## 1.      Germany has introduced a number of measures in recent years to strengthen its anti-

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---

### Overview and risk environment
- Germany has generated a relatively large number of prosecutions for money laundering (ML) and of orders to confiscate assets, despite shortcomings against the Financial Action Task Force (FATF) 40+ 9 Recommendations.
- Indicators of ML/TF susceptibility:
  - large economy and financial center, strategic location in Europe, strong international linkages.
  - estimated proceeds of crime generated in Germany: €40 to €60 billion (approximately $60–80 billion) annually, inclusive of tax evasion.
  - estimated informal sector: > €400 billion or >$560 billion.
  - reportedly high use of cash.
  - Euro (€) widely used across Europe, increasing attractiveness to organized criminals and tax evaders.
- Factors reducing ML risk: strong legal tradition, rule of law, political environment, effective single financial regulator.

### Core legal framework and institutional arrangements
- Principal laws and institutions:
  - German Criminal Code (CC) — contains ML and TF offenses.
  - Money Laundering Act (AML Act) — established the financial intelligence unit (FIU) within the Federal Criminal Police Office (BKA); imposes customer due diligence (CDD) obligations and requires suspicious transaction reports (STRs).
  - Sector-specific laws (e.g., Banking Act).
- AML Act amendments:
  - most recent amendment in August 2008, transposing the third EU Money Laundering Directive and its Implementing Directive into national law.
- FIU mandate:
  - national center for receiving STRs; supports Federal and Länder LEAs in prevention and prosecution of ML and TF.

### Key findings on FATF compliance and legal deficiencies
- Overall assessment:
  - The AML/CFT framework is not fully in line with the FATF Recommendations.
- Identified legal and institutional weaknesses and recommended amendments:
  - Amend the CC to:
    - criminalize ML in a way that covers all serious predicate offenses;
    - criminalize TF in a way fully consistent with international standards.
  - Amend the AML Act to:
    - improve preventive measures by imposing a reporting obligation based on suspicion rather than knowledge and relating to the proceeds of criminal activity;
    - 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 implement the UN Security Council Resolutions (UNSCRs) on TF.
  - Apply sanctioning powers more effectively for breaches of AML/CFT obligations.
  - Strengthen effective implementation of AML/CFT obligations imposed on designated non-financial businesses and professions (DNFBPs).
  - Improve the collection of statistics and the provision of guidance and feedback to FIs.

### Criminal law, prosecutions, and sanctions
- CC and ML/TF:
  - principal AML provisions largely consistent with FATF but with technical deficiencies.
  - two FATF-designated categories of offenses are not predicates for ML.
  - ML offense cannot be applied to persons convicted of a predicate offense (subject to fundamental principles of German law).
  - legal persons are not subject to criminal liability due to fundamental principles of German law; individuals involved may be subject to administrative fines imposed by criminal courts.
- Criminal justice outcomes:
  - German courts obtain more than 300 ML convictions yearly, many for less serious ML conduct.
  - Serious ML conduct often pursued via predicate offenses that carry more severe sanctions than the ML offense.
  - high burden of proof to show proceeds relate to predicate crime and inability to convict for ML persons convicted of the predicate contribute to less frequent use of ML offense.
- TF offenses:
  - August 2009 criminalization of financing of terrorist acts and individual terrorists; financing of terrorist organizations already criminalized.
  - remaining technical deficiencies: do not cover all offenses designated under the UN TF Convention; “terrorist act” does not cover serious bodily injuries; “funds” must, in some cases, be “not merely insubstantial.”
  - poor statistics impede establishing effective implementation of TF offenses.
- Seizure, confiscation, and forfeiture:
  - broad range of legal procedures regularly used, apply to all criminal offenses including ML and TF.
  - authorities confiscate and forfeit much less property than courts issue orders for.
  - interpretation of professional secrecy by some professions limits LEAs’ ability to locate and trace property.

### FIU operations, STRs, and information flows
- STR reporting structure and processing:
  - AML Act requires reporting entities to submit STRs to the relevant Land police or prosecutorial body with a copy to the FIU.
  - processing and analysis of STRs split between Länder LEAs and the FIU; FIU carries out only limited case-specific analysis.
  - Land recipient establishes grounds for full investigation; FIU contributes modestly, valued mainly for access to foreign FIU information.
  - FIU checks STRs against its database and other BKA databases; solely responsible for requesting/exchanging information with foreign FIUs.
  - FIU does not disseminate disclosures of STRs concerning suspected ML or TF activities to investigative bodies as such.
  - FIU analytic focus: elaboration of patterns and trends; maintains statistics, publishes annual report and other documents, informs reporting entities and LEAs of ML and TF typologies and methods.
  - overall: FIU discharges legal mandate but does not carry out fully all FIU functions required under the standard.
- STR reporting shortcomings:
  - filing basis is “evidential” and significantly higher than FATF concept of “suspects or has reasonable grounds to suspect.”
  - linkage to ML or TF offenses narrows trigger relative to FATF “proceeds of criminal activity.”
  - filing directly with Länder LEAs treats STRs as criminal complaints.
  - limitations in predicate offense range and definitions further narrow reporting scope.
  - result: fewer STRs filed in Germany than in other countries, denying FIU and LEAs access to a wider intelligence base.

### Cross-border currency controls and customs
- Two regimes to monitor cross-border physical transport of currency and negotiable instruments of €10,000 or more:
  - movements between Germany and non-EU countries: travelers must complete a declaration;
  - movements within the EU: travelers must disclose information if asked.
- Customs Administration:
  - implements both regimes, has broad powers, operates using a risk-based approach.
  - data accessible by Customs, some Länder LEAs, and the BKA including the FIU.
  - much data stored for one year only, diminishing utility for identifying cash couriers, trends, or typologies.
  - need for improved information to travellers entering the EU through German airports of their declaration obligation.

### Preventive measures for financial institutions (FIs)
- Scope and application:
  - AML Act applies CDD and record-keeping to credit institutions, financial services institutions, financial enterprises, insurance companies, insurance intermediaries, investment companies, and a broad range of nonfinancial persons or entities.
  - 2008 amendments strengthened requirements and explicitly introduced a risk-based approach.
  - preventive measures apply equally to all persons and entities subject to the Act; additional CDD in sector-specific laws.
- Structural problems and concerning areas:
  - very broad CDD exemptions for specified “low-risk” customers that may conflict with monitoring and record-keeping obligations.
  - treatment of all EU and EEA member states and jurisdictions on the EU’s third country equivalence list as a single risk category in certain low-risk scenarios.
  - treatment of the EU/EEA as a single domestic market for correspondent banking obligations.
  - ambiguity regarding what constitutes “senior management” for PEP approvals and correspondent banking relationships.
  - verification of beneficial ownership and PEP determination:
    - measures do not fully conform to FATF standard.
    - wide variety of interpretations among institutions.
    - BaFin issued a circular in July 2009 clarifying some aspects.
- Record retention:
  - institutions generally retain records for ten years pursuant to commercial law requirements, but may have inadequate records on low-risk customers due to exemptions.
- Wire transfers:
  - institutions implement EU Regulation 1781/2006 effectively, which meets FATF requirements.
- Monitoring transactions and higher-risk jurisdictions:
  - statutory provisions generally weak; BaFin circulars provide specific guidance highlighting weaknesses in other countries’ AML/CFT regimes.
- Internal controls and supervision:
  - internal control requirements exist but need improvement and stronger implementation.
  - requirements do not apply to more than 72,000 insurance intermediaries.
  - legislative requirements for compliance officers need broadening and stronger oversight responsibilities.
  - training obligation limited; no obligation for FIs to implement screening procedures to ensure high hiring standards.
- Shell banks and overseas operations:
  - shell banks effectively prohibited.
  - German banks and insurers operating outside Germany must implement AML/CFT measures at least equivalent to German requirements.
  - no explicit provisions requiring attention to equivalency in EU and EEA states that do not or insufficiently apply FATF Recommendations.
  - prohibition on banking entities operating in non-EU/EEA countries where German-consistent measures cannot be implemented.
  - no obligations regarding investment sector operations outside Germany; German FIs not required to pay attention to operations in countries with weak AML/CFT regimes.
- Supervisory authority (BaFin):
  - responsible for most FI supervision, has adequate AML/CFT supervisory powers, uses a risk-based approach.
  - supervisory arrangements rely heavily on annual external audits; methodology had not been updated to reflect the 2008 AML Act at time of on-site visit.
  - doubts about quality of audit reports for some cooperative banks.
  - low number of on-site inspections offset by significant risk-based off-site monitoring and analysis.
  - moving toward, but not yet fully implemented, a system of private sector issued AML/CFT guidance approved by BaFin.
  - abrogation of previous guidance caused confusion where BaFin continues to apply supervisory principles from abrogated guidance that align with new laws.
  - Länder authorities often unfamiliar with supervisory responsibilities for insurance intermediaries and apply insufficient resources.
  - administrative fines not available to sanction failure to comply with all AML/CFT requirements due to constitutional principle of specificity.
  - fines that are available are neither proportionate nor dissuasive, and are not applied effectively.
- MVTS sector:
  - subject to AML/CFT requirements under the Banking Act; supervised by BaFin.
  - about 40 licensed MVTS operators in Germany.

### Preventive measures — DNFBPs (designated non-financial businesses and professions)
- AML Act applies to 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; requirements are essentially identical to those for FIs.
- Implementation is uneven:
  - supervisory arrangements established for most DNFBPs.
  - 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.
  - strict professional secrecy obligations contribute to low levels of STR reporting and complicate cooperation with investigative authorities.
  - overall effectiveness of implementation in DNFBP sector difficult to ascertain.

### Legal persons, arrangements, and non-profit organizations (NPOs)
- Information on ownership and control:
  - extent of information varies greatly by type of legal entity.
  - main sources are public registers, but they do not always include beneficial ownership and control information.
  - information considerably limited for non-listed stock corporations issuing bearer shares, and close to non-existent for private foundations.
- Treuhand arrangements:
  - commonly used legal arrangement; disclosure obligations insufficient to ensure transparency of beneficial ownership and control.
- NPO sector measures:
  - measures to prevent abuse for TF include transparency measures and targeted, intelligence-driven monitoring, surveillance, investigation and suppression of extremists and terrorist activities.
  - a formal review of the NPO sector undertaken.
  - legislative and regulatory provisions introduced to enhance responsibilities and oversight of NPOs.
  - enforcement actions taken under new provisions.
  - outreach activities undertaken to promote awareness of TF vulnerabilities among NPOs.

### National and international cooperation
- FIU and international exchange:
  - FIU is solely responsible for requesting or exchanging information with foreign FIUs and valued for its access to foreign FIU information.
  - Information yielded by FIU and BKA searches is forwarded to the Land LEA that received the STR.
- Asset freezing and UNSCRs:
  - Terrorist funds or other assets may be frozen, without delay, largely in line with relevant UNSCRs, but some freeze requirements do not apply to all EU residents or to all asset types for certain EU residents.
- Mutual legal assistance and extradition:
  - The framework enables the provision of comprehensive and timely mutual legal assistance (MLA) and extradition.
  - No material obstacles were identified in this area.
  - Assessors were unable to establish fully whether MLA is being provided in an effective manner due to the absence of statistics.
  - Germany has a solid system in place for extradition and grants a high percentage of requests in a timely manner.
  - Authorities provide a wide range of international administrative cooperation with foreign counterparts except in relation to nonfinancial businesses and professions.
- Other operational tools:
  - The BaFin operates an automated account access system that enables 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.

### Summary Table of Observance and Key Recommendations — High-level findings and remedial actions
- 1. Legal System and Related Institutional Measures
  - Criminalization of Money Laundering
    - R.1: PC
    - R.2: LC
    - Recommendations:
      - Amend the CC to make the ML offense a serious crime, to raise the range of sanctions, to criminalize self laundering, to reduce the burden for proving that property is the proceeds of crime, and to make “insider trading, and market manipulation” and “counterfeiting and piracy of products” predicates for ML.
      - Encourage prosecutors and LEAs to utilize ML investigations and convictions to fight organized crime.
  - Criminalization of Terrorist Financing
    - SR.II: LC
    - Recommendation:
      - Criminalize the financing of a terrorist act and of an individual terrorist consistent with Article 2 of the TF Convention. Amend the CC to make the financing of terrorism a serious crime by raising the minimum range of sanctions.
  - Confiscation, freezing, and seizing of proceeds of crime
    - R.3: LC
    - Recommendations:
      - Enable LEAs to access information about property ownership held by all DNFBPs.
      - Collect more assets once courts order them confiscated or forfeited.
  - Freezing of funds used for terrorist financing
    - SR.III: PC
    - Recommendations:
      - Extend freezing obligations to all persons and ensure that in all cases, assets other than funds can be frozen without delay.
      - Monitor all persons and entities for compliance with the freezing obligations.
  - The Financial Intelligence Unit and its functions
    - R.26: LC
    - Recommendations:
      - Have the FIU carry out more robust analysis of STRs.
      - Have the FIU provide more direction about how to report suspicious transactions.
  - Law enforcement, prosecution and other competent authorities
    - R.27: LC
    - R.28: LC
    - Recommendations:
      - Make more use of special techniques when conducting investigations into ML.
      - Improve the focus of ML investigations and the amount of investigations conducted into more complex organized crime ML structures.
  - Cross Border Declaration or disclosure
    - SR IX: LC
    - Recommendations:
      - Improve travelers’ awareness of their obligations to make declarations and disclosures at ports of entry and exit.
      - Extend the period for retaining most data collected on declarations and disclosures.

- 2. Preventive Measures: Financial Institutions
  - Customer due diligence, including enhanced or reduced measures
    - R.5: PC
    - R.6: PC
    - R.7: PC
    - R.8: LC
    - Recommendations:
      - Improve the obligation for the verification of beneficial ownership.
      - Review the exemption for low-risk customers and transactions.
      - Require institutions to consider filing an STR in cases of failure to complete CDD.
      - Require enhanced due diligence when a PEP beneficially owns a contracting party.
      - Redefine “PEP” so that it includes foreign PEPs who are residents in Germany.
      - Require “senior level” approval for correspondent banking and PEP relationships.
      - Extend the special enhanced CDD to respondent banks within the EU.
      - Require FIs to take measures to prevent the misuse of technological developments.
  - Third parties and introduced business
    - R.9: LC
    - Recommendation:
      - 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.
  - Record keeping and wire transfer rules
    - R.10: LC
    - SR.VII: C
    - Recommendation:
      - 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: PC
    - R.21: PC
    - Recommendations:
      - Require a written analysis and record for all complex, unusually large transactions, and unusual patterns of transactions.
      - Clarify the procedures expected for “statutory” low-risk customers.
      - Strengthen obligations relating to business relationships and transactions with persons from or in jurisdictions that do not sufficiently apply the FATF standard.
  - Suspicious transaction reports and other reporting
    - R.13: PC
    - R.14: LC
    - R.19: C
    - R.25: PC
    - SR.IV: PC
    - Recommendations:
      - Ensure that STR reporting is based on when an institution suspects or has reasonable grounds to suspect that a transaction involves the proceeds of crime.
      - Investigate the exceptionally low level of reporting among certain institutions.
      - Extend the tipping-off provision to cover cases where transactions are being reviewed internally to determine whether an STR should be filed.
      - Improve feedback to reporting institutions on the quality of reports and their value in terms of investigations and prosecutions.
  - Internal controls, compliance, audit and foreign branches
    - R.15: PC
    - R.22: LC
    - Recommendations:
      - Ensure that compliance officers have timely access to relevant CDD information.
      - Strengthen requirements for entities to train their staff about AML/CFT and to apply screening procedures when hiring staff.
      - Strengthen requirements in relation to FI operations in all countries that do not sufficiently apply the FATF standard.
  - Supervisory and oversight system–competent authorities and SROs
    - R.17: PC
    - R.23: LC
    - R.25: PC
    - R.29: LC
    - Recommendations:
      - Increase the range of administrative fines for sanctioning AML/CFT violations.
      - Increase the sanctions available for dealing with managers and members of (supervisory) Boards of Directors for AML/CFT violations.
      - Review whether the BaFin conducts enough on-site inspections of high-risk FIs.
      - Improve guidance for auditing organizations in the cooperative banking sector.
      - Strengthen AML/CFT supervision of insurance intermediaries by the Länder.
  - Money value transfer services
    - SR.VI: LC
    - Recommendations:
      - Implement the recommended actions with respect to R. 5, 13 and 17 where applicable to the MVTS sector.
      - Consider strengthening efforts to identify and close illicit remittance operations.

- 3. Preventive Measures: Non-Financial Businesses and Professions (DNFBPs)
  - Customer due diligence and record-keeping
    - R.12: NC
    - Recommendations:
      - Require casinos to adopt procedure to link transactions to identified clients.
      - Implement the recommended actions with respect to R 5, 6, 9-11 for DNFBPs.
      - Review the scope of legal and professional privilege and professional secrecy.
      - Strengthen effective implementation of CDD requirements by DNBFPs.
  - Suspicious transaction reporting
    - R.16: NC
    - Recommendations:
      - Raise DNFBP’s awareness of AML/CFT risks and improve STR reporting.
      - Require DNFBPs to screen and train staff and have an AML/CFT audit function.
      - Require casinos, real estate agents, and dealers in precious metals and stones to have AML/CFT internal controls.
  - Regulation, supervision, monitoring, and sanctions
    - R.24: NC
    - R.25: PC
    - Recommendations:
      - Strengthen AML/CFT supervision of casinos, of real estate agents and persons trading in goods by the Länder, and of lawyers and tax advisors by SROs.
      - Issue up-to-date guidance for all DNFBPs.
  - Other designated non-financial businesses and professions
    - R.20: C
    - None.

- 4. Legal Persons and Arrangements & Nonprofit Organizations
  - Legal Persons–Access to beneficial ownership and control information
    - R.33: NC
    - Recommendations:
      - Ensure that beneficial ownership on all types of legal entities is accessible by the competent authorities.
      - Mitigate MLTF risks posed by companies that issue bearer shares.
  - Legal Arrangements–Access to beneficial ownership and control information
    - R.34: NC
    - Recommendation:
      - Enhance transparency over Treuhands.
  - Nonprofit organizations
    - SR.VIII: LC
    - Recommendations:
      - Document that vulnerabilities in the NPO sector are periodically assessed.
      - Require NPOs to provide more information to the authorities.
      - Increase outreach efforts to maintain awareness of TF risks in the NPO sector.

- 5. National and International Cooperation
  - National cooperation and coordination
    - R.31: LC
    - Recommendations:
      - Review the effectiveness of Germany’s AML/CFT system.
      - Fully engage authorities responsible for DNFBPs.
  - The Conventions and UN Special Resolutions
    - R.35: PC
    - SR.I: PC
    - Recommendations:
      - Amend the ML predicate offenses and the TF offenses as indicated previously.
      - Apply the UNSCRs as indicated previously.
      - Monitor effectively the compliance with freezing obligations by all persons.
  - Mutual Legal Assistance
    - R.36: LC
    - R.37: LC
    - R.38: LC
    - SR.V: LC
    - Recommendations:
      - Address the deficiencies in the ML offense, as indicated previously.
      - Remove the limitations faced by LEAs and prosecutors in obtaining documents and information from DNFBPs protected by professional privileges.
  - Extradition
    - R.39: LC
    - R.37: LC
    - SR.V: LC
    - Recommendation:
      - Address the deficiencies in the ML offense as indicated previously.
  - Other Forms of Cooperation
    - R.40: LC
    - SR.V: LC
    - Recommendation:
      - Ensure that supervisors of DNFBPs can cooperate and that professional secrecy obligations of DNFBPs are not an undue obstacle to sharing of information.

- 6. Other Issues
  - Resources & Statistics
    - R.30: LC
    - R.32: PC
    - Recommendation:
      - Improve statistics for: ML investigations; sanctions imposed for ML convictions; TF investigations; provisional measures applied and property confiscated; STR analysis; the value of transactions associated with STRs; international cooperation; and, the exercise of supervisory powers in the DNFBP sector.

*Source: IMF assessment text provided in content unit _cr1079 - 1.      Germany has introduced a number of measures in recent years to strengthen its anti-*

### 1.      Germany has introduced a number of measures in recent years to strengthen its anti-

### 1.      Germany has introduced a number of measures in recent years to strengthen its anti-

### Overview and risk environment
- Germany has generated a relatively large number of prosecutions for money laundering (ML) and of orders to confiscate assets, despite shortcomings against the Financial Action Task Force (FATF) 40+ 9 Recommendations.
- Indicators of ML/TF susceptibility:
  - large economy and financial center, strategic location in Europe, strong international linkages.
  - estimated proceeds of crime generated in Germany: €40 to €60 billion (approximately $60–80 billion) annually, inclusive of tax evasion.
  - estimated informal sector: > €400 billion or >$560 billion.
  - reportedly high use of cash.
  - Euro (€) widely used across Europe, increasing attractiveness to organized criminals and tax evaders.
- Factors reducing ML risk: strong legal tradition, rule of law, political environment, effective single financial regulator.

### Core legal framework and institutional arrangements
- Principal laws and institutions:
  - German Criminal Code (CC) — contains ML and TF offenses.
  - Money Laundering Act (AML Act) — established the financial intelligence unit (FIU) within the Federal Criminal Police Office (BKA); imposes customer due diligence (CDD) obligations and requires suspicious transaction reports (STRs).
  - Sector-specific laws (e.g., Banking Act).
- AML Act amendments:
  - most recent amendment in August 2008, transposing the third EU Money Laundering Directive and its Implementing Directive into national law.
- FIU mandate:
  - national center for receiving STRs; supports Federal and Länder LEAs in prevention and prosecution of ML and TF.

### Key findings on compliance with FATF standards and legal deficiencies
- Overall, the AML/CFT framework is not fully in line with the FATF Recommendations.
- Identified legal and institutional weaknesses and recommended amendments:
  - amend the CC to:
    - criminalize ML in a way that covers all serious predicate offenses;
    - criminalize TF in a way fully consistent with international standards.
  - amend the AML Act to:
    - improve preventive measures by imposing a reporting obligation based on suspicion rather than knowledge and relating to the proceeds of criminal activity;
    - 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 implement the UN Security Council Resolutions (UNSCRs) on TF.
  - apply sanctioning powers more effectively for breaches of AML/CFT obligations.
  - strengthen effective implementation of AML/CFT obligations imposed on designated non-financial businesses and professions (DNFBPs).
  - improve the collection of statistics and the provision of guidance and feedback to FIs.

### Criminal law, prosecutions, and sanctions
- CC and ML/TF:
  - principal AML provisions largely consistent with FATF but with technical deficiencies.
  - two FATF-designated categories of offenses are not predicates for ML.
  - ML offense cannot be applied to persons convicted of a predicate offense (subject to fundamental principles of German law).
  - legal persons are not subject to criminal liability due to fundamental principles of German law; individuals involved may be subject to administrative fines imposed by criminal courts.
- Criminal justice outcomes:
  - German courts obtain more than 300 ML convictions yearly, many for less serious ML conduct.
  - Serious ML conduct often pursued via predicate offenses that carry more severe sanctions than the ML offense.
  - high burden of proof to show proceeds relate to predicate crime and inability to convict for ML persons convicted of the predicate contribute to less frequent use of ML offense.
- TF offenses:
  - August 2009 criminalization of financing of terrorist acts and individual terrorists; financing of terrorist organizations already criminalized.
  - remaining technical deficiencies: do not cover all offenses designated under the UN TF Convention; “terrorist act” does not cover serious bodily injuries; “funds” must, in some cases, be “not merely insubstantial.”
  - poor statistics impede establishing effective implementation of TF offenses.
- Seizure, confiscation, and forfeiture:
  - broad range of legal procedures regularly used, apply to all criminal offenses including ML and TF.
  - authorities confiscate and forfeit much less property than courts issue orders for.
  - interpretation of professional secrecy by some professions limits LEAs’ ability to locate and trace property.

### FIU operations, STRs, and information flows
- STR reporting structure:
  - AML Act requires reporting entities to submit STRs to the relevant Land police or prosecutorial body with a copy to the FIU.
  - reporting system structured due to constitutional responsibility of states (Länder) for policing.
- Practical processing and analysis:
  - processing and analysis of STRs split between Länder LEAs and the FIU; FIU carries out only limited case-specific analysis.
  - Land recipient establishes grounds for full investigation; FIU contributes modestly, valued mainly for access to foreign FIU information.
  - FIU checks STRs against its database and other BKA databases; solely responsible for requesting/exchanging information with foreign FIUs.
  - FIU does not disseminate disclosures of STRs concerning suspected ML or TF activities to investigative bodies as such.
  - FIU analytic focus: elaboration of patterns and trends; maintains statistics, publishes annual report and other documents, informs reporting entities and LEAs of ML and TF typologies and methods.
  - overall: FIU discharges legal mandate but does not carry out fully all FIU functions required under the standard.
- STR reporting shortcomings:
  - filing basis is “evidential” and significantly higher than FATF concept of “suspects or has reasonable grounds to suspect.”
  - linkage to ML or TF offenses narrows trigger relative to FATF “proceeds of criminal activity.”
  - filing directly with Länder LEAs treats STRs as criminal complaints.
  - limitations in predicate offense range and definitions further narrow reporting scope.
  - result: fewer STRs filed in Germany than in other countries, denying FIU and LEAs access to a wider intelligence base.

### Cross-border currency controls and customs
- Two regimes to monitor cross-border physical transport of currency and negotiable instruments of €10,000 or more:
  - movements between Germany and non-EU countries: travelers must complete a declaration;
  - movements within the EU: travelers must disclose information if asked.
- Customs Administration:
  - implements both regimes, has broad powers, operates using a risk-based approach.
  - data accessible by Customs, some Länder LEAs, and the BKA including the FIU.
  - much data stored for one year only, diminishing utility for identifying cash couriers, trends, or typologies.
  - need for improved information to travellers entering the EU through German airports of their declaration obligation.

### Preventive measures for financial institutions (FIs)
- Scope and application:
  - AML Act applies CDD and record-keeping to credit institutions, financial services institutions, financial enterprises, insurance companies, insurance intermediaries, investment companies, and a broad range of nonfinancial persons or entities.
  - 2008 amendments strengthened requirements and explicitly introduced a risk-based approach.
  - preventive measures apply equally to all persons and entities subject to the Act; additional CDD in sector-specific laws.
- Structural problems and concerning areas:
  - very broad CDD exemptions for specified “low-risk” customers that may conflict with monitoring and record-keeping obligations.
  - treatment of all EU and EEA member states and jurisdictions on the EU’s third country equivalence list as a single risk category in certain low-risk scenarios.
  - treatment of the EU/EEA as a single domestic market for correspondent banking obligations.
  - ambiguity regarding what constitutes “senior management” for PEP approvals and correspondent banking relationships.
  - verification of beneficial ownership and PEP determination:
    - measures do not fully conform to FATF standard.
    - wide variety of interpretations among institutions.
    - BaFin issued a circular in July 2009 clarifying some aspects.
- Record retention:
  - institutions generally retain records for ten years pursuant to commercial law requirements, but may have inadequate records on low-risk customers due to exemptions.
- Wire transfers:
  - institutions implement EU Regulation 1781/2006 effectively, which meets FATF requirements.
- Monitoring transactions and higher-risk jurisdictions:
  - statutory provisions generally weak; BaFin circulars provide specific guidance highlighting weaknesses in other countries’ AML/CFT regimes.
- Internal controls and supervision:
  - internal control requirements exist but need improvement and stronger implementation.
  - requirements do not apply to more than 72,000 insurance intermediaries.
  - legislative requirements for compliance officers need broadening and stronger oversight responsibilities.
  - training obligation limited; no obligation for FIs to implement screening procedures to ensure high hiring standards.
- Shell banks and overseas operations:
  - shell banks effectively prohibited.
  - German banks and insurers operating outside Germany must implement AML/CFT measures at least equivalent to German requirements.
  - no explicit provisions requiring attention to equivalency in EU and EEA states that do not or insufficiently apply FATF Recommendations.
  - prohibition on banking entities operating in non-EU/EEA countries where German-consistent measures cannot be implemented.
  - no obligations regarding investment sector operations outside Germany; German FIs not required to pay attention to operations in countries with weak AML/CFT regimes.
- Supervisory authority (BaFin):
  - responsible for most FI supervision, has adequate AML/CFT supervisory powers, uses a risk-based approach.
  - supervisory arrangements rely heavily on annual external audits; methodology had not been updated to reflect the 2008 AML Act at time of on-site visit.
  - doubts about quality of audit reports for some cooperative banks.
  - low number of on-site inspections offset by significant risk-based off-site monitoring and analysis.
  - moving toward, but not yet fully implemented, a system of private sector issued AML/CFT guidance approved by BaFin.
  - abrogation of previous guidance caused confusion where BaFin continues to apply supervisory principles from abrogated guidance that align with new laws.
  - Länder authorities often unfamiliar with supervisory responsibilities for insurance intermediaries and apply insufficient resources.
  - administrative fines not available to sanction failure to comply with all AML/CFT requirements due to constitutional principle of specificity.
  - fines that are available are neither proportionate nor dissuasive, and are not applied effectively.
- MVTS sector:
  - subject to AML/CFT requirements under the Banking Act; supervised by BaFin.
  - about 40 licensed MVTS operators in Germany.

### Preventive measures — DNFBPs (designated non-financial businesses and professions)
- AML Act applies to 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; requirements are essentially identical to those for FIs.
- Implementation is uneven:
  - supervisory arrangements established for most DNFBPs.
  - 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.
  - strict professional secrecy obligations contribute to low levels of STR reporting and complicate cooperation with investigative authorities.
  - overall effectiveness of implementation in DNFBP sector difficult to ascertain.

### Legal persons, arrangements, and non-profit organizations (NPOs)
- Information on ownership and control:
  - extent of information varies greatly by type of legal entity.
  - main sources are public registers, but they do not always include beneficial ownership and control information.
  - information considerably limited for non-listed stock corporations issuing bearer shares, and close to non-existent for private foundations.
- Treuhand arrangements:
  - commonly used legal arrangement; disclosure obligations insufficient to ensure transparency of beneficial ownership and control.
- NPO sector measures:
  - measures to prevent abuse for TF include transparency measures and targeted, intelligence-driven monitoring, surveillance, investigation and suppression of extremists and terrorist activities.
  - a formal review of the NPO sector undertaken.
  - legislative and regulatory provisions introduced to enhance responsibilities and oversight of NPOs.
  - enforcement actions taken under new provisions.
  - outreach activities undertaken to promote awareness of TF vulnerabilities among NPOs.

### National and international cooperation (summary points present in source)
- FIU is solely responsible for requesting or exchanging information with foreign FIUs and valued for its access to foreign FIU information.
- Information yielded by FIU and BKA searches is forwarded to the Land LEA that received the STR.
- Terrorist funds or other assets may be frozen, without delay, largely in line with relevant UNSCRs, but some freeze requirements do not apply to all EU residents or to all asset types for certain EU residents.

*Source: IMF assessment text provided in content unit _cr1079 - 1.      Germany has introduced a number of measures in recent years to strengthen its anti-*

### 30.       The framework in place enables the provision of comprehensive and timely mutual

### _cr1079 - 30.       The framework in place enables the provision of comprehensive and timely mutual

### Mutual legal assistance (MLA) and extradition
- The framework enables the provision of comprehensive and timely mutual legal assistance (MLA) and extradition.
- No material obstacles were identified in this area.
- Assessors were unable to establish fully whether MLA is being provided in an effective manner due to the absence of statistics.
- Germany has a solid system in place for extradition and grants a high percentage of requests in a timely manner.
- Authorities provide a wide range of international administrative cooperation with foreign counterparts except in relation to nonfinancial businesses and professions.

### Other operational tools
- The BaFin operates an automated account access system that complements AML/CFT efforts.
- The system 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.

### Summary Table of Observance and Key Recommendations — High-level findings and remedial actions
- 1. Legal System and Related Institutional Measures
  - Criminalization of Money Laundering
    - R.1: PC
    - R.2: LC
    - Recommendations:
      - Amend the CC to make the ML offense a serious crime, to raise the range of sanctions, to criminalize self laundering, to reduce the burden for proving that property is the proceeds of crime, and to make “insider trading, and market manipulation” and “counterfeiting and piracy of products” predicates for ML.
      - Encourage prosecutors and LEAs to utilize ML investigations and convictions to fight organized crime.
  - Criminalization of Terrorist Financing
    - SR.II: LC
    - Recommendation:
      - Criminalize the financing of a terrorist act and of an individual terrorist consistent with Article 2 of the TF Convention. Amend the CC to make the financing of terrorism a serious crime by raising the minimum range of sanctions.
  - Confiscation, freezing, and seizing of proceeds of crime
    - R.3: LC
    - Recommendations:
      - Enable LEAs to access information about property ownership held by all DNFBPs.
      - Collect more assets once courts order them confiscated or forfeited.
  - Freezing of funds used for terrorist financing
    - SR.III: PC
    - Recommendations:
      - Extend freezing obligations to all persons and ensure that in all cases, assets other than funds can be frozen without delay.
      - Monitor all persons and entities for compliance with the freezing obligations.
  - The Financial Intelligence Unit and its functions
    - R.26: LC
    - Recommendations:
      - Have the FIU carry out more robust analysis of STRs.
      - Have the FIU provide more direction about how to report suspicious transactions.
  - Law enforcement, prosecution and other competent authorities
    - R.27: LC
    - R.28: LC
    - Recommendations:
      - Make more use of special techniques when conducting investigations into ML.
      - Improve the focus of ML investigations and the amount of investigations conducted into more complex organized crime ML structures.
  - Cross Border Declaration or disclosure
    - SR IX: LC
    - Recommendations:
      - Improve travelers’ awareness of their obligations to make declarations and disclosures at ports of entry and exit.
      - Extend the period for retaining most data collected on declarations and disclosures.

- 2. Preventive Measures: Financial Institutions
  - Risk of money laundering or terrorist financing
  - Customer due diligence, including enhanced or reduced measures
    - R.5: PC
    - R.6: PC
    - R.7: PC
    - R.8: LC
    - Recommendations:
      - Improve the obligation for the verification of beneficial ownership.
      - Review the exemption for low-risk customers and transactions.
      - Require institutions to consider filing an STR in cases of failure to complete CDD.
      - Require enhanced due diligence when a PEP beneficially owns a contracting party.
      - Redefine “PEP” so that it includes foreign PEPs who are residents in Germany.
      - Require “senior level” approval for correspondent banking and PEP relationships.
      - Extend the special enhanced CDD to respondent banks within the EU.
      - Require FIs to take measures to prevent the misuse of technological developments.
  - Third parties and introduced business
    - R.9: LC
    - Recommendation:
      - 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: C
    - None.
  - Record keeping and wire transfer rules
    - R.10: LC
    - SR.VII: C
    - Recommendation:
      - 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: PC
    - R.21: PC
    - Recommendations:
      - Require a written analysis and record for all complex, unusually large transactions, and unusual patterns of transactions.
      - Clarify the procedures expected for “statutory” low-risk customers.
      - Strengthen obligations relating to business relationships and transactions with persons from or in jurisdictions that do not sufficiently apply the FATF standard.
  - Suspicious transaction reports and other reporting
    - R.13: PC
    - R.14: LC
    - R.19: C
    - R.25: PC
    - SR.IV: PC
    - Recommendations:
      - Ensure that STR reporting is based on when an institution suspects or has reasonable grounds to suspect that a transaction involves the proceeds of crime.
      - Investigate the exceptionally low level of reporting among certain institutions.
      - Extend the tipping-off provision to cover cases where transactions are being reviewed internally to determine whether an STR should be filed.
      - Improve feedback to reporting institutions on the quality of reports and their value in terms of investigations and prosecutions.
  - Internal controls, compliance, audit and foreign branches
    - R.15: PC
    - R.22: LC
    - Recommendations:
      - Ensure that compliance officers have timely access to relevant CDD information.
      - Strengthen requirements for entities to train their staff about AML/CFT and to apply screening procedures when hiring staff.
      - Strengthen requirements in relation to FI operations in all countries that do not sufficiently apply the FATF standard.
  - Shell banks
    - R.18: C
    - None.
  - Supervisory and oversight system–competent authorities and SROs
    - R.17: PC
    - R.23: LC
    - R.25: PC
    - R.29: LC
    - Recommendations:
      - Increase the range of administrative fines for sanctioning AML/CFT violations.
      - Increase the sanctions available for dealing with managers and members of (supervisory) Boards of Directors for AML/CFT violations.
      - Review whether the BaFin conducts enough on-site inspections of high-risk FIs.
      - Improve guidance for auditing organizations in the cooperative banking sector.
      - Strengthen AML/CFT supervision of insurance intermediaries by the Länder.
  - Money value transfer services
    - SR.VI: LC
    - Recommendations:
      - Implement the recommended actions with respect to R. 5, 13 and 17 where applicable to the MVTS sector.
      - Consider strengthening efforts to identify and close illicit remittance operations.

- 3. Preventive Measures: Non-Financial Businesses and Professions (DNFBPs)
  - Customer due diligence and record-keeping
    - R.12: NC
    - Recommendations:
      - Require casinos to adopt procedure to link transactions to identified clients.
      - Implement the recommended actions with respect to R 5, 6, 9-11 for DNFBPs.
      - Review the scope of legal and professional privilege and professional secrecy.
      - Strengthen effective implementation of CDD requirements by DNBFPs.
  - Suspicious transaction reporting
    - R.16: NC
    - Recommendations:
      - Raise DNFBP’s awareness of AML/CFT risks and improve STR reporting.
      - Require DNFBPs to screen and train staff and have an AML/CFT audit function.
      - Require casinos, real estate agents, and dealers in precious metals and stones to have AML/CFT internal controls.
  - Regulation, supervision, monitoring, and sanctions
    - R.24: NC
    - R.25: PC
    - Recommendations:
      - Strengthen AML/CFT supervision of casinos, of real estate agents and persons trading in goods by the Länder, and of lawyers and tax advisors by SROs.
      - Issue up-to-date guidance for all DNFBPs.
  - Other designated non-financial businesses and professions
    - R.20: C
    - None.

- 4. Legal Persons and Arrangements & Nonprofit Organizations
  - Legal Persons–Access to beneficial ownership and control information
    - R.33: NC
    - Recommendations:
      - Ensure that beneficial ownership on all types of legal entities is accessible by the competent authorities.
      - Mitigate MLTF risks posed by companies that issue bearer shares.
  - Legal Arrangements–Access to beneficial ownership and control information
    - R.34: NC
    - Recommendation:
      - Enhance transparency over Treuhands.
  - Nonprofit organizations
    - SR.VIII: LC
    - Recommendations:
      - Document that vulnerabilities in the NPO sector are periodically assessed.
      - Require NPOs to provide more information to the authorities.
      - Increase outreach efforts to maintain awareness of TF risks in the NPO sector.

- 5. National and International Cooperation
  - National cooperation and coordination
    - R.31: LC
    - Recommendations:
      - Review the effectiveness of Germany’s AML/CFT system.
      - Fully engage authorities responsible for DNFBPs.
  - The Conventions and UN Special Resolutions
    - R.35: PC
    - SR.I: PC
    - Recommendations:
      - Amend the ML predicate offenses and the TF offenses as indicated previously.
      - Apply the UNSCRs as indicated previously.
      - Monitor effectively the compliance with freezing obligations by all persons.
  - Mutual Legal Assistance
    - R.36: LC
    - R.37: LC
    - R.38: LC
    - SR.V: LC
    - Recommendations:
      - Address the deficiencies in the ML offense, as indicated previously.
      - Remove the limitations faced by LEAs and prosecutors in obtaining documents and information from DNFBPs protected by professional privileges.
  - Extradition
    - R.39: LC
    - R.37: LC
    - SR.V: LC
    - Recommendation:
      - Address the deficiencies in the ML offense as indicated previously.
  - Other Forms of Cooperation
    - R.40: LC
    - SR.V: LC
    - Recommendation:
      - Ensure that supervisors of DNFBPs can cooperate and that professional secrecy obligations of DNFBPs are not an undue obstacle to sharing of information.

- 6. Other Issues
  - Resources & Statistics
    - R.30: LC
    - R.32: PC
    - Recommendation:
      - Improve statistics for: ML investigations; sanctions imposed for ML convictions; TF investigations; provisional measures applied and property confiscated; STR analysis; the value of transactions associated with STRs; international cooperation; and, the exercise of supervisory powers in the DNFBP sector.

*IMF staff report excerpt*

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_Source: https://www.imf.org/-/media/websites/imf/imported-full-text-pdf/external/pubs/ft/scr/2010/_cr1079.pdf_