Ob Germany is a paradise for money launderers, the report of the money laundering authority Financial Action Task Force (FATF) based at the OECD is silent. In their country report published on Thursday, the experts attest Germany to be making progress in the fight against money laundering and terrorist financing. Nevertheless, they still see a lot of catching up to do and criticize the fact that there is still no upper cash limit in this country. The central point of criticism of the FATF is the unclear responsibilities in combating money laundering between the authorities at federal and state level.
Federal Minister of Finance Christian Lindner has reacted to this in the past few days with his plans to create a Federal Financial Criminal Police Office, as the FAZ had reported. Experts estimate the amount that is laundered in Germany every year at up to 100 billion euros. The money comes from criminal activities such as human or drug trafficking, but it can also include tax evasion or the circumvention of sanctions such as against Russia. While the FATF praises the improved and expanded anti-money laundering rules in recent years, it doubts their effectiveness.
“It is not clear whether the measures at operational level have led to full results,” write the FATF experts. They point to the low number of criminal money laundering cases, which is not consistent with the risk profile of Germany as a large economy. The weaknesses of the Financial Intelligence Unit (FIU), which is located at customs, have been known for some time. There, within ten years, suspicious activity reports in 2020 have increased twelvefold to more than 144,000, but only fewer than 800 were criminally relevant.
From “insufficient” to just “sufficient”
Compared to the FATF report from 2010, Germany has made progress. At that time, the result – expressed in grades – was “insufficient”, this time it can be described with a brief “sufficient”. Effectiveness is rated “moderate” in seven out of eleven criteria, including oversight and preventive action. This is the second worst of a total of four grades. In the other four areas, including risk policy and international cooperation, Germany received the rating “substantial”, which corresponds to the second best grade. The highest rating (“high”) never existed.
A thorn in the side of the FATF is the lack of a cash limit in Germany. The examiners go into the high cultural and historical importance of cash in Germany. 75 percent of all transactions would be settled with it. However, unlike in other EU countries, there is no upper limit for this. Although Germany has recognized the problem of cash in money laundering, it has refrained from taking suitable measures such as the upper limit. Former Federal Finance Minister Wolfgang Schäuble once proposed a cash limit of 10,000 euros, but had to back down because of the criticism.
337 authorities responsible for traders
Another weak point is the small number of suspicious transaction reports that are sent to the FIU from the non-bank sector. These include real estate agents, gambling operators or art dealers, i.e. areas in which black money can be channeled back into the economic cycle. From there, only 2 percent of suspicious transaction reports to the FIU came in 2020. More than 140,000 reports came from banks that are monitored for money laundering by the Federal Financial Supervisory Authority (BaFin).
On the other hand, according to the FATF report, approximately 337 authorities in the federal states or municipalities are responsible for tradespeople. Finance Minister Lindner also wants to counter this problem with a central office for the supervision of the non-financial sector at the federal level. Also with the aim of coordinating the countries’ responsibilities.
Although Lindner’s plans for a Federal Financial Criminal Police Office are welcomed in many places as a “step in the right direction”, there is criticism as to whether a new large federal authority is the appropriate and sufficient instrument. “The federal government already has large authorities that are or can be dedicated to the issue,” said Bavaria’s Finance Minister Albert Füracker (CSU) to the “Handelsblatt”. For the citizens’ movement Finanzwende, which is led by the former Green Party politician Gerhard Schick, there is more to a real paradigm shift in the fight against money laundering than just a new authority. Lindner must ensure that the investigators have the right tools at hand and that money laundering is no longer so easy, explained Konrad Duffy, financial crime officer at Finanzwende.
“We need more transparency on assets, swift implementation of the promised ban on buying real estate with cash, and better ways to siphon off dirty funds, alongside assertive authorities,” he said. Gerson Raiser, a lawyer at Clifford Chance, expects that the FATF report will further increase the already high pressure on the German legislature and the German authorities.
In his opinion, a further increase in money laundering investigations – including criminal ones – and at least selectively intensified money laundering supervision by the responsible authorities can therefore be expected in the future. This is also to be expected against the background of the plans at EU level to implement a central EU money laundering authority with supervisory powers over the member state authorities, said Raiser.