Germany increases focus on money laundering as FATF issues mixed report card

The German Finance Ministry has announced the creation of a new agency that will “follow the money” and prevent financial crime in the country.   

In announcing the new agency, Finance Minister Christian Lindner discussed Germany's “reputation as a money laundering paradise.” In a statement, he added that “We have the courage for great success… With our powerful and effective structures, we will make sure that honest business people will be protected from those who don't stick to the rules.”

In an accompanying paper, the German government confirmed that it is currently focused on three initiatives. These are:

• The creation of a new federal authority to fight financial crime
• Training more experts
• Accelerating the digitization and interconnection of the relevant property registers and records

The new federal crime agency is meant to bundle and develop expertise and focus on what the ministry calls a “follow-the-money approach.” To do this, the agency will be closely integrated with the Financial Intelligence Unit, to which suspicious transactions are first reported.

Why is Germany at risk from money laundering?

Michael Findeisen, who spent several years running the Finance Ministry's money laundering division has stated that Germany’s money laundering regulations must be among the strictest in the world.

He has said that “Germany is a powerful economic force, so it is interesting for investors — both legal and illegal investors… There is a lot of illegal Italian money, for example, invested in the German finance sector. That’s why the standards need to be stricter in Germany.”

On top of this, it’s important to note that Germany is also at particular risk of money laundering because the country remains reliant on cash. For example, in Germany, cash can still be used to buy property (although the government has promised to end this). Similarly, Germany has also consistently resisted international regulations imposing a €5,000 limit on cash business transactions.

The international view

Some critics of the German Finance Ministry believe that this new initiative has been timed to coincide with a new evaluation of the country’s efforts from the Financial Action Task Force (FATF).

Recently, the intergovernmental body gave Germany a mixed report card. FATF stressed that although Germany has made “significant reforms” in the past few years, it has dragged its feet when it comes to implementation. As a result “the transition has been challenging… Germany needs to continue to prioritize the implementation of these reforms at the operational level and continue to enhance the collection, analysis, dissemination, and use of financial intelligence.”

FATF concluded by saying that “Germany could be more proactive in using the targeted financial sanctions regime as a preventive measure to freeze terrorist assets”.

With such a faltering report card, it appears likely that the creation of the new agency will only be the first step towards addressing FATF concerns.

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