry out AML/CFT risk assessments of the various DNFBP sectors, maintain them up to date, and make sectors aware of risks. - Compliance ratings and factors (4.3.3): - R.24: NC - Factors: - Inadequate supervisory authority and capacity for oversight of real estate agents and persons trading in precious metals and stones. - Insufficient supervisory oversight of AML compliance by casino operators. - No authority for Chambers of Lawyers, Chamber of Patent Attorneys, and Chambers of Tax Advisors to conduct routine compliance monitoring of members. - Compliance monitoring and enforcement generally ineffective, including: - Lack of awareness of ML risks in casinos. - Risk assessments have not been developed by competent authorities responsible for monitoring and ensuring compliance. - Insufficient resources and capacity for supervisors of real estate agents and dealers in precious metals and precious stones. - R.25: PC - Factors: - Guidelines for lawyers, auditors have not been updated; no guidelines for dealers in precious metals and stones and real estate agents. - Rating for this section: PC ### Other Non-Financial Businesses and Professions — Modern-Secure Transaction Techniques (R.20) - Scope and inclusion (c. 20.1): - Germany applies preventive measures requirements to: all persons trading in goods, financial advisers, and “financial enterprises” that are investment advisers. - Financial enterprises are supervised by BaFin. - Inclusion conforms to EU directives. - Trends in noncash payments and modernization (c. 20.2): - Share of cash payments in retail trade declined: - 1994: cash transactions accounted for 78.7 percent of turnover. - 2008: cash transactions accounted for 60.4 percent of turnover. - Industry analysts anticipate that by 2015, noncash payments will account for 50 percent of retail trade. - Electronic payments: - Electronic payments in Germany are above the EU average. - Germany accounts for approximately 23.5 percent of all electronic payments in the EU, a share somewhat larger than Germany’s share of EU GDP. - Noncash payment instruments: - Include credit transfer, direct debit, card payments, e-money, payment by check, and others. - More than 80 percent of all noncash payments are made by credit transfer and direct debit (always via bank accounts). - Checks are little used. *Source: IMF staff country report content provided in the supplied PDF excerpt.* ### 1004. The transactions conducted in Germany using credit cards are rising steadily. In 1998, ### _cr1078 - 1004. The transactions conducted in Germany using credit cards are rising steadily. In 1998, ### Card transactions and card types - Credit card transactions in Germany: - 1998: €28.6 billion ($39.8 billion) - 2007: €54.3 billion ($75.6 billion) - Card payment composition (retail trade turnover of €360 billion ($501 billion) in 2008; excludes motor vehicles, mineral oil, pharmacies, mail-order trade): - Card turnover: €130 billion ($181 billion) — share: 36.1 percent - Turnover by card type: - Debit cards: 30.1 percent - Electronic cash: 17.9 percent - EC direct debit: 12 percent - Maestro: 0.2 percent - Credit cards: 5.2 percent - Shop-issued cards with payment function: 0.8 percent - Purchases on account or by installment and other types of payment: 3.5 percent ### Trends in debit card procedures and defaults - Shift in procedures: - EC cash (PIN-verified payments) usage has continued to grow. - EC debit (signature-verified card payments) usage has decreased. - Both procedures are noncash means of payment and booked via a bank account; difference for ML is irrelevant — both are equally secure. - Defaults in signature-based EC direct debit procedure: - 2004 peak: 0.123 percent - 2008 total defaults: 0.057 percent - Decline attributed to use of blocked-card / trader notification database and the KUNO platform. ### Payments infrastructure changes and technology adoption - Enterprise intentions (surveys): - 25 percent of large enterprises intend to modify payment transactions infrastructure before end-2009. - Additional 35 percent intend to do so in following years. - Technical and procedural changes facing traders’ IT managers include: - “no-contact payment” - “fingerprint identification” - “mobile phone payment” - “self-payment” - “digital signature registration” ### Online banking adoption (current accounts) - Total current accounts in Germany: some 93 million - Online banking usage: almost 40 million accounts - Deutsche Bundesbank statistics (Number of online accounts, in € millions) — Total per year: - 2000: 15.1 - 2001: 19.1 - 2002: 29.7 - 2003: 30.8 - 2004: 33.1 - 2005: 33.3 - 2006: 35.3 - 2007: 33.2 - 2008: 39.3 - (Note: table also lists split by institution categories with percentages in source content.) ### SEPA and measures to improve payments processing - SEPA legal and product timeline: - Directive creating legal framework: Directive 2007/64/EC of November 13, 2007 (Payment Services Directive) - German implementing laws: - Payment Services Implementation Act (Zahlungsdiensteumsetzungsgesetz) of June 25, 2009 - Act Implementing the Consumer Credit Directive, the Civil-Law Component of the Payment Services Directive as well as Restructuring the Provisions on the Right of Withdrawal and Return (Gesetz zur Umsetzung der Verbraucherkreditrichtlinie, des zivilrechtlichen Teils der Zahlungsdiensterichtlinie sowie zur Neuordnung der Vorschriften über das Widerrufs- und Rückgaberecht) of July 29, 2009 - Both entered into force on October 31, 2009. - SEPA products developed by banking industry: - SEPA Credit Transfer: available since January 2008 - SEPA Direct Debit: launched on November 1, 2009 - SEPA Card Payment: rulebooks available; product not yet introduced to market (as of source) - Expectations: - SEPA products designed to be customer friendly and offered at attractive prices; likely to move many cash payments to noncash basis. - Role of direct debit: - Direct debit (Lastschriftverfahren) accounted for 48.3 percent of all cashless payments in 2007. - Germany reported 7.982 billion direct-debit payments in 2008. - Future direct-debit business will be based on SEPA standards. ### Measures to limit large cash use in compulsory sale (ZVG) procedures - Amendment: - Amendment of Section 69(1) of the Compulsory Sale Act (Zwangsversteigerungsgesetz – ZVG) prohibits provision of collateral for compulsory sale of immovable property in cash. - Collateral rules in compulsory sale procedure: - Collateral required from every bidder: equal to 10 percent of the market value of the property; must be provided immediately after bid submission; bid effective only once collateral provided. - Unsuccessful bidders receive collateral back once procedure completed; winning bidder’s collateral offset against sale price. - Rationale: - Prior to amendment, cash collateral allowed laundering of untaxed or illegal cash via sale process (either by successful bidder buying property or unsuccessful bidder providing and receiving back collateral). - Collateral repayment by transfer to provider’s account could inject illegal funds into financial system and create spurious legal explanations. - Legislative change effective since December 22, 2006 (Section 69(1) amendment) — required collateral limited to: - A check verified by the Bundesbank - A crossed check issued by a credit institution authorized to do so - A declaration of surety from such a credit institution (Section 69(2) and (3) of the Compulsory Sale Act) - Number of compulsory sale procedures per year: - 2004: 87,190 - 2005: 91,846 - 2006: 87,833 - 2007: 87,365 - 2008: 82,870 ### KUNO (crime control in noncash payment transactions) - Purpose: - Joint platform involving the police and the retail trade intended to reduce misuse of lost or stolen debit cards. - Core component: - Central blocked-card database containing reported loss/theft information. - Rollout: - Initially regional in 2001; extended nationwide in 2006. - Operation: - Police offices in all federal states report bank data (sort code, account number, and, if known, card issue number) to KUNO. - Access via police extranet (kuno.extrapol.de); police officers can block cards and enter data using standard browsers. - Card data encrypted and sent via email to central notification unit for retail trade; blocked card reports forwarded to network operators and retail stores. - Impact: - Since nationwide introduction in 2006, number of cases and losses from fraud involving stolen or misappropriated debit cards reduced significantly. - 2008: number of cases registered down by 24.6 percent to 21,820. ### Measures in tax administrations to reduce cash use - Organizational measures over last 10 years have gradually reduced option to use cash to pay taxes due; today taxes are paid on a purely cashless basis (processing always involves a bank account). - Payment method shares of all payment transactions: - Account transfer: around 50 percent - Direct debit: around 45 percent (growing) - Check: around 5 percent (declining) - Exception: - Enforcement area still accepts cash payments in some cases for outstanding tax debts; generally small sums. - Plans exist to allow use of credit cards to pay off outstanding tax debts as part of enforcement procedure in the future. ### Use of large denomination bank notes - Largest banknote circulating in Germany: €500 ($696) note (issued by the ECB). - ECB publishes statistics attributing Euro banknotes to EMU members based on fixed formula tied to national central banks’ balance sheets; these allocations do not necessarily reflect actual circulation in any country. - Specialized counting machines used by some Eurosystem central banks allow more accurate national estimates of large denomination bills. - Legal/institutional constraints: - Under EC Treaty establishing the ECB, ECB has exclusive right to authorize issuance of banknotes within Euro area; ECB and national central banks may issue banknotes. - Neither ECB nor national central banks may take instructions from EU institutions, member state governments, or other bodies. - ECB Governing Council decides independently what banknote denominations may be issued. - Germany has refrained from requesting ECB reconsider authorization of large denomination bank notes to avoid appearing to disregard ECB independence. - Possible scope for national measures: - Not all Eurosystem central banks print/issue €500 or €200 notes. - In some countries, retail sector has decided not to accept large denomination bank notes. ### Compliance with Recommendation 20 - Rating: R.20 — C - Summary: This recommendation is fully observed. ### Legal persons and access to beneficial ownership (R.33) — overview - Types of legal persons under German law: - Limited liability company (Gesellschaft mit beschränkter Haftung–GmbH) - Stock corporation (Aktiengesellschaft–AG) - Cooperative (Genossenschaft) - Foundation (Stiftungen) - Registered association (eingetragener Verein–e.V.) - Limited liability company (GmbH): - Formed by one or more founding shareholders adopting articles of association and appointing managing directors in a notarial deed (Sections 2 and 3 of the Act on Limited Companies, Gesetz betreffend Gesellschaften mit beschränkter Haftung–GmbHG). - Minimum capital requirement of a regular limited liability company: €25,000 ($34,793). - Since November 2008, a sub-category exists: Business Company with Limited Liability (Unternehmergesellschaft (haftungsbeschränkt)) — minimum share capital: one Euro. - Corporate bodies: managing directors (Geschäftsführer) and shareholders’ meeting (Gesellschafterversammlung). - Legal personality upon registration in commercial register; registration published electronically. - Published registration information includes firm name, domicile, business purpose, amount of share capital, date of execution of articles, identity of managing directors including signing authority, domestic business address, and a list of shareholders. Entries and attachments publicly available electronically via business register (Unternehmensregister). - Stock corporation (AG): - Formation similar to GmbH; articles (Satzung) in a notarial deed; minimum capital requirement: €50,000 ($69,585). - Founding shareholders and constituted boards apply for registration; attach list of members of supervisory board instead of list of shareholders. - Legal personality upon registration; publication includes largely same information as GmbH. - Additional notification requirements: - Shareholders holding 25 percent or more, or 50 percent or more of shares must notify the stock corporation; company must publish this information in its designated publications, particularly in the Electronic Federal Gazette (Elektronischer Bundesanzeiger). - For listed securities, the German Securities Trading Act (WpHG) imposes notification duties at thresholds: 3, 5, 10, 15, 20, 25, 30, 50, and 75 percent of the shares. - Information on these shareholders can be searched electronically by anyone on the BaFin’s website and must be disclosed with the business register (see 1048) at the hometown of the shareholders. *Source: Excerpt from the provided IMF content unit.* ### 1029. A stock corporation may issue either registered or bearer shares. Companies are required ### Legal persons, registers, and access to beneficial ownership information (sections 1029–1058) ### Types of legal persons and key legal characteristics - Stock corporation: - May issue either registered (nominative) or bearer shares (1029, 1054). - Companies are required to keep a share register only when shares are issued in a nominative form (1029, 1051). - If capital is issued in bearer form, there is no registration requirement (1029, 1051, 1054). - Association (Verein): - Group of persons established on an indefinite basis to accomplish a common purpose; represented by a management board (1030). - Associations with and without legal capacity; legal capacity depends on whether the object is to pursue commercial business operations (1030). - Associations not pursuing commercial business acquire legal capacity through entry in the register of associations (Vereinsregister) (1030). - Registered associations: register contains name, seat, management board and board’s power of representation; register is open to public inspection; no requirement to identify beneficial owners in the register (1031). - Each member has one vote unless the articles provide otherwise; original articles and amendments must be filed with the Register of associations (1031). - Foundation (Stiftung): - Organization intended to promote on a long-term basis a particular purpose through dedicated assets; object can be charitable or private (1032). - Act of foundation of a foundation with legal capacity must be in writing (Section 81 BGB) and recognition by competent supervisory authority is required for legal capacity (Section 80 BGB) (1032). - Private foundations: come into being by written act of foundation and recognition by the foundation supervision authority; subject to supervision by foundation authorities of the respective Land (1034). - Public foundations: established or recognized by sovereign state act and subject to state supervision (1035). - A foundation does not have members; public directory of supervised foundations is maintained and open to public inspection, containing name, legal status, object, bodies, legal representatives, name of the founder (if agreed), date of establishment/termination, and address (1036). - Cooperative (Genossenschaft): - Member-oriented and member-controlled; organs are general assembly, managing board, and—with exceptions—the supervisory board (1037). - Audit by a cooperative auditing association is mandatory every year; for smaller cooperatives, every two years (1037). - Cooperative acquires legal personality upon registration and publication in the cooperative register (Sections 10 to 13 GenG) (1037). - Cooperative register does not include identities of members; managing board members must be named in the cooperative register (1038). - Cooperatives must keep a detailed list of their members; courts may order disclosure and third parties may consult the list if they have a valid reason (1039). - Principle of “one man–one vote”; multiple voting rights highly limited and voting must, in principle, be exercised personally (1040). ### Public registers, information content, and access - Commercial register (Handelsregister): - Public register holding essential details on legal status of registered companies and merchants (type of legal entity, subject of business activity, registered offices, and, if applicable, registered capital) (1044). - Displays power of representation of managing partners or directors (1044). - All limited liability companies and stock companies must be entered in the commercial register; registration is the condition for their existence (1045). - Shareholders of a limited liability company are not entered into the commercial register itself but into a list of shareholders that must be filed with the commercial register and can be inspected electronically by anyone (1045). - Shareholders of a stock corporation are not entered into the commercial register itself, only the founders are; if the stock corporation issues registered shares, shareholders must be entered into the company’s share register (1045). - Business register (Unternehmensregister): - Provides additional business and bankruptcy disclosures, accounting and financial reports, and capital market information (1046). - For stock corporations, shareholders who own 3, 5, 10, 15, 20, 25, 30, 50 or 75 percent of the capital must be disclosed with the business register (1046). - Register of cooperatives and register of associations: - Cooperative register (Genossenschaftsregister) provides information about the legal status of a registered cooperative (eG) (1047). - Register of associations is maintained at local courts per the Register of Associations Ordinance (Vereinsregisterverordnung, VRV) (1048). - Purpose and limitations: - Registers mainly establish legal structure and representation rights for commercial law purposes; content focused on legal status, structure, and purpose, and typically includes names and addresses of governing body members (1049). - Registers are not designed to ensure transparency on control and beneficial ownership in a way useful for AML/CFT purposes; authorities must rely on alternative channels to identify ultimate owners and controllers (1049, 1053). ### Access to beneficial ownership information and alternative sources - Authorities’ general approach: - German authorities do not take measures specifically designed to prevent misuse of legal persons by money launderers or terrorist financers; they rely on commercial law mechanisms and law enforcement powers to obtain information on legal entities (1041). - Stock corporations: - When listed, necessary information is available; out of some 20,000 stock corporations, only approximately 900 are listed (1042). - For non-listed companies, main sources are the various registers (1043). - Stock corporations issuing capital in nominative form must keep a share register; the register is not public but may be accessed by law enforcement agencies (1051). - Registration in the share register is not mandatory for assertion of shareholder rights (proxy action possible), but registered holders must provide information necessary to keep an accurate share register and must notify issuer upon request the extent to which shares belong to them or on whose behalf they hold the shares (1051). - Notaries: - Many registrations are requested through a notary; notaries are subject to CDD requirements under the AML Act and must identify their customer and the beneficial owner of the legal entity to be established and maintain that information (1050). - Notaries must make information about the legal entity available to authorities upon request, but the information is usually that provided at registration and is not kept up-to-date; there is no general obligation to request registration through a notary and the notary’s name may not always appear in the register (1050). - Foundations: - In the case of foundations, in particular private foundations, no information is readily accessible (1052). - Financial institutions: - Financial institutions face the same limitations as the authorities when trying to access beneficial ownership information of legal persons (1058). ### Bearer shares: practical safeguards and outstanding gaps - Legal position and practical operation: - Entire capital must be issued either in nominative or bearer form; mixing is not permitted (1054). - No obligation to keep a register of bearer shares; shareholders are not obliged to inform the company of purchase or sale (1055). - To exercise shareholder rights, bearer shareholders must legitimize themselves by proving possession of the bearer shares; statutes of a stock corporation determine evidence for attendance or voting rights (Section 123(1) AktG) (1055). - In practice, proof often implemented by lodging shares with the company; the person lodging the shares becomes known to the stock corporation (1055). - For listed companies, a financial institution managing the portfolio can issue proof in text form per Section 123(3) AktG, and portfolio-managing financial institutions are subject to AML Act obligations (1055). - Practical mitigants cited by authorities: - Individual certificates are not frequently used; nearly all shares of publicly-listed stock companies are certified in global notes (1056). - Section 10 (5) of the Stock Corporation Act allows restriction or exclusion of issue of certificates so all shares are certified in a global document; practice since 1998 has favored global documents (1056). - Custodian banks register intangible individual shares in safe deposits and know the depositor; public prosecutors may access this information (1057). - Companies that are not publicly-listed (about 19,000 in Germany) typically issue registered shares; the estimated number of not publicly-listed stock companies issuing bearer shares lies between 1,000 and 2,000 (1057). - Identified shortcomings: - No registration obligation for bearer shares means management may not know shareholders (1055). - No legal requirement to deposit shares; practices vary and exact numbers of companies issuing global notes versus individual certificates are not available (1056–1057). - Authorities did not assess the risk of ML and TF posed by companies that issue bearer shares (1057). ### Operational implications for AML/CFT - Time and adequacy constraints: - Information in public registers does not necessarily include beneficial ownership data and may not be adequate, accurate, or current for AML/CFT purposes; authorities may need additional steps and therefore timely access is unlikely in many cases (1053). - Access to beneficial ownership information may be particularly arduous for: - Non-listed stock corporations that issued shares in bearer form (1053). - Private foundations (1053). - Information channels and practical limitations: - Registers, notaries, share registers (for nominative shares), custodian banks, and business register disclosures at specified ownership thresholds provide possible routes to identify beneficial owners, but each has limitations (1044–1052, 1056–1057). - Business register disclosure thresholds for ownership are 3, 5, 10, 15, 20, 25, 30, 50 or 75 percent (1046). *Source: https://www.imf.org/-/media/websites/imf/imported-full-text-pdf/external/pubs/ft/scr/2010/_cr1078.pdf* ### 1059. The scope of information available varies greatly according to the type of legal entity: at ### The scope of information available varies greatly according to the type of legal entity: at ### Transparency and access to beneficial ownership of legal entities (Recommendation 33) - Key observations: - Information availability varies greatly by legal entity type: from full disclosure of all shareholders of limited-liability companies to very little or no disclosure for private foundations and non-listed stock corporations that issued bearer shares. - Available information does not focus on control and beneficial ownership in the sense of the standard. - Current mechanisms do not guarantee that competent authorities have access in a timely fashion to adequate, accurate, and current information on control and beneficial ownership of legal entities. (para. 1059) - Information on private foundations is close to nonexistent. (para. 1060) - Where stock corporations issue the entirety of their capital in bearer shares, identification of beneficial owners is described as virtually impossible. (para. 1060) - These elements create a potentially considerable risk of ML and TF. (para. 1060) - Recommendations (to comply fully with Recommendation 33): (para. 1061) - Ensure that beneficial ownership on all types of legal entities is made accessible to the competent authorities. - Assess the risk of ML and TF posed by non-publicly listed companies that issue bearer shares and take necessary measures to mitigate the risk. - Compliance summary: - R.33 NC - Underlying factors: - No mechanisms in place to ensure in all cases access in a timely fashion to information on the control and beneficial ownership of legal entities other than publicly-listed stock corporations. - Lack of transparency over non-publicly listed stock corporations that issue their shares in bearer form, and over private foundations. - No risk assessment undertaken by the authorities to ascertain the risk of ML/TF in the case of joint stock companies which have issued bearer shares. (section 5.1.3) ### Legal arrangements—Treuhand (Recommendation 34) - Legal framework and description: - Germany has legal arrangements similar to the Anglo-Saxon express trust: the foundation (Stiftung) and the Treuhand (Treuhandverhältnisse). (para. 1062) - Treuhand in broad sense: contractual relationship where Treugeber requires Treuhänder to manage assets; not regulated in law but based on autonomy of contracting parties; can exist without written record; may be hidden (verdeckte Treuhand) or disclosed (offene Treuhand); may be fremdnützige (in interest of third party) or eigennützige (in own interest). (para. 1063) - Narrow definition: Treuhand where Treugeber transfers objects/rights to Treuhänder who holds and administers them in interest of Treugeber — sometimes translated as fiduciary trust relationship. (para. 1064) - Treuhandverhältnis also used as umbrella term for many legal relationships entailing an obligation on Treuhänder to assert rights (Treugut) in interest of beneficiary. (para. 1065) - If Treuhänder acts not-for-profit = mandate (Section 662 Civil Code); if receives fee = business management contract (Section 675 Civil Code). (para. 1066) - Mechanisms to enable Treuhänder to dispose of property include assignment of Treugut, granting ownership, empowerment (enabling Treuhand), or proxy (proxy Treuhand); proxy Treuhand requires disclosure to third parties when disposing of Treugut; Section 164 Civil Code requires representative act also be on behalf of Treugeber (principle of common knowledge). (para. 1067) - Treuhandverhältnisse serve principally: security purposes (security Treuhand) or administrative purposes (administrative Treuhand). (para. 1068) - Security Treuhand: Treugeber transfers right to Treuhänder to secure a claim; Treuhänder may exploit item if claim unsatisfied; must return ownership when claim satisfied. (para. 1069) - Administrative Treuhand: established for interest of Treugeber or third party; used when Treuhänder better able to administrate property or where special expertise or incapacity of beneficiary exists. (para. 1070) - Treuhand is very common in the German economy; lawyers, notaries, and other TSPs often act as Treuhänder, but any person capable of contracting may be Treuhänder. (para. 1071) - Differences from Anglo-Saxon trusts: - Treuhand does not have effects in rem comparable to trusts; dispositions by Treuhänder regarding transferred property are effective even if in bad faith and contrary to contract. - Treuhand may offer relative anonymity of beneficial owner of Treugut and may be misused for ML and TF to same extent as Anglo-Saxon trust. - The extent of this risk has not been assessed by German authorities. (para. 1072) - Fideicomiso and Anglo-Saxon trusts cannot be established under German law. (para. 1073) - Measures to prevent unlawful use (c. 34.1): - No measures implemented to prevent unlawful use of Treuhand other than disclosure obligations mentioned in the document. (para. 1074) - Access to information on beneficial owners of Treuhand (c. 34.2): - No measures to ensure in all instances access to beneficial owner information; no registration of Treuhandverhältnisse or of Treuhänder. Authorities state registration impracticable due to everyday character of many Treuhandverhältnisse (e.g., selling something on behalf of a friend). As a result, impossible to determine number of Treuhand, amount of property covered, and identities of Treuhänder. (para. 1075) - A few instances require disclosure: - a. Disclosure required in certain circumstances, notably when opening a bank account: pursuant to Section 4(5) of the ML Act, customer must disclose on whose behalf he or she is acting. (para. 1075a) - b. Where rights towards third parties are claimed on basis of Treuhand, the Treuhand must be disclosed. (para. 1075b) - Lawyers and notaries who have agreed Treuhandverhältnis may open fiduciary accounts; financial institutions must be informed, at least in response to enquiry, of the party on whose behalf the fiduciary account is held; bank access to fiduciary account for claims against trustee only relates to claims arising with regard to the trust account itself. (para. 1076) - Insolvency/coercive execution: Treugeber has special rights deriving from trustee relationship preventing property being exploited by insolvency administrator or private creditors of Treuhänder; these rights can only be asserted if Treuhand is disclosed and proven in dispute. (para. 1077) - Other public-law obligations may contribute to disclosure, e.g., Treugeber may be obliged to state a Treuhand in tax declaration if relevant for fiscal law. (para. 1078) - Access via law enforcement powers is available, but absence of registration greatly inhibits implementation. (para. 1079) - Conclusion: Disclosure of existence of Treuhand and parties is limited to specific circumstances; absence of central registration makes authorities hard pressed to establish presence of Treuhand or identity of beneficial owner. (para. 1080) - Additional element—access by financial institutions (c. 34.3): - Treuhänder must inform financial institutions that he or she is acting on behalf of someone else and provide the identity of that person. (para. 1081) - Recommendations and compliance: - Assessment: existing obligations to disclose Treuhandverhältnis are not sufficient to mitigate risk of misuse. (para. 1082) - Recommendation (to comply fully with Recommendation 34): Enhance transparency over Treuhands. (para. 1083) - Compliance summary: - R.34 NC - Underlying factor: Insufficient measures in place to ensure transparency over Treuhand. (section 5.2.3) ### Non-Profit Organizations (Special Recommendation VIII) - Legal framework and approach: - German government chose not to adopt a statutory supervisory framework and formal monitoring regime for the entire NPO sector specifically for countering terrorism; instead uses a two-prong approach: measures to ensure transparency of the sector and targeted, intelligence-driven monitoring, surveillance, investigation and suppression of extremists and terrorist activities, including financial support of terrorism. (para. 1084) - Transparency measures include a “Donation Seal” program covering larger NPOs on a voluntary basis, outreach programs to raise awareness and sensitize NPO sector to ML risks, and outreach to financial sector about vulnerabilities to TF. (para. 1085) - Non-profit status is primarily a tax issue; organizations apply for notice of exemption with tax authority to qualify for tax relief; qualification based on benevolent, social, ecclesiastical, or non-profit objectives; legal form has no bearing on non-profit status. Fiscal authorities may inspect accounts and oversee fund appropriation for NPOs. (para. 1086) - NPOs required to provide annual audits of funds collected, including intended purpose and uses; organization may not pursue goals primarily serving its own economic interest. (para. 1087) - Tax investigations may be carried out as warranted; in practice exceptional and normally triggered by independent evidence of problems, including reports from security services. (para. 1088) - Legal form does not affect qualification for non-profit status; based on NPO status, tax benefits granted to between 400,000 and 500,000 associations (Vereine) and approximately 18,000 foundations (Stiftungen). (para. 1089) - Although no specific regulation of NPO sector exists, to qualify for favorable tax treatment NPOs are subject to registration and reporting obligations depending on legal form. (para. 1090) - Statistics on donations: - Based on a BMFSFJ study in 2006, annual volume of donations fluctuates between €2.6 billion and €7 billion ($3.6 billion and $9.7 billion). (para. 1091) - Average annual volume lies in the range €3-€5 billion ($4.2-7.0 billion). (para. 1091) - Cash donations have increasingly been replaced by wire transfers or pledge programs; cash donations now collected in only a few limited contexts (religious institutions, certain street/door-to-door cases); receipts for tax-deductible cash donations provide revenue administration with means to verify use when filed. (para. 1092) - Noncash donations transferred to ultimate beneficiaries through licensed financial institutions can generally be monitored through bank account interface and traced in criminal investigations. (para. 1093) - Review of adequacy of laws & regulations (c. VIII.1): - 2003 review of legal/regulatory structure and operational activities of NPO sector focused on vulnerability to TF; September 2003 “German Report on the Non-Profit Sector” was amplified and submitted to FATF Working Group on Terrorist Financing on August 31, 2004 as WGTF/58; the WGTF document reviews NPO situation, discusses legal framework, and suggests improvements to prevent abuse for TF. (para. 1094) - Authorities state adequacy of laws and regulations relating to NPOs remains under review and adjustments made where a need is recognized. Example: legislation dated December 4, 2001 extended application of Act Governing Private Associations (VereinsG) to extremist religious organizations and ideological associations, making it possible to prohibit such associations and their activities. (para. 1095) *Source: Excerpt from IMF assessment document as provided* ### 1096. In addition to the new legislation noted above, the fiscal code has provisions for the ### _cr1078 - 1096. In addition to the new legislation noted above, the fiscal code has provisions for the ### Legal framework for denial of NPO status, reporting, and penalties - Section 51 (3) of the Fiscal Code: denial of NPO status to associations involved in terrorist activities or contradicting the notion of international understanding; requires reporting such activities to the Constitutional Protection Agency and filing an STR. - Eligibility for tax benefit requires that the articles of association and actual management preclude pursuing terrorist efforts or activities contradicting the notion of international understanding (derived from Section 4 of the Act Regulating the Co-operation between the Federation and the Federal States in Matters Relating to the Protection of the Constitution and on the Federal Office for the Protection of the Constitution (Bundesverfassungsschutzgesetz, BVerfSchG)). - Doubt as to whether recognition requirements are satisfied operates to the detriment of the organization (no tax privileges will be granted). - Tax authority responsibilities: - Inform the constitutional protection agency of findings substantiating a suspicion of efforts within the meaning of Section 4 of the BVerfSchG—specifically, support of terrorist activities. - Pursuant to Section 31 b of the Fiscal Code, promptly notify competent law enforcement agencies and send a copy to the FIU of any information suggesting that TF within the meaning of Section 1 (2) of the Money Laundering Act has been or will be committed or attempted. - Act Governing Private Associations: allows prohibition of associations that violate criminal law or contradict the constitutional order or the notion of international understanding; prohibition may result in confiscation of the organization’s entire assets and reimbursement of unlawfully received benefits. - Criminal and administrative liability: - Fraudulent attainment of NPO recognition: potential liability under Section 370 of the Fiscal Code (tax evasion); attempt punishable under Section 370 (2). - Negligent conduct by statutory representative: administrative offense under Section 378 of the Fiscal Code, punishable by a fine of up to €50,000 ($69,585). - Criminal provisions Sections 129 a, 129 b of the CC pertaining to TF remain applicable. ### Enforcement examples and historical actions - August 31, 2002: AL-AQSA e.V. (registered, nationwide foreigners’ association) was banned and dissolved and its assets confiscated and forfeited; decision based on: - Activities support, advocate, or intend to bring about the use of force as a means for enforcing political, religious or other interests. - AL-AQSA e.V. supports an association outside the Federal Republic which advocates and initiates attacks on persons or property. - September 5, 2005: Yatim-Kinderhilfe e. V., which intended to continue AL-AQSA activities in collecting funds, was banned and its assets confiscated. ### Documentation, public registers, and transparency - Registers of Associations: - Documentation (articles of association, names and addresses of management board members) for all associations entered in the Register of Associations is available at the Local Courts. - Registers of associations are public and may be inspected by anyone. - Registers are maintained electronically and accessible online; regional government websites link to Länder registers; a fee is charged for web access (eliminating the fee could increase transparency and oversight). - Federal Office of Administration (BVA) maintains a central register for associations of aliens pursuant to the Act Governing Private Associations (includes associations of aliens without legal personality). - Tax authorities maintain documentation on all non-profit organizations in Germany with respect to financial statements, financing sources and recipients. - Pursuant to Section 31 b of the Fiscal Code, tax authorities must promptly notify law enforcement and send a copy to the FIU of any information suggesting TF within the meaning of Section 1 (2) of the Money Laundering Act has been or will be committed or attempted by any person or any (non-profit) organization. - Tax information is not open to the public; the public can access registration data from registrars, often maintained online. ### Risk assessment, intelligence use, and monitoring limitations - Authorities use intelligence information and available sources to analyze the likelihood of financing of terrorism and to identify and preclude terrorist activity; risk assessments extend across multiple sectors including the NPO sector. - Limitations of available information: - Outdated baseline data. - Limited requirements to submit updated information. - Infrequent compliance monitoring. - Federal and state security authorities: - Continue to evaluate current trends in TF, including TF by non-profit organizations. - Incorporate findings into situation reports (SITREP) on TF and the FIU newsletter provided to institutions and persons covered by the Money Laundering Act. - Recalibrate entities and sectors targeted for surveillance based on intelligence-driven risk assessments. ### Outreach to the NPO sector to prevent terrorist financing abuse - 2002 outreach activity: - Active around the time the International Best Practices paper was prepared and issued. - Creation of a roundtable with representatives of major non-profit associations, the Federal Ministry of the Interior, and the Federal Ministry of Finance to present findings, sensitize NPOs, and raise awareness; the roundtable continues to meet occasionally. - Limited organized awareness-raising beyond the roundtable: - DZI conducts an annual workshop with donor seal organizations including topics such as anti-corruption; TF has not been a specific focus of the workshops. - DZI lacks a public relations section to propagate information on key issues. - German Association of Foundations and German Federation of Welfare Organizations do not appear to have active TF programs. - German Association of Foundations published in 2006 “Guiding Principles of Good Practice for Foundations” (posted on the internet) to address conflicts of interest, transparency, and efficient allocation of foundation funds; foundations can declare these principles mandatory. - Authorities favor a targeted, intelligence-driven approach to combat terrorism while maintaining public confidence in the NPO sector. ### DZI role, focus, and monitoring of major NPOs - German Central Institute for Social Issues (DZI): - Independent private law foundation sponsored by Berlin Senate, Federal Ministry for Family Affairs, Senior Citizens, Women and Youth, German Chamber of Industry and Commerce, German Association of Cities, and Federal Association of Non-statutory Welfare. - Primary objectives: promote transparency, provide information and assessment of NPOs, warn against nontransparent and dubious fundraising organizations. - DZI focuses on approximately 3,000 NPOs that solicit donations on a regular, systematic, and national basis. - These organizations account for approximately half of all German charitable donations and a substantial share of the sector’s international activities. - DZI awards the German “Donation Seal” (Spendensiegel) to organizations that promote transparency and agree to comply with supervision and review by DZI; DZI also makes the public aware of major NPOs that do not qualify for the Donation Seal. - DZI publishes an annual fundraising guide, the DZI Donation Almanac. - DZI offers advice to donors on approximately 350 organizations which solicit donations nationally but do not have its seal. - A database is being developed to provide, based on voluntary disclosures, information on objectives, subject matter, and activities of all NPOs. - DZI operates on a voluntary basis and has no enforcement authority. ### Registration, qualification for tax benefits, and compliance checks - Information required for NPOs: - Purpose and objectives filed with tax authorities (for tax benefits) and with registers (associations, companies, foundations) to establish legal personality. - Names and addresses of board members must be filed; registration information is public (online or at local courts); basic information on tax-benefit organizations is available from the tax office. - NPO status and tax exemption: - Examination of accounts, organization, and objectives occurs primarily at time of application for NPO status. - Tax exemption status must be renewed annually, including updating and review of purposes and governance. - NPOs must regularly file a tax return; with each return, fiscal authorities check continued compliance with requirements for favorable tax treatment (Sections 51 and following AO). - Failure to file required reports may lead to withdrawal of tax benefits. - Tax authorities examine both stated articles and actual management; organizations must submit detailed breakdowns of incomes and expenditures and substantiate donation receipts. - Licensing is not required; receiving tax benefits is conditional on establishing legal personality via registration as an association, foundation, or other legal entity. - Tax filing information and registration information are available to competent authorities. ### Legal forms, governance, and foundation supervision - Associations (Verein): - Most NPOs choose the legal form of an association as defined in Section 21 and following of the Civil Code (Burgerliches Gesetzbuch, BGB). - Constitution and structure determined by articles of association; no formal requirements; wide autonomy. - To obtain legal personality and rights (contracting, tax and subsidy benefits, authorization for fundraising), an association must be entered in the Register of Associations; registration requires submission of charter and names of management board. - Registers maintained at Länder level by Local Courts. - Act Governing Private Associations (VereinsG): - Applies to registered and unregistered groups that function as associations. - Contains provisions to prohibit associations whose aims or activities contravene criminal law or are directed against the constitutional order or the notion of international understanding (Article 9(2) of the German Basic Law). - Section 3 permits prohibition of an association or certain activities; bans generally extend to seizure and confiscation of assets and are subject to sanction. - Special investigative powers accompany enforcement, supplemented by general security authority powers where indications of TF exist. - Authorities imposing bans: - Land level: Supreme Land Authority or authority responsible for associations. - Federal level: Federal Minister of Interior. - Since adoption in December 1966, Länder have banned some 72 associations and the BMI has banned an additional 36. - Prohibition grounds include dangerous influence on public safety and order and support of terrorist organizations; prohibition powers have been used in at least two terrorism-related cases. - Enforcement under the Act does not preclude civil or criminal prosecution; tax violations can lead to withdrawal of tax benefits. - Foundations: - Independent civil-law foundations regulated by the German Civil Code, BGB (Sections 80 and following), and Länder foundation laws. - Establishment requires a foundation business agreement and state approval. - Subject to statutory state monitoring via foundation supervisory authorities which require an annual report (annual balance with income and expenditure report and written report on fulfillment of foundation aim). - Board must store financial records for ten years and correspondence for six years. - Certain decisions require supervisory authority involvement; powers include dismissal of Board members, dissolution of the foundation, or alteration of purpose where necessary. - Länder foundation laws oblige foundation supervisory authorities to publish their foundation directories online. *Italicized source attribution: IMF staff report content unit paragraphs 1096–1118.* ### 1119. c. VIII. 3.4— The German Fiscal code (Abgabenordnung, AO) stipulates in para. 147: ### c. VIII. 3.4— The German Fiscal code (Abgabenordnung, AO) stipulates in para. 147: ### Record-keeping requirements for tax reasons (AO para. 147) and HGB retention rules - “The following documents shall be stored for a period of ten years for tax reasons: accounts and records, inventories, annual reports, situation reports, the opening balance sheet as well as the operating instructions and other organizational documents needed for their comprehension as well as records of domestic and international transactions. - Other documents (such as relevant correspondence) to the extent that these are of relevance for taxation shall be stored for six years.” - For NPOs, records include records of how funds have been raised and how they have been spent. - The record-keeping requirements do not require that domestic and international transactions be separately identified. - Further retention rules under the German Commercial Code (Handelsgesetzbuch, HGB): - Section 257: every merchant and company must keep records for six years. - Financial statements and some other particular documents must be kept for ten years. - These documents may be used as proof in criminal procedures (in cases of TF) and can be confiscated by police and public prosecutors according to the CPC. ### Information sharing, investigatory powers, and access to registration/tax information - Registration information is available to law enforcement as well as to the public. - Information collected by fiscal authorities for granting tax benefits, including financial and programmatic information, can be made available to law investigators under appropriate authority. - Under regulatory investigatory powers, law enforcement may investigate NPOs when there is suspicion of tax evasion (Sections 370 and 402 German Fiscal Code (Abgabenordnung, AO) which refer to the CPC). - Regulatory investigatory powers include: - confiscation (Sections 94 and following StPO) - search (Sections 102 and following StPO) ### Joint Counter-Terrorism Center (GTAZ) and coordination arrangements - The Joint Counter-Terrorism Center Task Force (GTAZ) is the principal entity for coordinating and sharing information about terrorism and TF. - GTAZ established in Berlin in 2004. - GTAZ houses approximately 220 specialists from the police (including the Customs Criminological Office (ZKA)), intelligence services, the Public Prosecutor General at the Federal Court of Justice (GBA), and the Federal Office for Migration and Refugees (BAMF). - Some 40 intelligence and investigating bodies coordinate under the auspices of the GTAZ. - In appropriate cases, specialists from the financial supervisory authority and foreign experts may be brought in. - Information held by BKA is available to law enforcement agencies; BKA has published on its website notices regarding TF developments. ### Roles in TF investigations and points of contact - For investigations of TF matters: - Länder level Criminal Investigation Bureaus (LKA) generally take the lead, with support from the BKA. - Under Section 4 of the Act on the BKA, the BKA may perform law enforcement tasks to investigate TF, especially in international organized crime cases or when the Federal Public Prosecutor assigns the BKA. - For terrorist activities, investigative responsibility lies with the Federal Security Service (BfV) and the Federal Intelligence Service (BND). - Designated points of contact: - BKA: designated point of contact to respond to international requests for police matters related to NPOs suspected of terrorism financing or other forms of terrorist support. - BfV: point of contact for domestic intelligence investigations. - BKA and BfV reply by usual communication channels. ### Effectiveness of implementation—overview - Germany’s approach relies on transparency of the NPO sector and an intelligence-driven process to identify and respond to TF and terrorist threats; emphasis is on intelligence. - Arrangements for coordinating intelligence and police efforts against terrorism, including where they involve NPOs, are well established. - Groups involved have adequate capacity and are highly motivated. - Where potential threats are identified, authorities can pursue links to NPOs and investigate possible TF activity; law enforcement has shown willingness to take forceful measures when called for. ### Limitations in transparency, granularity, and outreach - Registration and approval for tax benefits provide a basic level of transparency to tax authorities and general public information; formal requirements are relatively straightforward and undemanding. - Satisfying registration requirements provides limited assurance that internal procedures from the Interpretative Note to SR VIII and the 2002 International Best Practices paper are generally being followed. - STRs related to possible TF by NPOs are uncommon. - Intelligence information on NPO TF vulnerability exists at tax authority level, but generally available registration information is not sufficiently granular to allow external monitoring of NPOs either sectorally or at the individual organization level. - DZI donor seal program: - Provides important transparency for major donors. - To qualify, NPOs must publish annual financial statements with detailed breakdowns of incomes and expenditures, as called for in 6 (b)(ii) of the Interpretative Note to SR VIII. - Participating NPOs are obliged to follow a know-your-beneficiaries and associate NPO policy, as called for in 6(b)(v). - NPOs must demonstrate funds are spent consistent with objectives, but there are no specific requirements that they have internal controls for this purpose. - A DZI project to develop a much wider database encompassing information on almost all of the NPO community is underway and, when concluded, would be a useful supplement to current transparency arrangements. - Renewed outreach efforts to raise awareness of TF vulnerabilities would also be useful. ### Recommendations and comments (to comply fully with Special Recommendation VIII) - Document that NPO laws and regulations have been systematically reviewed and updated and that the vulnerability of the NPO sector is periodically reassessed. - Require NPOs in their registration documents or in their filings for tax benefits to provide the information called for under Interpretative Note to SR VIII, Section 6 b and the financial transparency Section of the 2002 FATF best practices paper. - Energize outreach efforts to maintain awareness of TF risk in the NPO sector. ### Compliance with Special Recommendation VIII—Rating and factors - SR.VIII: LC - Summary of factors underlying rating: - Review of NPO laws and regulations and ongoing reassessments of vulnerabilities not documented. - Data on NPOs available from association registration documents or from tax filings for tax benefit status is sparse relative to the financial information expected under the Interpretative Note to SR.VIII, Section 6 b, and the financial transparency Section of the 2002 FATF best practices paper and is of limited usefulness for monitoring individual organizations or for sectoral monitoring. - Low intensity of outreach to raise awareness of TF risk in the NPO sector, even within a strategy of safeguarding and maintaining the practice of charitable giving and the strong and diversified community of institutions through which it operates. ### National cooperation and coordination (R.31 & R.32) — mechanisms and effectiveness - Mechanisms utilized to enable policy makers, the FIU, law enforcement, supervisors, and other competent authorities to cooperate domestically on ML and TF: - Money Laundering Contact Group: informal coordinating body comprising representatives of the BMI, BMF, BMJ, and the BMWi (BMWi not an active participant); established in 1993; meets as needed to coordinate AML/CFT matters; composition varies by topic; may include supervisory authorities, law enforcement, private sector representatives, the FIU, and others. - Financial intelligence experts of federal security authorities hold regular meetings to exchange information and experience; Länder authorities participate via federal authorities. - FIU at the BKA maintains contact with investigating agencies of federal authorities and Länder, public prosecutor’s offices, customs, tax authorities, supervisory authorities, professional chambers, umbrella organizations, entities covered under the Money Laundering Act, suppliers of special research and monitoring software, training institutions, research organizations, and federal and Land ministries. - FIU organizes annual meetings (working group of banks and chambers) including bankers’ associations, professional chambers, compliance officers from major German banks, Land Criminal Police Offices, Customs Criminological Office, and other BKA representatives. - Joint Financial Investigation Groups (GFGs) at Länder Criminal Police Offices ensure continuous coordination of specialist and operational matters relating to criminal prosecution; police and customs authorities work together as equal partners. - Link between BaFin and FIU: STRs are reported directly to the FIU; information exchange provided for by Section 9 (1) number 1 of the ML Act. - BaFin cooperates directly with Länder police investigative units when taking enforcement actions; within BaFin’s MLPG this is undertaken by section GW 3. - Considerable informal knowledge exchange between BaFin and FIU on typology papers, EU twinning projects, training, coordination on freezing of assets under Section 6a of the Banking Act, and sharing of copies of particular STRs and other information. - Effectiveness examples and assessments: - FIU publishes an annual report with overview of suspicious operations and an indication of active financial entities, nonfinancial businesses and professions; part of the report dedicated to the implementation of the Third EU Money Laundering Directive. - BaFin publishes an annual report including a chapter on activities of BaFin’s AML Group and essential findings from AML-supervisory tasks; BaFin holds regular meetings with Associations of the Financial Sector to discuss practical implementation. - Periodical meetings between authorities and financial/nonfinancial bodies to discuss difficulties applying legal provisions; have led to improvements such as feedback mechanisms to entities notifying suspicious operations. - Regular meetings of the German delegation to the FATF with representatives from the Federal Ministry of Finance, BaFin and Bundesbank, Federal Ministry of Economics and Technology, Federal Ministry of the Interior, and the FIU; discussion of system performance, projects to improve procedures, and legislative amendments. - Once a year, the German Government surveys federal authorities about implementation of measures relevant to combating terrorism, including TF measures and projects. - Mechanisms for consultation between competent authorities and regulated institutions: - Private sector representatives are invited from time to time to participate in discussions with authorities; consultation is ad hoc with no formal mechanism for regular consultation. - Analysis of effectiveness: - Authorities have a variety of mechanisms to facilitate cooperation and policy development, albeit informal and ad hoc. - Effective mechanisms exist to facilitate cooperation between agencies investigating ML and TF. - Lack of engagement observed from authorities responsible for many DNFBPs. - Implementation appears primarily motivated by implementing the Third EU Directive and complying with FATF 40+9 Recommendations. - Assessors were not provided minutes or evidence of follow-up processes from national coordination efforts. - Ministry of Finance appeared under-resourced to coordinate national implementation and Germany’s position within the FATF. - More focus seemed placed on coordinating policy positions at the FATF than on coordinating domestic implementation. - No hard evidence of national-level efforts aimed at reviewing effective implementation of the regime. - Authorities do not appear to have direct accountability to report on AML/CFT matters within the German political system (i.e., no reporting to parliament); none of the main policy ministries report on AML/CFT matters in their annual reports. - Despite national policy ministries indicating a main focus on fighting tax evasion, assessors could not find much effective implementation consistent with that belief. _Italic: Source: _cr1078 - 1119. c. VIII. 3.4— The German Fiscal code (Abgabenordnung, AO) stipulates in para. 147:_ ### 1141. In order to comply fully with Recommendations 31 and 32 (cr. 32.1), Germany should: ### _cr1078 - 1141. In order to comply fully with Recommendations 31 and 32 (cr. 32.1), Germany should: ### Recommendations to comply with Recommendations 31 and 32 (cr. 32.1) - Ensure that the ML Contact Group meetings include a focus on national implementation of Germany’s AML/CFT regime. - Put in place formal mechanisms to review the effectiveness of Germany’s AML/CFT system. - Fully engage authorities responsible for DNFBPs. - Have the FIU provide the BaFin with information about the quality of STRs received from reporting entities. - Put in place formal mechanisms to enhance dialogue with the private sector. - Provide more resources to the MoF for it to coordinate national implementation. ### Compliance with Recommendation 31 & 32 (criterion 32.1 only) - Rating: R.31 — LC - No effective coordination with authorities responsible for DNFBPs. - Policy coordination focuses primarily on FATF policy matters rather than developing policies and activities to combat ML and TF in Germany. - Rating: R.32 — PC - No evidence that overall reviews of effectiveness of the German AML/CFT system have been undertaken. - Rating for this section: NC --- ### 6.2. The Conventions and UN Special Resolutions (R.35 & SR.I) ### Ratification and implementation summary (paragraph references retained) - Paragraph 1142: - Germany signed the Vienna Convention on January 19, 1989 and ratified it on July 22, 1993. - Implementing Act (Act of August 2, 1993) entered into force on February 28, 1994. - Paragraph 1143: - Germany signed the Palermo Convention on December 12, 2000 and ratified it on June 14, 2006. - The convention entered into force on July 14, 2006. - Paragraph 1144: - Germany signed the CFT Convention on July 20, 2000 and ratified it on June 17, 2004. - The convention entered into force on July 17, 2004. ### Implementation assessments - Vienna Convention (1145–1146): - Germany has enacted legislation implementing key AML requirements of the Vienna Convention. - Proper ancillary offenses and association to commit ML are criminalized. - Trafficking in narcotics and related offenses are criminalized. - Criminal law and criminal procedure laws provide for provisional measures and for forfeitures and confiscations of property. Controlled deliveries available. - CFT Convention (1147): - Legislation is partially consistent with the CFT Convention. - Shortcomings: - Definition of “serious violent act endangering the state” does not extend to all acts within scope of treaties annexed to the CFT Convention and does not cover serious bodily injuries. - Definition of “funds” requires a minimum value (i.e., not merely insubstantial), not fully in line with CFT Convention. - Germany has acceded to all nine treaties, conventions, and protocols listed in the CFT Convention’s Annex. - Palermo Convention (1148–1151): - Germany has enacted legislation to implement some key AML requirements of the Palermo Convention, but significant gaps remain: - ML offense cannot be applied to persons who commit and are convicted for the predicate offense. - “Insider trading and market manipulation” and “counterfeiting and piracy of products” are not predicate offenses to ML. - Some categories of predicate offenses apply only if certain aggravating circumstances are met. - Natural and legal persons are not subject to sanctions that take into account the gravity of the ML offense. - CC punishes offenses dealing with criminal organizations and ancillary offenses; criminal liability does not extend to legal persons. - Criminal law/procedure provide for provisional measures and forfeitures/confiscations. - Prosecution authorities have special investigative techniques (telephone taps, undercover agents, controlled delivery, informants). - International cooperation: wide range of mutual legal assistance; Germany does not extradite nationals but submits cases to competent authorities for prosecution without undue delays. - UNSCRs related to TF (1152): - UNSCRs 1267 and 1373 implemented within EU framework via Council Regulation No. 881/2002 (May 27, 2002) and Council Regulation 2580/2001 (December 27, 2001); these regulations are directly applicable law in Germany. - Shortcomings: - Except for credit institutions, financial services institutions, and investment companies, no other person is subject to directly applicable requirements for freezing of assets for EU-internals under S/RES/1373. - Lack of effective procedures to freeze assets other than funds in many instances (i.e., for EU-internals where the Banking Act applies). - No appropriate measures to monitor effectively compliance with obligations under SR.III by persons and entities other than financial institutions and “companies”. - Additional element — Council of Europe Convention (1153): - Germany signed on November 8, 1990 and ratified on September 16, 1998; entered into force on January 1, 1999. ### Recommendations and comments for R.35 and SR.I - With respect to Recommendation 35: - Fully implement the Palermo convention by criminalizing self-laundering. - Fully implement the Palermo Convention by: - making “insider trading and market manipulation” and “counterfeiting and piracy of products” predicate offenses for ML; - amending the CC to ensure predicate offenses for ML include a range of offenses in each designated category without requiring additional intent-to-profit or gang-membership conditions; - increasing the minimum and maximum ranges consistent with penalties for other serious offenses in Germany. - With respect to Special Recommendation I: - Fully implement the CFT Convention by amending Section 89a of the CC to: - extend financing of a terrorist act and of an individual terrorist to all acts that constitute offenses within scope of treaties annexed to the CFT Convention; - cover serious bodily injuries; and - eliminate the requirement that “funds” be of a certain minimum value (i.e., not merely insubstantial). - Enact legislation to make S/RES 1373 applicable to any entity or persons other than credit institutions, financial services institutions, and investment companies for freezing of assets concerning EU-internals. - Set up procedures to ensure freezing without delay of assets other than funds (immovable goods, companies and businesses, vehicles) for EU-internals where the Banking Act applies. - Set up appropriate measures to monitor effectively compliance with freezing obligations by persons and entities other than financial institutions and “companies.” ### Compliance ratings for R.35 and SR.I (6.2.3) - R.35 — PC - Germany has not fully implemented the Palermo convention: - The ML offense cannot be applied to persons who commit and are convicted for the predicate offense. - “Insider trading and market manipulation” and “counterfeiting and piracy of products” are not predicate offenses to ML. - Natural and legal persons are not subject to effective, proportionate, and dissuasive sanctions for basic ML. - SR.I — PC - Germany has not fully implemented the Terrorism Financing Convention and the relevant UNSCR: - Definition of “serious violent act endangering the state” not fully consistent with CFT Convention; does not cover serious bodily injuries. - Definition of “funds” requires a minimum value (i.e., not merely insubstantial). - Financing to carry out a terrorist act and financing of an individual terrorist not fully consistent with the CFT Convention. - Except for credit institutions, financial services institutions, and investment companies, no other person is subject to directly applicable freezing requirements for EU-internals under S/RES/1373. - Effectiveness not established: lack of specific statistics to show natural and legal persons are subject to effective, proportionate, and dissuasive sanctions and that TF offenses are effectively implemented. - Lack of effective procedures to freeze assets other than funds for EU-internals where the Banking Act applies. - No appropriate measures to monitor effectively compliance with freezing obligations by persons and entities other than financial institutions and “companies.” --- ### 6.3. Mutual Legal Assistance (R.36-38, SR.V) ### Legal framework (1154–1155) - Primary instruments: - Law on International Assistance in Criminal Matters of December 23, 1982 (LIACM). - Guidelines on Relations with Foreign Countries in Criminal Law Matters (revised effective January 1, 2009). - International conventions, multilateral and bilateral agreements. - Article 32 of the Basic Law: legal assistance in criminal matters is the responsibility of the federal government. ### Scope and practice of mutual assistance (1156–1160) - General capability: - Germany is capable of providing comprehensive, effective, and timely judicial assistance. - Deficiencies in the ML offense (Recommendation 1) may impact ability to provide forms of international cooperation requiring dual criminality (e.g., extraditions), particularly for non-EU jurisdictions. - Authorities stated assessors that no requests for MLA have been denied by Germany, or rejected by other countries upon a request by Germany, on the basis of dual criminality requirements not being met because of the deficiencies in the ML offense. - LIACM and Sections cited: - Section 59 LIACM allows “any type of aid” to foreign criminal proceedings where no treaty applies. - Section 66(1) LIACM governs surrender of objects (Gegenstände) and documents as evidence; lists Categories Number 1–4 for types of property that may be surrendered. - Section 66 interpreted broadly to authorize surrender of all property and rights; qualifying conditions in Section 66(2) include dual criminality, existence of a seizure order from the requesting state, and assurances regarding third-party rights and return of objects. - Sections 66 and 67 can be used for confiscation of assets laundered or intended to be laundered, proceeds of ML, assets used or intended for TF, instrumentalities of such offenses, or assets of corresponding value (§§ 67 (1), 66 (1)). - Section 67(1) permits seizure or impoundment prior to receipt of a request for surrender; search may be conducted for this purpose. - Section 67(2) permits seizure or impoundment under conditions necessary to comply with requests that do not seek surrender (e.g., temporary access to written documents). *Source: Excerpts from the referenced IMF country report PDF content unit.* ### 1161. Where bilateral or multilateral treaties have been concluded between Germany and other ### Mutual legal assistance, treaties, and execution (extract) ### Treaties governing mutual assistance - Germany has signed multiple MLA treaties, including multilateral Council of Europe instruments: - European Convention on Extradition CETS No.: 024 — 01.01.1977 - Second Additional Protocol to the European Convention on Extradition CETS No.: 098 — 05.06.1983 - European Convention on Mutual Assistance in Criminal Matters CETS No.: 030 — 01.01.1977 - Additional Protocol to the European Convention on Mutual Assistance in Criminal Matters CETS No.: 099 — 12.04.1982 - European Convention on Information on Foreign Law CETS No.: 062 — 19.03.1975 - Additional Protocol to the European Convention on Information on Foreign Law CETS No.: 097 — 24.10.1987 - European Convention on the Suppression of Terrorism CETS No.: 090 — 04.08.1978 - Convention on the Transfer of Sentenced Persons CETS No.: 112 — 01.01.1985 - Additional Protocol to the Convention on the Transfer of Sentenced Persons CETS No.: 167 — 01.08.2007 - European Convention on the Compensation of Victims of Violent Crimes CETS No.: 116 — 01.02.1988 - Convention on Laundering, Search, Seizure and Confiscation of the Proceeds from Crime CETS No.: 141 — 25.05.1995 - Agreement on illicit traffic by sea, implementing Article 17 of the United Nations Convention against illicit traffic in narcotic drugs and psychotropic substances CETS No.: 156 — 01.05.2000 - Convention on Cybercrime CETS No.: 185 — 01.07.2009 - Additional bilateral treaties listed (examples with entry into force for Germany): - The Republic of Italy — 04.07.1985 - The Kingdom of the Netherlands — 30.01.1983 - The Republic of Austria — 01.02.1977 - The Swiss Confederation — 01.01.1976 (and amending treaty 01.03.2002) - The Czech Republic — 19.06.2002 - The Republic of Poland — 04.09.2004 - The French Republic — 01.01.1981 - The State of Israel — 06.03.1981 - (See full list in text for complete bilateral entries and instrument identifiers) ### EU multilateral instruments and implementation dates - Council Framework Decision on the European arrest warrant and the surrender procedures between Member States of the European Union 2002/584/JHA — 02.08.2006 - Convention on extradition between Member States of the European Union — 11.08.1998 - Convention on simplified extradition procedure between the Member States of the European Union — 12.09.1998 - Convention on Mutual Legal Assistance in Criminal Matters between the Member States of the European Union — 02.02.2006 - Protocol to the Convention on Mutual Assistance in Criminal Matters — 02.02.2006 - Council Framework Decision on the execution in the European Union of orders freezing property or evidence 2003/577/JI — 02.08.2003 - Council Framework Decision on the Application of the Principle of Mutual Recognition to Financial Penalties 2005/214/JHA — 22.04.2005 - Council Framework Decision on the application of the principle of mutual recognition to confiscation orders 2006/783/JHA — 24.11.2006 - Council Framework Decision on the European evidence warrant for the purpose of obtaining objects, documents and data for use in proceedings in criminal matters 2008/978/JHA — 19.01.2009 - Convention Implementing the Schengen Agreement — 26.03.1995 ### UN multilateral instruments listed (entry into force for Germany) - Convention against Illicit Traffic in Narcotic Drugs and Psychotropic Substances — 28.02.1994 - Convention against Transnational Organized Crime — 14.06.2006 - Protocol to Prevent, Suppress and Punish Trafficking in Persons, Especially Women and Children — 14.07.2006 - Protocol against the Smuggling of Migrants by Land, Air and Sea — (entry into force details in text) ### Recent statutory and legislative implementation - The Law Implementing the Framework Decision on Freezing came into force on June 30, 2008. - The Framework Decision on Confiscation was implemented through a legislative act adopted on September 19, 2009 and entered into force on October 22, 2009. ### Practical effects of the Framework Decisions - The Framework Decision on Freezing: - Entails an obligation to waive verification of dual criminality in the event of the surrender of property as evidence for one of the total of 32 offense categories listed in the Framework Decision (this includes ML and acts of terrorism). - Reduces the type and number of justifications for rejecting legal assistance requests. - Provides for speeding up freezing procedures; the requested country is expected to decide on recognition of the requesting country’s seizure decision as quickly as possible, if possible within 24 hours of receiving the request. - Following recognition, responsible judicial authorities in the requested country must immediately take requisite steps to ensure prompt implementation as they would for a domestic seizure decision. - The Framework Decision on Confiscation also applies to ML and acts of terrorism. ### Provision of assistance — timeliness and execution - Decision-making and execution: - Pursuant to Number 19(1) of the Guidelines, decisions on the granting of requests for legal assistance must be brought for authorization without delay; authorities stated that authorizations are granted in a rapid manner. - Pursuant to number 22(1) of the Guidelines, enforcing authorities must execute requests in accordance with the same provisions as would apply if the request had been submitted by a German authority. - Pursuant to number 22(2) of the Guidelines, mutual assistance shall in principle not be executed prior to the ruling of the authorizing authority; exception where delay likely jeopardizes the investigation and there are no objections. - If previously executed, the executing authority shall forward the request and proof of execution to the authorizing authority. - Urgency: - Pursuant to Article 2 (2) second sentence of the German Basic Law (Grundgesetz, GG), requests for legal assistance in cases involving detention will always be classified as urgent. - Urgency may also result from investigation content (e.g., attachment, need for swift preservation of evidence through search and seizure). - EU special acceleration: - Special acceleration requirements exist among Member States, such as Article 5(3) of the Framework Decision on Freezing. - Data limitations: - The absence of statistics on mutual legal assistance prevented assessors from evaluating the effectiveness or efficiency of the system. ### Grounds for refusal and dual criminality - Ordre public (public policy) proviso: - Pursuant to Section 73 of the LIACM, legal assistance is not granted if it would contravene essential principles of the German legal system (ordre public). - Application follows Federal Constitutional Court decisions: reject where acts underlying the request no longer conform with minimum standards of elementary constitutional justice under international law, inalienable constitutional principles of public order in Germany, or elementary requirements under international law. - Particular importance: respect for the principle of the rule of law, including proportionality, and preservation of human dignity. - Applies especially in extradition but may also apply to cross-border execution of prison sentences, imposition of fines, forfeitures and confiscations, or surrendering of property. - Authorities confirmed a very small number of requests have been rejected by application of this provision. - Dual criminality: - Dual criminality is a strict requirement under German law only in the area of extraditions (Section 3 of the LIACM). - In “enforcement assistance” and “other legal assistance”, German law does not generally require dual criminality; existence of criminal or administrative fine proceedings in the requesting country is in principle sufficient. - Dual criminality is expressly required for seizure and surrender of property (Sections 66 and 67 of the LIACM) and for requests targeted at investigation measures under criminal law that under national law require an offense to have been committed (Section 59 (3) in conjunction with Section 77 of the LIACM). This concerns sensitive measures such as surveillance of telecommunications or acoustic surveillance of a private residence (Sections 100a, 100c of the CPC). - Where EU mutual recognition instruments apply, the requirement for dual criminality is dispensed with for most major offenses, including ML and TF. - Where dual criminality is required, exact agreement in definitions or subjective elements is not necessary; an analogous conversion of facts suffices (cf. Section 3(1) of the LIACM). ### Institutional responsibilities and process efficiency - Competence and delegation: - Under Article 32 of the Basic Law, legal assistance in criminal matters is the responsibility of the federal government. - Section 74(1) of the LIACM: the authority granting approval is always the Federal Ministry of Justice, which decides in agreement with the Federal Foreign Office and other affected federal ministries. - Section 74(1) third sentence: the Federal Ministry of Justice has transferred competence under Section 74(1) to the Federal Office of Justice (Bonn). - Section 74(2) of the LIACM: the federal government has largely transferred its right to decide on foreign requests and to request assistance from other countries to the Länder by way of an agreement on jurisdiction (revised April 28, 2004, Federal Gazette p. 11 494). By virtue of this agreement, the enforcement authority is the locally responsible public prosecutor with the Regional Court. - Guidance and standardization: - The Guidelines include lists of issuing and receiving authorities, border towns, penal institutions, and numerous forms and samples to standardize and facilitate judicial assistance. - Efficiency assessment: - Processes appear clear, but absence of statistics prevented evaluation of process efficiency. ### Assistance regardless of fiscal matters and secrecy/confidentiality - Fiscal matters: - National legislation does not provide for refusal of requests for mutual legal assistance on the sole grounds that fiscal matters are affected. - Germany has undertaken international commitments (e.g., Article 1 of the (First) Additional Protocol to the European Convention on Mutual Assistance in Criminal Matters; Article 18(22) of the United Nations Convention of November 15, 2000 against Transnational Organized Crime). - Secrecy and confidentiality: - Under German law, “secrecy” does not stand in the way of measures in international legal assistance; requests would not be refused solely due to secrecy or confidentiality laws applicable to financial institutions. - Limitations remain where DNFBPs protected by professional privileges (i.e., lawyers and notaries) are involved; restrictions on obtaining documents and information from such DNFBPs limit Germany’s ability to deliver mutual legal assistance in those cases. *Source: IMF staff report extract (text provided).* ### 1183. The powers of competent authorities required under Recommendation 28 are also ### _cr1078 - 1183. The powers of competent authorities required under Recommendation 28 are also ### Mutual legal assistance powers and procedural application - The powers of competent authorities required under Recommendation 28 are available for use in response to requests for mutual legal assistance. - Requests for legal assistance must always be executed in accordance with the same provisions that would apply if the request had been made by a German authority (in accordance with Number 22 (1) first sentence of the Guidelines). See Section 36.3. - Whether direct channels of communication are opened depends on relevant treaty-based provisions. Pursuant to Number 5(2) of the Guidelines, diplomatic channels must always be used in cases of non-treaty-based mutual legal assistance. - If a request is submitted through an unauthorized channel, it must nevertheless be approved provided there are no other impediments (Number 17(1) of the Guidelines). If a request has not been submitted to a responsible authority, it must immediately be forwarded to the responsible authority (Number 17(2) of the Guidelines). - The powers described under Recommendation 28 are available for use in response to requests for mutual legal assistance. See Section 36.6. ### Avoiding conflicts of jurisdiction and transfer of proceedings - Germany has considered introducing mechanisms to transfer prosecution to other states and concluded no greater need for specific mechanisms, based on experience that transfer of criminal proceedings does not pose practical problems. - At the European level, work groups of the European Council are deliberating a suggested Framework Decision on “Transfer of Proceedings in Criminal Matters,” targeted at procedural rules permitting transfer of ongoing preliminary criminal investigations or ongoing criminal proceedings between EU member state judicial authorities. - Under the suggested Framework Decision, the receiving state would be obligated in principle to accept proceedings unless specific reasons to refuse exist; if prosecution is accepted, proceedings in the transferring state would be suspended or discontinued. - Negotiations on the Framework Decision are at a relatively early stage and it was not expected to be taken by the Council during 2009. ### Application to terrorism financing (TF) and Special Recommendation V - Provisions described apply equally to the fight against terrorism and TF. - Deficiencies described under Special Recommendation II impact Germany’s ability to provide mutual legal assistance where dual criminality is a precondition (e.g., extradition, enforcement assistance, forfeitures, confiscations, and certain types of “other assistance”), especially in non-EU jurisdictions. ### Dual criminality and mutual assistance - Dual criminality is strictly required only for extradition. - For “enforcement assistance” (cross-border execution of prison sentences and imposition of fines, forfeitures and confiscations) and “other legal assistance” (support for other countries in investigation proceedings), German law does not generally require dual criminality; existence of criminal or administrative fine proceedings in the requesting country is, in principle, sufficient. - Dual criminality in “other legal assistance” is expressly required for: - seizure and surrender of property (Sections 66 and 67 of the LIACM), and - requests targeted at investigation measures under criminal law that under national law require an offense to have been committed (Section 59 (3) in conjunction with Section 77 of the LIACM), including surveillance of telecommunications or acoustic surveillance of a private residence (Sections 100a, 100c of the CPC). - Apart from these exceptions, provision of other forms of mutual legal assistance, particularly less intrusive and noncompulsory measures, may be rendered in the absence of dual criminality. - For cases where dual criminality is required (e.g., extradition), full agreement in offense definitions or subjective elements is not required; analogous conversion of the facts to meet national law is sufficient (cf. Section 3(1) of the LIACM). Different legal classification does not obstruct assistance if facts infringe a criminal provision of the requesting state whose purpose may safeguard a different legal interest. - Deficiencies in the ML offense under Recommendation 1 may impact ability to provide MLA where dual criminality is a precondition, especially for non-EU jurisdictions; impact may be limited given exceptional circumstances where dual criminality is required and absence of unduly restrictive requirements. - Authorities stated assessors were assured that no requests for MLA have ever been denied by Germany, or rejected by other countries upon a request by Germany, on the basis of dual criminality requirements not being met because of deficiencies in the ML offense. - Limitations in obtaining documents and information from DNFBPs protected by professional privileges (i.e., lawyers and notaries) may limit Germany’s ability to deliver mutual legal assistance where such DNFBPs are involved. ### Timeliness and mechanisms for provisional measures, seizure, confiscation, and forfeiture - German law permits effective and timely response to MLA requests related to identification, seizure, confiscation, and forfeiture of laundered property and proceeds from instrumentalities used or intended for use in ML, TF, or other predicate offenses. - Section 66(1) of the LIACM authorizes surrender of: - property acquired by the perpetrator or an accessory as a result of the offense forming the basis for the request or as payment for such property; - property received from sale of an acquired object or as compensation for destroying, damaging, or withdrawing it or on the basis of an acquired right or from which profit has been drawn; - property deriving from the offense, needed or intended for preparation or commission of the offense, objects emanating from the offense, or objects used or intended for use in its commission or preparation. - Section 66(3) of the LIACM: surrender is permissible only as long as there is no final and enforceable foreign ruling in respect of the property; from that point onward execution assistance provisions apply. - Execution assistance for foreign decisions on confiscation and forfeiture governed by Section 48 et seq. of the LIACM. Section 48 second sentence: a foreign decision can be declared enforceable by virtue of an exequatur decision for orders on forfeiture or confiscation. - Material prerequisites for exequatur are regulated in Section 49 of the LIACM: existence of a request, enclosure of a final and enforceable court decision, observance of minimum procedural standards in the requesting country’s procedure, existence of dual criminality, no limitation under German law, no decision in Germany pursuant to Section 9 number 1 of the LIACM. - If a final court exequatur decision exists, the responsible authority takes a decision on the request in accordance with Section 74 of the LIACM. Pursuant to Section 56(4) of the LIACM, granting a request for forfeiture or confiscation has the same effects described in Sections 73e, 74e of the CC as if issued by a German court. - Pursuant to Section 58(3) first sentence and Section 67(1) of the LIACM, property subject to forfeiture or confiscation may be seized or otherwise secured even prior to receipt of the request by the foreign country and a search may be conducted. - Pursuant to Section 58(3) second sentence and under conditions in Section 66, subsection 2, numbers 1 and 2, seizure mechanisms (e.g., attachment in rem) can be executed upon request in preparation for a pending confiscation or forfeiture decision of the requesting country; decision may involve property of corresponding value. Such pre-request seizure requires adequate justification of need and is undertaken by decision of the responsible German court pursuant to Sections 67 (1) first sentence, 77(1) of the LIACM, and Sections 94 et seq. and 111b et seq. of the CPC. - After seizure and upon presentation of a legally effective ruling from the requesting country, confiscation or forfeiture (including property of equivalent value) can be effected by enforcement assistance per Section 48 et seq. of the LIACM. ### EU Framework Decision and dual criminality implications - Council Framework Decision 2006/783/JHA of October 6, 2006 on mutual recognition to confiscation orders requires changes in German law; implementing act entered into force on October 22, 2009 (i.e., too late for this assessment). - Purpose of the Framework Decision: improve cooperation in execution of penal decisions withdrawing instrumentalities and proceeds from crimes. - Important innovation from implementation: no longer necessary to verify existence of dual criminality provided one of the offense categories listed in the Framework Decision applies. Pursuant to Section 6(1) of the Framework Decision, this would include ML offenses. - Deficiencies in the ML offense under Recommendation 1 may affect MLA where dual criminality is a precondition, especially for non-EU jurisdictions; impact likely limited given exceptional circumstances requiring dual criminality and lack of unduly restrictive requirements. - Authorities assured assessors no MLA requests have been denied by Germany, or rejected by other countries upon request by Germany, due to dual criminality not being met because of ML offense deficiencies. ### Property of corresponding value and coordination of cross-border actions - Enforcement assistance may be provided for enforcement of an order for forfeiture or confiscation provided an order of that kind could have been issued under German law (Section 49(1) Number 3 of the LIACM); this covers requests related to property of corresponding value. - Coordination provisions for seizures and forfeiture/confiscation actions exist in most bilateral and multilateral MLA agreements Germany has concluded. - Germany’s Asset Recovery Office is a member of the European Camden Asset Recovery Inter-Agency Network (CARIN) and undertook commitments under Council Decision 2007/845/JHA of December 6, 2007 concerning cooperation between Asset Recovery Offices in tracing and identifying proceeds or other property related to crime. - Germany is a member of the European Judicial Network (EJN) and sends one national member (and three assistant members) to Eurojust. Both Eurojust and the EJN can be used for communication and coordination of criminal investigations in cross-border cases. Germany is represented at the EJN by the Federal Office of Justice and by representatives of the Länder. ### Asset forfeiture fund and sharing of confiscated assets - Germany considered establishing an asset forfeiture fund but decided it was not necessary. Funds identified, frozen, seized, and confiscated are disbursed to the revenue authorities (Section 56 (4) of the LIACM in conjunction with Sections 73 lit. e and 74 lit. e of the CC). - Section 60 of the Ordinance on the Execution of Sentences (Strafvollstreckungsordnung, StVollstrO) prescribes: - “Upon the ruling becoming final and conclusive, ownership in the objects forfeited or seized shall devolve to that Land (judicial revenue authority) in which a court has handed down a ruling in the first stage of appeal. This shall apply also in those instances in which a ruling was handed down during the first stage of appeal by way of the jurisdiction of the Federation being exercised. If the court orders the objects to be forfeited or seized to the benefit of the Federation, the Federal Republic of Germany (judicial revenue authority) shall become the owner. Any rights of third parties shall remain unaffected (Section 73 e (1) second sentence, and 74 e (2), first sentence, of the CC (StGB)), unless the court has ordered their expiry (Section 74 e (2), second and third sentence of the CC). Should any rights have been forfeited or seized, sentences 1 through 4 shall apply mutatis mutandis.” - Implementation of the Framework Decision on mutual recognition to confiscation orders (act in force October 22, 2009) creates prerequisites facilitating in the future the partial surrender of assets to the requesting state that are identified, frozen, seized, and confiscated during enforcement assistance. - Germany had drafted a bill to permit agreements with foreign countries regarding sharing confiscated assets, reflecting the EU Framework Decision obligation to share confiscated assets (subject to a de minimis threshold). The legislation came into force on October 22, 2009. ### Recognition of foreign noncriminal confiscation orders - Foreign noncriminal confiscation orders would not be recognized or enforced in Germany. - In accordance with Section 48, second sentence, of the LIACM, execution assistance provisions apply in response to enforcement requests only where the foreign forfeiture or confiscation order is based on a punishable offense. ### Statistics on mutual legal assistance - Germany does not keep comprehensive statistics on mutual legal assistance with other countries; only limited statistics were provided. - Authorities state incoming and outgoing MLA requests are not reflected in central statistics because: - (i) individual cases are not submitted to a central department due to federal system and responsibilities transferred to the Länder and local authorities; no legal basis exists for the federal government to obligate the Länder to keep such statistics; - (ii) the number of requests is immense, estimated at somewhere between 15,000 to 20,000 such requests per year, and staff/financial resources to comprehensively capture these data are not available; - (iii) the intended purpose—reviewing efficiency and quality of request processing—cannot be achieved by keeping such statistics. *Source: Extracted text from the provided IMF content unit.* ### 1216. The authorities noted that no objections have been lodged by other countries, with which ### _cr1078 - 1216. ### Assessors' observations (paragraphs 1216–1217) - The authorities noted that no objections have been lodged by other countries, with which regular bilateral consultations and meetings take place in the various networks formed (such as the European Judicial Network, CARIN, Asset Recovery Offices, the prosecutors general of the Baltic Sea states), or by the European Union, the Council of Europe, the G8 nations and the United Nations, as regards any deficits that may have arisen in isolated cases. No concerns were received by the assessors from FATF or FSRB member countries. (1216) - Notwithstanding the above, in the absence of comprehensive statistics, assessors were unable to fully evaluate the effectiveness of the system. (1217) ### Recommendations and comments on mutual legal assistance (section 6.3.2) With respect to Recommendation 36: - Address the deficiencies in the ML offense, noted under Recommendation 1, which may impact on the ability of Germany to provide certain forms of international cooperation where dual criminality is required. - Remove the limitations faced by law enforcement agencies and prosecutors in obtaining documents and information from DNFBPs protected by professional privileges (i.e., lawyers and notaries) as such limitations may limit Germany’s ability to deliver mutual legal assistance where such DNFBPs are involved. - Maintain comprehensive statistics on matters relevant to the effectiveness and efficiency of the mutual legal assistance system (such as requests that are made or received, relating to ML, the predicate offenses, and TF, including the nature of the request, whether it was granted or refused, and the time required to respond). With respect to Recommendation 37: - Remove the limitations faced by law enforcement agencies and prosecutors in obtaining documents and information from DNFBPs protected by professional privileges (i.e., lawyers and notaries) as such limitations may limit Germany’s ability to deliver mutual legal assistance where such DNFBPs are involved. - Maintain comprehensive statistics on matters relevant to the effectiveness and efficiency of the mutual legal assistance system (such as requests that are made or received, relating to ML, the predicate offenses and TF, including the nature of the request, whether it was granted or refused, and the time required to respond). With respect to Recommendation 38: - Address the deficiencies in the ML offense noted under Recommendation 1 which may impact on the ability of Germany to provide certain forms of international cooperation where dual criminality is required. - Remove the limitations faced by law enforcement agencies and prosecutors in obtaining documents and information from DNFBPs protected by professional privileges (i.e., lawyers and notaries) as such limitations may limit Germany’s ability to deliver mutual legal assistance where such DNFBPs are involved. - Maintain comprehensive statistics on matters relevant to the effectiveness and efficiency of the mutual legal assistance system (such as requests that are made or received, relating to ML, the predicate offenses and TF, including the nature of the request, whether it was granted or refused, and the time required to respond). With respect to Special Recommendation V: - Maintain comprehensive statistics on matters relevant to the effectiveness and efficiency of the mutual legal assistance system (such as requests that are made or received, relating to TF, including the nature of the request, whether it was granted or refused, and the time required to respond). ### Compliance with Recommendations 36–38 and SR V (summary, section 6.3.3) - R.36 — LC - Ability to cooperate may be limited by the deficiencies in the ML offense under certain, likely limited, circumstances. - Professional secrecy is interpreted broadly by the liberal professions, and limitations faced by law enforcement agencies and prosecutors in obtaining documents and information from DNFBPs protected by it that may hinder effective cooperation. - Effectiveness could not be established (lack of comprehensive statistics). - R.37 — LC - Professional secrecy is interpreted broadly by the liberal professions, and limitations faced by law enforcement agencies and prosecutors in obtaining documents and information from DNFBPs protected by it may hinder effective cooperation. - Effectiveness could not be established (lack of comprehensive statistics). - R.38 — LC - Ability to cooperate limited by the deficiencies in the ML offense under certain, likely limited, circumstances. - Professional secrecy is interpreted broadly by the liberal professions, and limitations faced by law enforcement agencies and prosecutors in obtaining documents and information from DNFBPs protected by it may hinder effective cooperation. - Effectiveness could not be established (lack of comprehensive statistics). - SR.V — LC - Effectiveness could not be established (lack of comprehensive statistics). ### Extradition: Legal framework and analysis (section 6.4.1, paragraphs 1218–1231) - Extradition in Germany is mainly regulated by the LIACM, the Guidelines (revised with effect from January 1, 2009), the international conventions to which Germany is a party, and by other multilateral and bilateral agreements concluded. (1218) - Dual criminality is a requirement for the provision of extradition. Pursuant to Section 3 Number 1 of the LIACM, extradition shall be granted, if the act contains the elements of a criminal offense under German law or if, after analogous conversion of the facts, the act would constitute an offense under German law. (1219) - Section 81 Number 4 of the LIACM implements the Framework Decision on the European Arrest Warrant dated June 13, 2002 (RBEuHB): dual criminality does not need to be verified among EU member states, provided the act falls within the listed categories (which includes ML). (1220) - ML is an extraditable offense in Germany. Extradition for the purposes of law enforcement and execution of sentences is governed by Section 3 of the LIACM. (1221–1222) - Under Section 3 subsection 2 of the LIACM, extradition is permissible if the offense is punishable under German law by a maximum of at least one year of imprisonment or if, after analogous conversion, the act would be punishable by such a penalty. The German offense of ML (Section 261 of the CC) has a basic form punished with imprisonment from three months to five years. (1224) - Article 16(2) second sentence of the Basic Law prohibits extradition of German nationals; exceptions exist by law (Section 80 of the LIACM implements the Framework Decision on the European Arrest Warrant of July 20, 2006). If extradition is ruled out on nationality grounds, prosecution is undertaken in Germany on the basis of mandatory prosecution (Sections 152(2), 160, and 163 of the CPC); Section 7(2) of the CC applies German law to certain extraterritorial acts. (1225–1226) - Cooperation between German authorities and foreign authorities is ensured on the basis of bilateral and multilateral treaties, and through non-treaty-based judicial assistance. (1227) - Requests for extradition and other requests for judicial assistance must be brought for authorization “without undue delay” (Number 19 subsection 1 of the Guidelines); authorities have confirmed that authorizations are granted fairly rapidly. (1228) - Simplified extradition procedures: - Treaty-based extradition usually provides for direct dealings (EU members) or dealings via the Federal Ministry of Justice (EuAlÜbk 1957 or bilateral agreements). (1229) - LIACM allows for simplified extradition for non-treaty-based judicial assistance if the accused consents and consent is part of the court record (Section 41 subsection 1). (1230) - For EU member states, simplified procedures exist under the Framework Decision on the European Arrest Warrant implemented through Section 79 et seq. of the LIACM. (1231) - Additional element under SR V: the provisions described above apply equally to the fight against terrorism and TF. (1232) ### Extradition statistics (applying R.32) (paragraphs 1233 and Statistical Table 33) - The table provides information on extradition requests received relating to ML, requests granted, and requests denied. (1233) - Selected entries from Statistical Table 33 (years 2005–2008): - 2005: Austria (17.02.2005) — ML — Request pending X (27.07.2005); Russian Federation (31.03.2005) — ML — Request pending X (06.09.2005); France (17.05.2005) — ML — Request granted X (22.04.2008); Switzerland (15.04.2005) — ML — Request pending X (09.06.2005); Switzerland (15.04.2005) — ML — Request pending X (09.06.2005); France (27.07.2005) — ML — Request pending X (28.11.2005). Sub-totals: 6 requests — 4 granted — 2 denied. - 2006: Multiple requesting states (Netherlands, Portugal, Ukraine, France, Belgium, Poland, Peru, USA, etc.) with Sub-totals: 11 requests — 10 granted — 1 denied. - 2007: Belgium, Greece, Slovenia, Netherlands — Sub-totals: 5 requests — 3 granted — 2 denied. - 2008: Italy, Poland, Switzerland, USA, Spain, France, Netherlands, Belgium — Sub-totals: 10 requests — 9 granted — 1 denied. - Totals (from table): 32 requests — 0 pending — 26 granted — 6 denied. ### Analysis of effectiveness (paragraph 1234–1235) - Germany has in place a solid system of extraditions. Over the last four years Germany received 32 requests for extradition from 15 different countries (including countries from outside the EU). Germany has granted 25 of such requests, denied 6, and is still processing 1. The average time taken to grant an extradition request has been approximately three months. (1234) - Given that dual criminality is a requirement for extraditions, the deficiencies in the ML offense noted under Recommendation 1 may have an impact on Germany’s ability to provide extraditions. Such impact may likely be limited given the exceptional circumstances where dual criminality is required, and the lack of unduly restrictive requirements. The authorities have assured assessors that they are not aware of any requests for extradition that have been denied by Germany, or rejected by other countries upon a request by Germany, on the basis of dual criminality requirements not being met because of the deficiencies in the ML offense. (1235) ### Recommendations and compliance on extradition (sections 6.4.2–6.4.3) - Recommendation (1236): - In order to comply fully with Recommendation 37, 39, and Special Recommendation V, Germany should: Address the deficiencies in the ML offense, noted under Recommendation 1, which may impact on the ability of Germany to provide certain forms of international cooperation where dual criminality is required, such as extraditions, particularly for countries outside the EU. - Compliance summary: - R.39 — LC: Ability to grant extradition limited by the deficiencies in the ML offense. - R.37 — LC. - Rating for this section: C. - SR.V — LC. - Rating for this section: C. *Source: paragraphs 1216–1238 of the provided IMF materials.* ### 1239. Pursuant to the Federal Criminal Police Office Act, German law enforcement agencies ### _cr1078 - 1239. Pursuant to the Federal Criminal Police Office Act, German law enforcement agencies ### National central authority and channels for international police cooperation - The Bundeskriminalamt (BKA) is the national central police authority with primary responsibility for international police cooperation; it is the national central bureau of Interpol, the national office for Europol, and the central Schengen Office (Section 3 of the Federal Criminal Police Office Act). - The BKA is responsible for exchange of information needed to prevent and prosecute crime and for official relations required in prevention or prosecution of criminal offenses between the Federal and Länder police and police and judicial authorities and other competent public bodies in other countries (Section 3). - Section 14 of the Federal Criminal Police Office Act authorizes transmission of data and other cooperation including establishing identities, gathering information from registers, files and other databases, or delivering expert forensic opinions. - Länder police may, by exception to the central authority principle (Section 3 subsection 3), maintain direct official relations with competent authorities in neighboring countries and EU member states where: - criminality is of regional significance in border areas, or - there is an imminent danger. - The Länder must inform the BKA without undue delay of such official relations. ### Operational gateways and timeliness (c. 40.1.1 and c. 40.2) - The BKA operates a central receiving point, the police operations and coordination center, which: - inspects and verifies all foreign requests and decides responses case-by-case, - has access to all the central police databases, - functions as a 24-hour service center guaranteeing immediate handling of urgent requests and provision of information outside normal working hours (including with other countries). - Every Land has a Land Criminal Police Office that coordinates with the BKA and ensures requests are delivered to relevant local offices. - Authorities state this structure facilitates immediate processing of incoming foreign requests; however, in the absence of statistics, assessors were unable to evaluate the effectiveness of the system in this area. - Police authorities can use various communication channels (including Interpol, Europol, common facilities with littoral states in border areas, liaison officers). The most efficient channel is selected on a case-by-case basis. ### Spontaneous exchange and EU framework (c. 40.3) - Germany has entered into numerous bilateral and multilateral agreements regulating spontaneous exchanges of information among law enforcement agencies on a bilateral basis. - Pursuant to Article 7 of the EU’s Framework Decision, among EU members information and intelligence can be provided by law enforcement agencies without prior request where there are factual reasons to believe the information could assist in detection, prevention, or resolution of a concluding catalogue of offenses (among which ML is included). ### Inquiries, investigations, and limitations (c. 40.4–40.8) - No information was provided regarding the ability of law enforcement agencies to conduct inquiries (c. 40.4) or to conduct investigations (c. 40.5) on behalf of foreign counterparts outside the MLA process. - Section 14 subsection 7 of the Federal Criminal Police Office Act imposes use and transfer limitations on personal data: - Recipient must be informed data may only be used for the purpose for which it was made available. - Personal data shall not be transferred where there is reason to assume they would violate the objective of a German law (e.g., the abolition of capital punishment under Article 102 of Basic Constitutional Law). - Data shall not be transferred if this would impair interests of the data subject warranting protection, especially if an appropriate standard of data protection would not be guaranteed in the recipient country. - The recipient country is informed of the time in which the data transmitted must be deleted. - Bilateral security agreements impose strict conditions: data may only be used for the described purpose and under specified conditions; agreements include detailed provisions on documentation of data exchange, data protection, rights of inspection and indemnification for data subjects, and maximum retention periods. - Pursuant to bilateral security agreements, sole involvement with fiscal matters is not a reason for rejecting cooperation. - Limitations in obtaining information protected by professional secrecy rules from certain DNFBPs (i.e., lawyers and notaries) may hinder Germany’s ability to provide cooperation. - No information was provided regarding cooperation with non-counterparts (c. 40.10 & c. 40.10.1) or provision of information to the FIU by other competent authorities pursuant to request from foreign FIU (c. 40.11); noted as N/A or not provided. - The ability of law enforcement agencies to provide cooperation described above includes cooperation related with TF (International Cooperation under SR V and Additional Element under SR V). ### Cooperation among FIUs and supervisory authorities - The FIU has full powers to cooperate with its foreign counterparts and does so regularly. - BaFin’s cooperation with foreign authorities is regulated by the Banking Act and the Insurance Supervisory Act for supervision of banks, financial services institutions, and insurance companies. - Supervisors of DNFBPs are not structurally organized to cooperate directly with foreign counterparts; professional secrecy obligations pose significant impediments to sharing information directly or indirectly with foreign counterparts. ### BaFin: scope, legal bases, and practices for international cooperation (c. 40.1–40.3) - The BaFin may cooperate on banking supervision, insurance and securities and supervision of groups of institutions or financial holding groups on the basis of: - Sections 8 and 9(1) a contrario of the Banking Act, - 84(4) a contrario of the Insurance Supervisory Act, - 7 and 8(1) a contrario of the Securities Trading Act. - Cooperation on banking prudential supervisory issues with counterparts from other EEA states is based on Section 8 of the Banking Act. - Cooperation on AML/CFT issues can be provided on the basis of Section 9(1) of the Banking Act, regardless of whether the foreign counterpart is from an EU or EEA state. - Pursuant to Section 8 of the Banking Act, communications with competent authorities of other EEA states may solely be used for the following purposes: - for checking an institution’s license to conduct business, - for monitoring the operations of institutions on an individual basis or a consolidated basis, - for directives (Anordnungen) issued by the BaFin and for the prosecution and punishment by the BaFin of administrative offenses (Ordnungswidrigkeiten), - in the context of administrative proceedings regarding legal remedies against a decision by the BaFin, or - in the context of proceedings before administrative courts, insolvency courts, public prosecutors’ offices, or courts having jurisdiction in criminal cases or administrative fine cases. - Information held by the BaFin may be passed on to: - public prosecutors’ offices or courts having jurisdiction in criminal cases and administrative fine cases, - authorities entrusted with the supervision of institutions, collective investment companies, financial enterprises, insurance enterprises, the financial markets or the payments system, and to persons commissioned by such authorities, - authorities dealing with an institution’s liquidation or initiation of insolvency proceedings over its assets, - persons entrusted with statutory auditing of the accounts of institutions or financial enterprises and to authorities which supervise such persons, - a deposit guarantee scheme or an investor compensation scheme, - stock markets or financial futures exchanges, - central banks, - Insofar as these authorities require the information for performance of their functions (Section 9 of the Banking Act a contrario). - The Insurance Supervisory Act (Section 84(4) sentence 3 a contrario) and the Securities Trading Act (Sections 7 and 8(1) sentence 5 a contrario) enable analogous cooperation in insurance and securities supervision. - The BaFin may cooperate on supervision of financial conglomerates on the basis of Section 8a of the Banking Act and Section 104 lit.1 of the Insurance Supervisory Act. ### BaFin memoranda of understanding (MoUs) and practical cooperation - Since 1999, BaFin MoUs include a special paragraph regarding financial crimes, i.e., ML, if the foreign authority also has responsibility for AML/CFT. - As of 2007, the BaFin had concluded 96 MoUs with financial supervisory authorities. - The BaFin frequently cooperates with supervisory authorities and FIUs in other countries when issuing licenses for money remittance services to persons resident in another country; it requests information from foreign authorities where relevant. - General pre-conditions on BaFin cooperation: - Requesting foreign authorities and persons must be subject to confidentiality requirements corresponding to those applicable to BaFin staff. - Information is to be used solely for the purpose for which it was forwarded. - Information from another state may only be forwarded with explicit consent of the competent authorities which communicated it and only for the purposes consented to. - It is permissible to answer informal inquiries and to hand out documents as a matter of principle. - The gateways and arrangements enable the BaFin to cooperate in a rapid, constructive, and effective manner with foreign counterparts. - The BaFin can cooperate both “spontaneously” and “upon request” on combating ML and TF, and may work directly with authorities that are not supervisory authorities. * _cr1078 - 1239. Pursuant to the Federal Criminal Police Office Act, German law enforcement agencies_* ### 1272. The BaFin is authorized to conduct inquiries on behalf of foreign supervisors as ### _cr1078 - 1272. The BaFin is authorized to conduct inquiries on behalf of foreign supervisors as ### Conducting of Inquiries and Cooperation (c. 40.5–40.11; SR V) - 1272: The BaFin is authorized to conduct inquiries on behalf of foreign supervisors as described under 40.1. - 1273: Conducting of Investigations on Behalf of Foreign Counterparts (c. 40.5): No information was provided. - 1274: No Unreasonable or Unduly Restrictive Conditions on Exchange of Information (c. 40.6): See write up under 40.1. - 1275: Provision of Assistance Regardless of Possible Involvement of Fiscal Matters (c. 40.7): The fact that a request for cooperation may involve fiscal matters in itself is not a ground for the BaFin to refuse to cooperate. - 1276: Provision of Assistance Regardless of Existence of Secrecy and Confidentiality Laws (c. 40.8): There are no secrecy or confidentiality requirements that hinder the BaFin from providing the requested assistance. - 1277: Safeguards in Use of Exchanged Information (c. 40.9): See write up under 40.1. - 1278: Additional Element—Exchange of Information with Non-Counterparts (c. 40.10 & c. 40.10.1): Assessors did not receive any information upon which to reach a conclusion on this issue. - 1279: Additional Element—Provision of Information to FIU by Other Competent Authorities pursuant to request from Foreign FIU (c. 40.11): Assessors did not receive any information upon which to reach a conclusion on this issue. - 1280–1281: International Cooperation under SR V (applying c. 40.1-40.9 in R. 40, c. V.5) and Additional Element under SR V (applying c. 40.10-40.11 in R. 40, c. V.9): See above. ### Statistics on Information Exchanges (applying R.32) - 1282: Statistics on international cooperation were available for the FIU and the BaFin. These are shown in Statistical Table 34. - Statistical Table 34: FIU information exchanges - 2003 482 - 2004 606 - 2005 667 - 2006 737 - 2007 744 - *in 2007 the total number consisted of 653 enquiries from abroad and 91 German requests to other FIUs - ** 2007 Annual report notes exchanges took place with 71 foreign FIUs - *** Top 20 exchange partners accounted for 581/744 exchanges or 78% of total - Source: BKA Annual Reports 2004 - 2007 - Statistical Table 35: The BaFin Information Exchange (as presented) - Column headings and layout in source text indicate exchanges across years 2004 2005 2006 2007 2008 2009 with categories: - Discussions and meetings - ...with foreign supervisory Authorities 891511 56 - ...with other foreign agencies 11534 22 - Written correspondence (including official notes, opinions and reports) - ...with foreign supervisory authorities 20131032 1220 - ...with international bodies 19121723 2013 ### Analysis of Effectiveness (1283) - For the most part, the authorities are capable of and appear to be providing a wide range of international cooperation. - Limitations noted elsewhere on the scope of the ML offense and the TF offense may in practice limit some types of cooperation. - Assessors did not obtain statistics from all authorities, particularly those in the Länder and those responsible for DNFBPs; accordingly it is difficult to make an overall assessment of how effective international cooperation is. - The primary area where there is the greatest doubt about cooperation relates to the DNFBP sector. ### Recommendations and Comments (6.5.2; 1284) - In order to comply fully with Recommendation 40, Germany should: - Ensure that cooperation may be granted by supervisors of DNFBPs. - Ensure that professional secrecy obligations of DNFBPs are not an undue obstacle to sharing of information directly or indirectly with foreign counterparts. - Keep statistics on the extent of international cooperation by authorities other than the FIU and the BaFin. ### Compliance with Recommendation 40 and Special Recommendation V (6.5.3) - R.40 LC - The way that professional secrecy is interpreted by the liberal professions may limit ability to provide cooperation in all cases. - No statistics available to evaluate overall effectiveness of cooperation other than for the FIU and the BaFin. - SR.V LC - Scope of TF offenses may limit ability to provide cooperation in all cases. - The way that professional secrecy is interpreted by the liberal professions may limit ability to provide cooperation in all cases. - No statistics available to evaluate overall effectiveness of cooperation. ### Other Issues — Resources and Statistics (7.1; Rating summary) - R.30 LC - The FIU function is inappropriately structured, with some FIU roles being carried out within the Länder. - Assessors were not able to assess the adequacy of resources of Länder police involved in ML and TF. - Inadequate resources for supervising insurance intermediaries and DNFBPs. - R.32 PC - Assessors found no hard evidence of any national level efforts aimed at reviewing the effective implementation of Germany’s AML/CFT regime. - Comprehensive annual statistics are not maintained, were not available, or both in relation to: - sanctions imposed for ML convictions; - the number of STRs analyzed or disseminated; - the value of transactions associated with STRs; - provisional measures; - ML investigations; - reports filed on international wire transfers; - the amount of property confiscated broken down in relation to ML, TF, and other criminal proceeds; - international cooperation; - the structure, activities, or both of the financial sector (including in relation to the number of foreign branches of domestic FIs), nor the DNFBP sector; and - the exercise of supervisory powers in the DNFBP sector. ### Automated Access to Account Data under section 24c of the Banking Act (1285–1290) - 1285: The automated account access system controlled by the BaFin (established to enable Germany to fulfill its obligations under the EC Mutual assistance protocol of 2001) allows the authorities to determine whether a particular person (natural or legal) has a bank account or a safe custody account with a German credit institution or a foreign credit institution with a branch in Germany. - 1286: Banks and investment companies are required to record core data on each account (not transaction data), and must ensure that the BaFin has automated access to these core data at all times. Banks must take technical and organizational measures to ensure that they cannot monitor data retrievals by the authorities. - 1287: Core data defined in Section 24c (1) of the Banking Act: - The account number; - The dates on which the account was opened and closed; - The names and dates of birth of account holders and persons authorized to dispose of an account; - The name of a legal person that is an account holder or authorized to dispose of an account; and - The name and, if possible, the address of any other beneficial owner as defined in Section 1 (6) of the AML Act. - The data has to be updated on a daily basis. - 1288: The BaFin advised the assessors that the automated account access system enables the BaFin to speedily identify accounts which might be subject to freezing or other requirements under Section 6a of the Banking Act, to provide support for international pre-notification and notification of terrorist lists (nationally coordinated by the Federal Ministry of Economics and Technology) and the determination of accounts held by those under investigation for ML or TF offenses and to detect accounts that could be used for unauthorized money remittance activity. The BaFin is responsible for managing the system and ensuring that all financial institutions create and record the necessary master files containing prescribed information. The system is accessed mostly by law enforcement agencies. The BaFin itself only uses the system in limited circumstances. - 1289: System access is limited to the BaFin, other financial market supervisory authorities, authorities responsible for international judicial assistance, the authority responsible for enforcing the Foreign Trade and Payments Act, the FIU and—in cases of criminal proceedings—several law enforcement agencies (e.g., police, public prosecutors, tax investigation units, customs authorities, and courts). Access statistics for 2008: - The BaFin only accessed the system for itself 277 times in 2008, - compared to 416 times by the FIU, - and 83,245 times by other authorities. - 1290: In 2005, Germany established a second automated account access system under Section 93b of the Fiscal Code. Access to this system is controlled by the Federal Central Tax Office, not the BaFin. Both automated account access systems are operated through a collective interface provided by the Center for Information Processing and Information Technology at the MoF. ### Selected Ratings and Key Factors (excerpted) - Table 1. Ratings of Compliance with FATF Recommendations: Germany obtained - Compliant (C): 5 - Largely compliant (LC): 24 - Partially compliant (PC): 15 - Non-compliant (NC): 5 - Not applicable (NA): 0 - Selected Recommendation findings (preserving original text emphasis on shortcomings): - 1. ML offense — PC: issues include “Counterfeiting and piracy of products”, and “insider trading and market manipulation” are not predicate offenses to ML; ML offense cannot be applied to persons who commit and are convicted for the predicate offense; issues of effectiveness related to sanctions and burden of proof. - 3. Confiscation and provisional measures — LC: professional secrecy interpreted broadly by the liberal professions; assets actually forfeited or confiscated are low compared to the total value subjected to orders. - 5. Customer due diligence — PC: Reasonable measures to verify beneficial ownership are not required in all cases; definition of beneficial ownership of a trust is incomplete; broad exemptions for “low risk” customers; no requirement to consider filing STR in case of failure to complete CDD; no clear evidence of overall level of implementation. - 12. DNFBP–R.5, 6, 8–11 — NC: multiple shortcomings including no arrangements for casinos to link identification-on-entry data to individual transactions; low awareness and oversight for real estate agents and dealers in precious metals and stones; inadequate risk assessment and professional secrecy issues. - 13. Suspicious transaction reporting — PC: Scope of reporting relates to ML only; threshold for reporting requires a high degree of certainty; reporting obligation excludes certain predicate offenses; material deficiencies in the TF offense limit reporting; low level of reporting. - 15. Internal controls, compliance & audit — PC: compliance officer measures do not apply to insurance intermediaries; no legal obligation for timely access to CDD information by compliance officers; limited training obligations; no legal hiring screening requirements. - 16. DNFBP–R.13–15 & 21 — NC: no compliance management requirements; discretionary exemptions from safeguards; no training or audit functions; inadequate supervisory framework for real estate agents and dealers; broad carve-out for legal and professional privilege combined with strict professional secrecy requirements. *Source: Extracts from the provided IMF assessment content unit _cr1078 - 1272.* ### 17. Sanctions ### 17. Sanctions ### Main findings - Administrative fines in place are not proportionate ( very low number of administrative fines available under the AML Act) nor sufficiently dissuasive (more serious violations of the AML Act attract lower levels of administrative fines); and the maximum amounts of fines under the AML Act are low (especially considering the large size of many German financial institutions); and, due to the criminal nature of the penalties, high penalties can only be applied for gross negligence or deliberate intent). - Administrative fines are not applied effectively – the BaFin has only ever applied one administrative fine many years ago. - Due to the constitutional principle of specificity, there are no administrative fines for violations of obligations to establish appropriate internal safeguards under all sector-specific laws; and apply enhanced due diligence in specific additional circumstances listed in the Banking and Investment Acts. - Failure by the supervisory boards to comply with their obligation to supervise management may result in uncertainty as to whether administrative fines apply to individual members of such boards. ### Implications - Low maximum amounts of fines and limited application mean administrative sanctions are unlikely to be an effective deterrent given the large size of many German financial institutions. - The constitutional constraint on administrative fines creates gaps where sector-specific noncompliance (for internal safeguards and enhanced due diligence) cannot be addressed through administrative penalties. - Uncertainty about the applicability of administrative fines to supervisory board members undermines accountability for supervisory failures. ### Recommended actions (implied by findings) - Review and adjust the administrative fines regime to ensure proportionality and dissuasiveness relative to the size of financial institutions and the seriousness of AML Act violations. - Ensure effective application of administrative sanctions by competent authorities, including addressing barriers that have led to minimal historical use (e.g., BaFin having applied only one administrative fine). - Address legal gaps arising from the constitutional principle of specificity so that violations of obligations to establish appropriate internal safeguards under sector-specific laws can be subject to administrative fines where appropriate. - Clarify legal responsibility and sanctioning mechanisms to remove uncertainty about whether individual supervisory board members can be subject to administrative fines for failures to supervise management. *Source: _cr1078 - 17. Sanctions* ### 2.3 Confiscation, freezing, and ### 2.3 Confiscation, freezing, and seizing of proceeds of crime (R.3) ### Confiscation, freezing, and seizing (R.3) - Enable law enforcement authorities to obtain access to information about ownership of property held by DNFBPs who claim that information is protected by professional secrecy rules. - Improve performance for actually confiscating or forfeiting assets once courts order those assets be confiscated or forfeited. - Establish a mechanism to collect and keep statistics on provisional measures applied. ### Freezing of funds used for terrorist financing (SR.III) - Enact national legislation to implement fully Council Common Positions, No. 2001/930/CFSP and No. 2001/931/CFSP on the fight against terrorism, which are also applicable to EU-residents. - Enact legislation to make S/RES 1373 applicable to any person (including persons other than credit institutions, financial services institutions and investment companies) for the freezing of assets concerning EU-internals. - Set up procedures within Germany that will ensure in all cases the freezing without delay of assets other than funds (such as immovable goods, companies and businesses and vehicles); for the case of EU-internals where the Banking Act applies. - Set up appropriate measures to monitor effectively the compliance with the obligations under SRIII by persons and entities other than financial institutions and “companies”. ### The Financial Intelligence Unit and its functions (R.26) - Strengthen the capacity of the FIU to act as a national centre for receiving, analyzing, and disseminating to law enforcement and other appropriate agencies financial information about suspected ML and TF, more consistent with the standard enunciated in R.26, in particular, by having the FIU carry out more robust analysis of STRs directed towards disseminating information to State Police when the FIU concludes that there are grounds to suspect ML or TF. - Strengthen the FIU’s tactical analytic capacity through increased personnel and training. - Equip the FIU with the authority to provide direction to reporting entities as to the manner and form of reporting suspicious transactions to the FIU and implement a standardized, more automated reporting system for STRs. ### Law enforcement, prosecution and other competent authorities (R.27 & 28) - Make more use of special techniques when conducting investigations into ML. - Undertake actions (awareness raising or training) to improve the focus of ML investigations and the amount of investigations conducted into more complex organized crime ML structures. - Maintain complete statistics on the use of powers to conduct ML or TF investigations and prosecutions. ### Cross-Border Declaration & Disclosure (SR IX) - Take steps to heighten travelers’ awareness of the declaration and disclosure requirements by making much more visible (and in multiple languages) the signage at ports of entry and exit alerting travelers to the requirement. - Extend the one-year period of retention of most data in the INZOLL database. ### 3. Preventive Measures – Financial Institutions ### Risk of money laundering or terrorist financing - (Section heading present; specific recommendations follow under CDD and related headings.) ### Customer due diligence, including enhanced or reduced measures (R.5–8) With respect to Recommendation 5: - Clarify the obligation with respect to the verification of beneficial ownership to bring it into line with the FATF standard, which requires that reasonable measures be taken to verify such ownership in all cases, including low risk. - Extend the concept of beneficial ownership of trusts and Treuhand to include the settlor and any additional parties who may have direct or indirect control over the administration of the trust. - Review the exemption for low risk customers and transactions to ensure that: - The types of counterparty and the countries of origin are based on an appropriate risk-assessment by the authorities; - There remains an absolute obligation to monitor business relationships with such customers on an ongoing basis, and to keep records and information up to date; - The exemption does not apply to circumstances where an institution has doubts about the veracity of information in its possession. - Require institutions to consider filing an STR in case of failure to complete CDD. - Review the timeframe (2–10 years) in which institutions are expected to apply the current CDD requirements to existing customers. With respect to Recommendation 6: - Introduce an explicit requirement that the enhanced due diligence requirements apply in the event that a PEP is the beneficial owner of the contracting party. - Redefine the concept of a PEP to ensure that it does not exclude foreign PEPs who are resident in Germany; - Require “senior level” approval for establishment (and continuation) of a business relationship with a PEP, rather than simply the next level of management. With respect to Recommendation 7: - Extend the special enhanced CDD measures to respondent banks within the European Union. - Require “senior level” approval for establishment of a correspondent banking relationship, rather than simply the next level of management. With respect to Recommendation 8: - Introduce a specific obligation to have measures in place to prevent the misuse of technological developments. ### Third parties and introduced business (R.9) - Implement a procedure to review the range of third party introducers and the composition of the EU equivalence list to ensure that it accurately reflects the authorities’ own assessment of the risks. ### Financial institution secrecy or confidentiality (R.4) - None. ### Record keeping and wire transfer rules (R.10 & SR.VII) - Consider the potential consequences of the “low risk” exemptions for the retention of meaningful information that can be made available to the competent authorities. ### Monitoring of transactions and relationships (R.11 & 21) With respect to Recommendation 11: - Introduce an explicit requirement that a written analysis should be undertaken, and recorded (for a period of at least five years), of all complex, unusual large transactions and unusual patterns of transactions that have no apparent economic or lawful purpose. - Clarify what procedures are expected with respect to “statutory” low risk customers. With respect to Recommendation 21: - Require institutions to pay special attention to business relationships and transactions with persons from or in jurisdictions that do not sufficiently apply the FATF standard, employing their own risk analyses, in addition to placing reliance on the circulars issued by the BaFin. - Introduce an explicit requirement that a written analysis should be undertaken, and recorded, of all such transactions. ### Suspicious transaction reports and other reporting (R.13, 14, 19, 25, & SR.IV) With respect to Recommendation 13 and Special Recommendation IV: - Establish clearly that the legal threshold for STR reporting is an obligation with respect to transactions where the institution suspects or has reasonable grounds to suspect that the transaction involves the proceeds of crime. - Investigate the reasons for the exceptionally low level of reporting among certain institutions. With respect to Recommendation 14: - Extend the tipping-off provision to cover cases where transactions are being reviewed internally to determine whether an STR should be filed. With respect to Recommendation 25: - Discuss with the state prosecution authorities the introduction of a common approach to providing feedback to reporting institutions on both the overall quality of reports and their value in terms of investigations and prosecutions. ### Internal controls, compliance, audit and foreign branches (R.15 & 22) With respect to Recommendation 15: - Ensure that the compliance officer is required to have timely access to relevant CDD information. - Introduce enforceable measures requiring financial entities to provide AML/CFT training to all staff; to require that employees be kept informed of new developments including information on current ML and TF techniques, methods and trends; and to require that there is a clear explanation of all aspects of AML/CFT and suspicious transaction reporting. - Introduce enforceable measures requiring financial institutions to apply screening procedures at the time of hiring all staff. With respect to Recommendation 22: - Introduce enforceable measures requiring all financial institutions to pay particular attention to branches and subsidiaries in countries that do not, or insufficiently, apply the FATF Recommendations; - Ensure that the provisions of section 25g of the Banking Act apply to subsidiaries and branches located in EEA and EU states; - Ensure uniform standards are applied in the three principal sectors (banking, insurance and investment firms); - Implement an enforceable obligation for banks and investment firms to inform German supervisory authorities immediately when a foreign branch or subsidiary (including those in EEA states) is unable to observe appropriate AML/CFT measures. ### Shell banks (R.18) - None ### The supervisory and oversight system – competent authorities and SROs (Role, functions, duties and powers including sanctions) (R.23, 29, 17 & 25) - Add specific administrative fines for AML violations into the Insurance Supervision Act and the Investment Act. - Increase the range of specific administrative fines under the AML Act and also lower application thresholds (negligence or deliberate intent). - Increase the amounts of specific administrative fines under the AML Act for the more serious violations set out in Section 17(2) of the AML Act, and extend their applicability to gross negligence. - Ensure that members of the (supervisory) Board of Directors are explicitly subject to appropriate administrative fines for failure to supervise managers responsible for compliance. - Introduce legal provisions that explicitly allow the BaFin to dismiss managers and members of (supervisory) Boards of Directors for AML/CFT violations. - Review the adequacy of the frequency with which the high-risk institutions are subject to on-site inspection by the BaFin and the consequential impact on resources. - Address the issue of guidance on audit report quality as a priority with the auditing organizations in the cooperative banking sector. - Ensure that Länder authorities are sufficiently aware of their AML/CFT supervisory responsibilities and apply sufficient resources to supervise insurance intermediaries. - Arrange for Länder authorities to issue guidance to insurance intermediaries. ### Money value transfer services (SR.VI) - The recommendations and comments applicable to Recommendations 5, 13 and 17 apply where applicable to the MVTS sector in accordance with the FATF methodology. - The authorities should consider applying more resources to identifying and closing illicit money remittance operations. ### 4. Preventive Measures – Nonfinancial Businesses and Professions ### Customer due diligence and record-keeping (R.12) - Casinos should be required to adopt policies and procedure to link individual transactions to identified clients. - DNFBPs should be required to have procedures for identifying PEPs. - The recommended actions in Section 3 above with respect to R 5, 6, 9-11 should be implemented for DNFBPs, including, in particular, the need for a requirement to consider filing an STR in case of failure to complete CDD and for verification of beneficial ownership in all cases. - Registered legal advisers, who are not subject to the same statutory professional secrecy obligations as the other liberal professions, should be excluded from the carve-out for legal and professional privilege. - For full compliance with the Recommendations, the carve-out for legal and professional secrecy should generally be limited to information (a) obtained in the course of ascertaining the legal position of a client, or (b) in performing their task of defending or representing that client in or concerning judicial, administrative, arbitration or mediation proceedings. - Implementation: - Arrangements should be put in place to monitor and ensure CDD compliance by TCSPs; and routine CDD compliance monitoring should be strengthened by the authorities responsible for overseeing compliance by responsible for real estate agents, dealers in precious metals and dealers in precious stones, lawyers, auditors, accountants, and tax advisors. - Outreach and Awareness raising: - The authorities should develop outreach campaigns specifically to raise awareness of CDD obligations of real estate agents and dealers in precious metals and precious stones and, more generally to raise awareness of ML and TF risks in all of the DNBFP sectors. - Training: - Casino staff and managers should be given additional training in ML techniques and risks. - CDD training requirements for real estate agents and dealers in precious metals and dealer in precious stones should be implemented. - CDD training programs for lawyers, notaries and auditors should be intensified. ### Suspicious transaction reporting (R.16) - DNFBPs should be required to have some form of risk based compliance management arrangements. - The authorities should undertake a systematic assessment of the ML and TF vulnerability of the DNFBP sectors. - Authorities should develop programs to raise DNFBP's awareness of AML/CFT risks and improve DNFBP's ability to identify and report suspicious activities. - Exemptions from the safeguards requirements of the AML Act, or blanket simplified procedures, should be based on evaluation of ML and TF risk. - All DNFBPs should be subject to requirements to screen new hires for high standards, to train staff, and to have an AML/CFT audit function. - All casinos, real estate agents, and dealers in precious metals and stones should be required to have AML/CFT internal controls. - Authorities should review the scope of the carve-out from legal and professional privilege and the stringency of professional secrecy requirements with a view to permitting the professions to play a more forthcoming role in reporting of suspicious transactions. ### Regulation, supervision, monitoring, and sanctions (R.17, 24, & 25) - Clarify Länder-level AML/CFT supervisory responsibility for real estate agents and persons trading in goods and ensure adequate resources and capacity to carry out these responsibilities. - Strengthen AML/CFT supervisory capacity of casino supervisors. - Take steps to insure that Chambers of Lawyers, the Chamber of Patent Lawyers, and Chambers of Tax Advisors have adequate authority to conduct routine AML/CFT compliance monitor of their members. - Authorities should issue up-to-date guidance for all DNFBPs. - Authorities should carry out AML/CFT risk assessments of the various DNFBP sectors, maintain them up to date, and make sectors aware of risks. ### Other designated non-financial businesses and professions (R.20) - None. ### 5. Legal Persons and Arrangements & Nonprofit Organizations ### Legal Persons – Access to beneficial ownership and control information (R.33) - Ensure that beneficial ownership on all types of legal entities is made accessible to the competent authorities. - Assess the risk of ML and TF posed by not publicly listed companies that issue bearer shares and take necessary measures to mitigate the risk. ### Legal Arrangements – Access to beneficial ownership and control information (R.34) - Enhance transparency over Treuhands. ### Nonprofit organizations (SR.VIII) - Document that NPO laws and regulations have been systematically reviewed and updated and that the vulnerability of the NPO sector is periodically reassessed. - Require NPOs in their registration documents or in their filings for tax benefits to provide the information called for under Interpretative Note to SR VIII, Section 6 b and the financial transparency Section of the 2002 FATF best practices paper. - Energize outreach efforts to maintain awareness of TF risk in NPO sector. ### 6. National and International Cooperation ### National cooperation and coordination (R.31) - Ensure that the ML Contact Group meetings include a focus on national implementation of Germany’s AML/CFT regime. - Put in place formal mechanisms to review the effectiveness of Germany’s AML/CFT system. - Fully engage authorities responsible for DNFBPs. - Have the FIU provide the BaFin with information about the quality of STRs received from reporting entities. - Put in place formal mechanisms to enhance dialogue with the private sector. - Provide more resources to the MoF for it to coordinate national implementation. ### The Conventions and UN Special Resolutions (R.35 & SR.I) With respect to Recommendation 35: - Fully implement the Palermo convention by criminalizing self-laundering. - Fully implement the Palermo Convention by making “insider trading and market manipulation” and “counterfeiting and piracy of products” predicate offenses for ML, amending the CC to ensure that predicate offenses for ML include a range of offenses in each of the designated categories of offenses without having to meet the additional requirement that the offense is committed with the intention to make a profit or by a member of a gang founded for the recurrent commission of such an offense, and increasing the minimum and maximum ranges consistent with the level of penalties for other serious offenses in Germany. With respect to Special Recommendation I: - Fully implement the CFT Convention by amending Section 89a of the CC to extend the financing of a terrorist act and of an individual terrorist to all acts that constitute offenses within the scope of, and as defined in the treaties annexed to the CFT Convention, to cover serious bodily injuries, and to eliminate the requirement for the “funds” to be of a certain minimum value (i.e. not merely insubstantial). - Enact legislation to make S/RES 1373 applicable to any entity or persons other than credit institutions, financial services institutions and investment companies for the freezing of assets concerning EU-internals. - Set up procedures within Germany that will ensure in all cases the freezing without delay of assets other than funds (such as immovable goods, companies and businesses and vehicles) for cases of EU-internals where the Banking Act applies. - Set up appropriate measures to monitor effectively the compliance with freezing obligations by persons and entities other than financial institutions and “companies”. *Source: _cr1078 - 2.3 Confiscation, freezing, and seizing of proceeds of crime (PDF chapter).* ### 6.3 Mutual Legal Assistance ### 6.3 Mutual Legal Assistance ### With respect to Recommendation 36 - Address the deficiencies in the ML offense, noted under Recommendation 1, which may impact on the ability of Germany to provide certain forms of international cooperation where dual criminality is required. - Remove the limitations faced by law enforcement agencies and prosecutors in obtaining documents and information from DNFBPs protected by professional privileges (i.e., lawyers and notaries) as such limitations may limit Germany’s ability to deliver mutual legal assistance where such DNFBPs are involved. - Maintain comprehensive statistics on matters relevant to the effectiveness and efficiency of the mutual legal assistance system (such as requests that are made or received, relating to ML, the predicate offenses and FT, including the nature of the request, whether it was granted or refused, and the time required to respond). ### With respect to Recommendation 37 - Remove the limitations faced by law enforcement agencies and prosecutors in obtaining documents and information from DNFBPs protected by professional privileges (i.e., lawyers and notaries) as such limitations may limit Germany’s ability to deliver mutual legal assistance where such DNFBPs are involved. - Maintain comprehensive statistics on matters relevant to the effectiveness and efficiency of the mutual legal assistance system (such as requests that are made or received, relating to ML, the predicate offenses and FT, including the nature of the request, whether it was granted or refused, and the time required to respond). ### With respect to Recommendation 38 - Address the deficiencies in the ML offense noted under Recommendation 1 which may impact on the ability of Germany to provide certain forms of international cooperation where dual criminality is required. - Remove the limitations faced by law enforcement agencies and prosecutors in obtaining documents and information from DNFBPs protected by professional privileges (i.e., lawyers and notaries) as such limitations may limit Germany’s ability to deliver mutual legal assistance where such DNFBPs are involved. - Maintain comprehensive statistics on matters relevant to the effectiveness and efficiency of the mutual legal assistance system (such as requests that are made or received, relating to ML, the predicate offenses and FT, including the nature of the request, whether it was granted or refused, and the time required to respond). ### With respect to Special Recommendation V - Maintain comprehensive statistics on matters relevant to the effectiveness and efficiency of the mutual legal assistance system (such as requests that are made or received, relating to FT, including the nature of the request, whether it was granted or refused, and the time required to respond). ### 6.4 Extradition (R. 39, 37 & SR.V) - Address the deficiencies in the ML offense, noted under Recommendation 1, which may impact on the ability of Germany to provide certain forms of international cooperation where dual criminality is required, such as extraditions, particularly for countries outside the EU. ### 6.5 Other Forms of Cooperation (R. 40 & SR.V) - Ensure that cooperation may be granted by supervisors of DNFBPs. - Ensure that professional secrecy obligations on DNFBPs are not an undue obstacle to sharing of information directly or indirectly with foreign counterparts. - Keep statistics on the extent of international cooperation by authorities other than the FIU and the BaFin. ### 7. Other Issues ### 7.1 Resources and statistics (R. 30 & 32) - (Section heading present; no further detail in provided content.) ### 7.2 Other relevant AML/CFT measures or issues - (Section heading present; no further detail in provided content.) ### 7.3 General framework – structural issues - (Section heading present; no further detail in provided content.) *Content derived from the provided IMF document excerpt.* --- _Source: https://www.imf.org/-/media/websites/imf/imported-full-text-pdf/external/pubs/ft/scr/2010/_cr1078.pdf_