The various aspects of compliance are high on the agenda of both the economic and political players in Germany. Most recently, the German government has approved a draft legislation for stricter rules on anti money laundering. The reform of the Money Laundering Act (Geldwäschegesetz) will bring new, quite restrictive rules for companies and individuals into effect. Among others, companies will have to appoint a money laundering officer.
Adaption to international standards
International institutions have identified several shortcomings regarding the current German anti-money laundering rules. The Financial Action Task Force on Money Laundering (FATF), as an interstate committee based at the OECD in Paris, draws up international standards for the combating of money laundering and the funding of terrorism and also verifies the ratification of these standards. Germany is one of the founding members of the FATF and has obligated itself to implement these standards into national law and to have them examined at regular intervals. The FATF report on Germany in February 2010 identified a number of deficits that are to be eliminated by the reform act.
Expansion of obligated parties
The group of obligated parties has been expanded by companies and persons who distribute e-money, without themselves being financial institutions or e-money issuers. These include, for example, sales outlets that issue coupons, chips or vouchers against cash payment.
Also, the definition of a 'beneficial owner' has been extended and supplemented by concrete examples. All companies or persons that act as trustors or that control in any other way 25 percent or more of the assets of another person are now considered as beneficial owners. Furthermore, anybody who exercises a controlling influence over the assets or profit distribution of another entity is considered to be a beneficial owner. As a result, cases are also covered where a person other than the contracting party holds the economic control over a business relationship.
New recording and reporting duties
The obligated party now has to ascertain the identity of the business associate and to check it by suitable measures. The intention is to ensure that the obligated party must not only record and verify the identity of the contracting party, but also of the beneficial owner that is behind it. To date, the prevailing view was that the obligated party has a discretion whether to verify such identity or not.
For this purpose the draft bill also provides that the contracting party for its part has to disclose to the obligated party whether or not it is exercising the business relationship or performing the transaction for a beneficial owner. At the same time it has to prove to the obligated party the identity of the beneficial owner.
A general clause will expand the reporting duties of the obligated party. The reporting duty is already triggered, if a conclusion can be drawn that the contracting party is contravening its aforementioned disclosure duty or if an identification of the beneficial owner is not possible.
In the sphere of the legal advisory professions, there are certain exemptions from the statutory reporting duty and from the duty of counsel to withdraw. In future, non-registered advocates and the group of registered legal advisers (as defined by section 10 of the Legal Services Act) will no longer be entitled to this privilege.
Casinos have to identify customers when they enter the casino and any transaction with a customer – with a value of €2000 or more.
Re-introduction of the money laundering officer
All companies that fall under the definition of obligated parties must in future appoint a money laundering officer who shall report directly to the top management. This basically re-introduces the legal status prior to the current law coming into force. In the view of the German government, liberalisation in this respect has not paid off. Finally, special due diligence in the case of dubious or unusual transactions is being introduced that will be applied even if they have not yet attained the quality of notifiable facts The results of the investigation have to be recorded in order to enable their verification by the authorities, if required.
Regarding politically exposed persons the draft bill covers two new aspects. On the one hand, politically exposed persons who are active abroad are also covered, if their place of residence is in the Federal Republic of Germany. On the other hand, the increased due diligence also applies, if the contracting party is not a politically exposed person, but the beneficial owner is.
Wider scope of prosecution
Contraventions were also able to be prosecuted previously. However, the draft bill provides that, in future, recklessness (i.e., negligence) shall apply as being a uniform standard of care for any type of infringement. To date the law distinguishes between intentional and negligent infringements. Furthermore, the framework of fines is to be raised uniformly to €100,000. Finally, the responsible authority can prohibit the practicing of the profession or activity of an obligated party, if despite a warning the regulations of the law are repeatedly infringed to a considerable extent.
The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.