Germany
Detailed Assessment Report on Anti-Money Laundering and Combating the Financing of Terrorism

This Detailed Assessment Report reviews antimoney laundering and combating the financing of terrorism (AML/CFT) measures for Germany. The report reveals that 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 and orders to confiscate assets. These achievements occurred even though Germany has shortcomings identified in this assessment against the Financial Action Task Force (FATF) 40 + 9 Recommendations. There are also weaknesses in the legal framework and in sanctioning for noncompliance with AML/CFT requirements.

Abstract

This Detailed Assessment Report reviews antimoney laundering and combating the financing of terrorism (AML/CFT) measures for Germany. The report reveals that 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 and orders to confiscate assets. These achievements occurred even though Germany has shortcomings identified in this assessment against the Financial Action Task Force (FATF) 40 + 9 Recommendations. There are also weaknesses in the legal framework and in sanctioning for noncompliance with AML/CFT requirements.

1. General

1.1. General Information on Germany

32. Germany, officially the Federal Republic of Germany (in German: Bundesrepublik Deutschland), is a large country in the center of Europe. The territory of Germany covers 357,092 square kilometers. German is the language spoken in Germany. With over 82 million inhabitants, it has the largest population of any member state of the European Union (EU)4 and the country is home to the third-largest number of international migrants worldwide (more than 10 million). A high proportion of Germany’s population lives in urban areas (74 percent).

33. Germany has 3,621 kilometers (km) of land borders and 2,389 km of coastline. The lengths of Germany’s borders with its neighbors are: in the north, Denmark (68 km); to the east, Poland (456 km) and Czech Republic (646 km); to the south, Austria (784 km) and Switzerland (334 km); and to the west France (451 km), Luxembourg (138 km), Belgium (167 km) and the Netherlands (577 km). The coastal boundaries to the north are to the North Sea, and the Baltic Sea.

34. Germany is strategically located in the center of the Schengen zone—a group of European countries with a combined population of approximately 400 million people, covering more than 4 million square kilometers, and with a combined GDP of approximately €13.5 trillion ($18.8 trillion) which have abolished the need for road, rail and air passengers of Schengen zone countries or from other countries who have been issued Schengen visas to have their identity checked when crossing borders between Schengen zone countries.5 In addition, the EU has abolished not only border controls at internal borders, but also customs controls for the administrative processing of goods at internal borders.

35. Germany is a federal, parliamentary, representative democratic republic of sixteen states (Land, plural Länder). The capital and largest city is Berlin. Germany is a member of the United Nations, NATO, G7, G8, G20, EU, FATF, and OECD.

36. The German political system operates under a framework laid out in the 1949 constitutional document known as the Basic Law (Grundgesetz, GG). The Federal Chancellor (Bundeskanzler) is the head of government and exercises executive power, similar to the role of a prime minister in other parliamentary democracies. Federal legislative power is vested in the Bundestag and Bundesrat, which together form a unique type of legislative body. The Bundestag is elected through direct elections, but proportional representation also applies. The members of the Bundesrat represent the governments of the sixteen Länder. The Federal President (Bundespräsident) is the head of state, invested primarily with representative responsibilities and powers.

37. An important element of the German legal landscape is that legislative power is divided between the federation and the Länder. The Basic Law presumes that all legislative power remains at the Länder level unless otherwise designated by the Basic Law itself. Any federal law overrides Länder law if the legislative power lies at the federal level.

38. Germany has a civil or statute-law system that is based on Roman law with some references to Germanic law. Germany’s judiciary is independent from the executive and the legislative branches. Federal law delineates the structure of the judiciary, but the administration of most courts is regulated by Land law, meaning at the level of one of the sixteen states. The Länder are responsible for the lower levels of the court system; only the highest appellate courts operate at the federal level. Each of the Länder has its own constitutional court. The local courts (Amtsgerichte), regional courts (Landgerichte) and the higher regional courts (Oberlandesgerichte) are Länder courts of general jurisdiction. They have competence irrespective of whether the action is based on federal or Länder law. The Federal Court of Justice is the highest court in Germany having jurisdiction for matters under civil and criminal law. Its task is to safeguard legal uniformity through the clarification of fundamental questions of law and the development of law. In criminal cases, the Federal Court of Justice rules on appeals on points of law filed regarding judgments passed by the regional courts and the higher regional courts of first instance. Its competence includes, inter alia, so-called “capital” crimes, which are tried at the regional courts by the criminal divisions for grave offenses, and all other serious criminal offenses, provided that 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. The Federal Court of Justice also is the appellate court for proceedings on all crimes against the state. At first instance, the indictment will be brought before the division of a regional court competent for crimes against the state or, as in cases involving terrorist organizations, before the criminal division of a higher regional court. The Federal Constitutional Court (Bundesverfassungsgericht), located in Karlsruhe, is the supreme court in Germany responsible for constitutional matters, and has the power of judicial review. It acts as the highest legal authority and ensures that legislative and judicial practices conform with the Basic Law. It acts independently of the other state bodies, but cannot act on its own behalf.

39. A core element of the German constitution is the principle of Rechtsstaat according to Article 20 of the Basic Law. In a Rechtsstaat, the power of the state is limited in order to protect citizens from the arbitrary exercise of authority. It is a government based on the rule of law, in which citizens are guaranteed equality and government decisions may be challenged in court. The constitutional limit on the power of the state is an important foundation underpinning and explaining many aspects of the German AML/CFT regime.

General information on the economy

40. Germany is the largest national economy in Europe, and the third largest by nominal GDP in the world. The service sector contributes just under 70 percent of total GDP, industry (including construction) 30.3 percent, and agriculture 0.9 percent. Most of the country’s products are in engineering, especially in automobiles, machinery, metals, and chemical goods. Key information about the German economy is set out in Statistical Table 1.

Statistical Table 1.

Key Information about Germany–2008

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41. Germany is a member state of the EU and part of its single market. Germany uses the common European currency, the Euro (€), and its monetary policy is set by the European Central Bank (ECB) in Frankfurt. Germany, through the ECB, operates a floating exchange rate regime. Germany does not have foreign exchange controls.

42. The Euro is the largest currency on issue in the world, with €785 billion ($1,092 billion) in circulation as of December 31, 2008. This amounts to $2,928 per person in the Euro zone—equivalent to 7 percent of average income. According to the Bank for International Settlements, the Euro is the second largest reserve currency and the second most traded currency in the world after the U.S. dollar. The Euro is the official currency of 22 European states with a combined population of approximately 325 million and GDP of €9.8 trillion ($13.6 trillion). The Euro has also been adopted as an official currency in Zimbabwe. One Euro equaled $1.3917 at December 31, 2008.9 The highest denomination note is €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. This is demonstrated in Figure 1.

Figure 1:
Figure 1:

High denomination banknotes in circulation

(in quantities, millions) in the EU

Citation: IMF Staff Country Reports 2010, 078; 10.5089/9781451981810.002.A001

43. Economic conditions and infrastructure can provide a stable investment environment for money launderers intent on layering and integrating criminal proceeds. In Germany, real growth and real interest rates over the last three years have averaged 2 percent. The Global Competitiveness Report ranks Germany highly for its macroeconomic environment. It is relatively easy to carry out economic activities in Germany: Germany scores 70.5 out of 100 on the Heritage Foundation’s Economic Freedom Index and is ranked 25th easiest country in the world to do business by the World Bank. Germany’s high income levels and large economy also provide plenty of opportunities for large scale ML activity to be carried out unobtrusively.

44. Frankfurt is a major financial center, seat of the European Central Bank (ECB), and a global aviation hub. Thirty-seven of the world’s 500 largest stock market listed companies measured by revenue are headquartered in Germany. The 10 biggest are Daimler, Volkswagen, Allianz, Siemens, Deutsche Bank, E.ON, Deutsche Post, Deutsche Telekom, Metro, and BASF.

45. Germany has a large, open, and sophisticated financial system. 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 in German financial institutions exceed €1.3 trillion ($1.8 trillion). Insurance and financial services provided to non-residents generated €13 billion ($18 billion) in export earnings in 2007. Germany is heavily banked—with approximately 50 bank branches and between 63 and 64 automated teller machines per 100,000 of population. German financial institutions send and receive the third largest volume of SWIFT messages in the world—approximately 616 million annually.

46. The Frankfurt stock exchange is the sixth largest in the world 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

47. German people have access to modern technology with high rates of mobile phone use (118 subscriptions per 100 people), personal computers (66 per 100 people), and internet use (72 users per 100 people).

48. Germany has an open economy and plays a significant role in international trade and investment. Germany scores 2.323 on the Chinn-Ito financial openness variable, which measures a country’s degree of capital account openness.11 The most open economy score is 2.6 and the least open score is -1.8. It is also ranked the 11th easiest country in the world for ease of trading across its borders. Its international trade equates to 86 percent of its GDP. Germany is the world’s top exporter. France, the Netherlands, Italy, the United States, and the United Kingdom are Germany’s major trading partners. Germany’s ports handle the equivalent of nearly 17 million twenty-foot containers annually. Germany is a large investor overseas with a stock of more than €2.4 trillion ($3.3 trillion) in portfolio and foreign direct investment. Foreigners have a stock of nearly €3 trillion ($4 trillion) invested in Germany, €657 billion ($915 billion) in FDI, and some €2.2 trillion ($3 trillion) in potentially more volatile portfolio investment.

49. Tourism, workers’ remittances, and language also contribute to Germany’s international connectedness. Germany was the seventh most popular tourist destination in the world in 2007, with approximately 24 million tourist arrivals. In the same period, more than 70 million tourists departed Germany, the second highest in the world. Outward worker’s remittances amount to nearly $14 billion annually and approximately $8.5 billion are received. The German language is used elsewhere in Europe, namely in Austria, Belgium, the Bolzano province of Italy, Liechtenstein, Luxembourg, and Switzerland, although German speakers are, in some, a small proportion of the population. German is also an official language in Namibia. These other countries have a combined population of 88 million and GDP of €2.7 trillion ($3.8 trillion).

50. The contribution of governance issues to ML and TF risks in Germany appears low. Germany is generally regarded as a jurisdiction with strong adherence to the rule of law. It scores well in corruption perceptions indices, despite the existence of some high-profile bribery and corruption cases (e.g., Siemens12 paying $1.3 billion in fines in December 2008 after being investigated for serious bribery). Germany scores favorably high scores across the indices in the World Bank World Wide Governance Indicators Country Snapshot:

Statistical Table 2.

Germany Governance Indicators

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51. The CC criminalizes various forms of corruption. Germany signed the United Nations Convention against Corruption (UNCAC) in 2003 and transposed the OECD “Convention on Combating Bribery of Foreign Public Officials in International Business Transactions” into German law in 1998.

52. In addition, the efforts of law enforcement are generally viewed favorably in Germany. Germany scores 6.5 out of 7 in the Global Competitiveness Report’s Reliability of Police Services Index, Germany is perceived as a low security risk by the travel advisory consultancy “ControlRisk.”13 Germany also has an above average conviction success rate (see Statistical Table 4), suggestive of good police investigative effort. German law enforcement does score middle range in a composite index on police performance based on crime victim surveys.14

1.2. General Situation of Money Laundering and Financing of Terrorism

53. The authorities provided the information in the following table that gives a selection of statistics concerning the AML/CFT regime that operates in Germany:

Statistical Table 3.

Selected Statistics on germany AM/CFT Regime

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54. Germany is a large internationally connected economy. Its criminal economy can be expected to have similar traits. Germany is classified as a major ML country by the U.S. Government.15

55. Statistics issued by the United Nations16 indicate that Germany records more crimes than the average of the other surveyed countries. They also indicate that Germany has relatively higher incidence of drug-related crimes, burglaries, embezzlements, and frauds. Crimes against the person are proportionally less prevalent. On average, Germany proportionally prosecutes more frequently than other surveyed countries and has less people in prisons.

56. Statistics supplied by the authorities support this analysis. Detailed national crime statistics are compiled by the police and published by the Federal Ministry of the Interior (BMI) annually. The latest available version indicates that 6,284,661 offenses were recorded in Germany in 2007 (77 per 1,000 population) and that the three highest reported crimes were related to: theft (2,561,691 or 31 per 1,000 population), fraud (912,899 or 11 per 1,000 population), and drugs (248,355 or 3 per 1,000 population). The total recorded crimes for 2006 was similar—6,304,223. The top three single discrete crimes with the highest recorded incidences were shoplifting (408,377), theft of bicycles (372,045), and theft from vehicles (350,034).

Statistical Table 4.

Selected Crime Statistics

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Source: United Nations and BKA

57. The following cities in Germany recorded more than 100,000 criminal offenses annually in 2007: Berlin (496,163); Hamburg (237,048), Cologne (146,142), Munich (110,677), and Frankfurt (107,078).

58. Germany is a consumer and transit country for narcotics, according to the United States Department of State 2009 International Narcotics Control Strategy Report (INCSR), which is the source for the rest of the information in this paragraph. Germany is not a significant drug cultivation or production country. However, Germany’s location at the center of Europe and its well-developed infrastructure make it a major transit hub. The German government actively combats drug-related crimes and focuses on prevention programs and assistance to drug addicts. Cannabis remains the most commonly consumed illicit drug in Germany. Seizures of amphetamines and methamphetamines increased substantially in 2007. Organized crime continues to be heavily engaged in narcotics trafficking. The Federal Criminal Police Office (Bundeskriminalamt, BKA) publishes an annual narcotics report on illicit drug-related crimes, including data on seizures, drug flows, and consumption. Ecstasy moves through Germany. Heroin is trafficked to Germany. Cocaine moves through Germany. Germany is a major manufacturer of pharmaceuticals, making it a potential source for precursor chemicals used in the production of illicit narcotics, although current precursor chemical control in Germany is excellent.

59. The authorities publish useful information about estimates of loss, damage, or estimated proceeds or profits from some crimes. The 2007 Situation Report on Economic Crime in the Federal Republic of Germany, published by the BKA, reported total loss or damage from economic crimes only at approximately €4.12 billion (2006: approximately €4.32 billion). The annual criminal statistics contain estimated losses for completed cases in relation to a range of offenses—including offenses that generate proceeds of crime. In addition, the authorities publish a regular report about organized crime. The latest version of that document estimates that the profits of organized crime in Germany amounted to €0.66 billion ($0.92 billion) in 2008. This figure seems relatively low compared to the overall proceeds of crime situation and the size of the retail drug market in Germany. The statistics do not address the amount of proceeds generated from evasion of taxes and excise duties. However, the German Finance Minister made a statement to the German parliament on May 7, 2009 to the effect that the government treasury loses about €100 billion ($133 billion) in annual revenues due to (legal) tax avoidance and illegal tax evasion (inclusive of tax fraud).

60. Statistical Table 5 shows the results of taking data from various BKA reports and combining them to make estimates of proceeds of crime.

Statistical Table 5.

Some estimates of potential proceeds of crime in germany(a)

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Notes:

Sources: National crime statistics 2007, Situation Report on Economic Crime in the Federal Republic of Germany, 2007. Narcotic Drugs Annual Report 2007. Organized Crime Situation Report 2008. All published by the BKA.

Takes estimate from BKA crime statistics and apportions it upwards for incomplete investigations.

Unless otherwise noted, these figures are calculated by apportioning estimated profits from organized crime to the crime categories that organized crime was identified as being involved in.

Assumes actual crime is at least 2–3 times reported crime. An analysis of Germany data contained in the UN’s 2004–2005 International Crime Victim’s Survey and the 2005 European Survey on Crime and Safety provides the following justification for this assumption. The number of victims of profit generating crimes with common titles in the Germany criminal statistics ranged from 2.6 times the recorded level of crime for theft of motor vehicles to 11 times the number of reported crimes for consumer fraud with an average of 7.7. While some of this discrepancy can be explained by some recorded crimes having multiple victims, it lends weight to scaling up the amount of recorded crime by a factor of 2 or 3 to obtain a more realistic picture of actual crime.

Industry estimate of insurance fraud only, conveyed to assessors during on-site mission.

Derived from United Nations Office on Drugs and Crime, 2005 World Drug Report, estimates of the value of retail drug markets.

Based on Finance Minister estimate Bach/Dwenger, “Unternehmensbesteuerung: Trotz hoher Steuersätze nur mäßiges Aufkommen”, DIW-Wochenbericht Nr. 5/2007, S. 63 ff.), that total tax avoidance and evasion amounts to € 100m per annum. Table assumes 25 percent is illegal tax and excise evasion.

61. The various sources provide a baseline estimate of around €43 billion ($60 billion) for proceeds of crime in Germany inclusive of tax evasion—equivalent to around 1.2 percent of GDP. Adjusting for unreported crimes results in an upper range of around €57 billion, 1.6 percent of GDP. The €43 to €57 billion (approximately $60–80 billion) would appear to be a reasonable bottom of the range estimate given that the shadow economy is estimated at more than €500 billion ($696 billion), and, more generally, given the amount of reported crime and the size of the German economy. This is a significant amount of proceeds of crime contributing to the world’s ML problem and which potentially need to be laundered—in either Germany or elsewhere. To put it in context, at the end of 2008, there were more than 110 countries each with total GDP that is less than $60 billion.

62. The authorities were not able to provide any estimates of the amount of funds being laundered in Germany. They indicated that reliable estimates of any sums and amounts from ML activities are not feasible in Germany and the BKA does not provide such estimates.

63. Germany acknowledges that organized crime operates at a serious level in Germany. Each year, the BKA publishes an Organized Crime Situation Report. The latest available report contains the following summary statistics:

Statistical Table 6.

Summary Statistics on Organized Crime in Germany

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64. The national crime statistics also identify the nationality of offenders. Non-German crime suspects in 2007 totaled 490,278 out of 2,294,883 total suspects (21.4 percent). The main nationalities were from: Turkey, Poland, Serbia and Montenegro, Italy, and Romania as illustrated in the table following:

Statistical Table 7.

Nationality of Suspects of Crimes, 2007

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65. The domestic distribution of crime suggests that more crime is committed in the north and east of Germany as illustrated in Figure 2:

Figure 2:
Figure 2:

Crime Rates in the “Länder” of Germany

Citation: IMF Staff Country Reports 2010, 078; 10.5089/9781451981810.002.A001

66. In 2007, 9,080 STRs under the Money Laundering Act were lodged in Germany (2006: 10,051). According to the 2007 Annual Report of the BKA’s Financial Intelligence Unit (FIU), fraud (including computer fraud and investment fraud) were the predicate offenses to ML most frequently recorded by the police (43 percent of all STRs). Other predicate offenses included, for example, offenses relating to the falsification of documents, tax offenses, breach of fiduciary duty, drug offenses, insolvency offenses, illegal employment, theft, and smuggling of illegal immigrants (in that order).

67. The following table shows the total number of prosecutions and convictions over the last four years based on the aforementioned predicate offenses, i.e., without any link being established to ML. It is worth noting that the total number of predicate offenses has shown an increasing trend over the four years, whereas the number of STRs received has declined (see also discussion below in relation to R.13).

Statistical Table 8.

Prosecutions and Convictions for main predicate crimes mentioned in STR reports*

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These data are for all prosecutions or convictions for predicate crimes irrespective of whether an STR is involved. The information for the years 2004 until 2006 represents the situation of the Federal Republic of Germany prior to re-unification, including greater Berlin. The number of convictions and prosecutions for the entire Federal Republic, including the Länder of Brandenburg, Mecklenburg-Western Pomerania, Saxony, Saxony-Anhalt and Thuringia, has been recorded only from 2007 onwards.

68. According to the authorities, there is a clear and consolidated culture in German society towards compliance with existing norms in terms of the prevention and repression of ML and TF. They state that ML has often been associated with drug trafficking and drug addiction and that, at present, ML is primarily associated with tax evasion. The authorities also stated that Germany is vulnerable to ML activity because private households prefer to make their payments in cash and the use of cash is high relative to the other countries. The assessors were also told repeatedly that it is common for people who provide services to households (e.g., plumbers) to conduct some of their business in cash outside of the formal economy. The authorities also indicated that they have taken recent steps to address this issue. The authorities also indicated that non-payment of taxes is considered “a sport” by many Germans, and that Germans have an aversion to paying tax on interest income.

69. Most indicators referenced above suggest that Germany may have a higher risk profile for large scale ML than many other countries. It is a large economy and financial center strategically located in the middle of Europe, with strong international linkages. It has a substantial proceeds of crime environment involving organized crime operating in most profit generating criminal spheres. Germany has a large population with a large immigrant component. Germany has open borders and is a significant destination and transit point for international travel. Germany has a large and sophisticated economy and financial sector, plays a large role in world trade, and is involved in large volumes of cross-border trade and financial flows. Germany also has a large informal sector; use of cash is reportedly high. Moreover, the currency of Germany is the Euro which is used widely across Europe, including by organized criminals and tax evaders. The main factors that may help reduce Germany’s risk profile for ML activity are its strong legal tradition, the rule of law, its political environment, Germany’s low levels of corruption, and the consistent approach to prudential regulation and supervision due to the existence of a single Federal level regulator in the financial sector.

Terrorism and Terrorist Financing

70. 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.

71. Terrorists have carried out terrorist acts on German soil and terrorists have based themselves in Germany prior to carrying out terrorist acts in other nations, including in relation to the September 11, 2001 attacks in the United States. The most recent examples of terrorism in Germany relate to:

  • a) An unsuccessful attempt to explode two suitcases filled with bombs on regional trains in Germany on July 31, 2006.

  • b) The 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.17

  • c) The arrest of three men on September 4, 2007 in the Oberschledorn district of Medebach, Germany who were allegedly attempting to build car bombs.

72. The National Consortium for the Study of Terrorism and Responses to Terror (START), based at the University of Maryland in the United States, Global Terrorism Database18 contains data about terrorist incidents in Germany since 1970 with the following profile:

Figure 3.
Figure 3.

Profile of Terrorist Incidents in Germany since 1970

Citation: IMF Staff Country Reports 2010, 078; 10.5089/9781451981810.002.A001

73. These data suggest that the authorities are experienced in dealing with terrorist related activity. The authorities indicate that a lot of the incidents recorded in this database for the 1990s relates to incidents carried out by groups that Germany does not recognize as terrorist groups. They instead describe these incidents, based on the BKA statistics, as xenophobic criminal offenses committed against asylum seekers and foreigners that may be politically motivated but not terrorist activities.

74. The authorities provided the following official German police statistics of investigations involving initial suspicion of the commission of a criminal offense related to cases of terrorism under Section 129a and 129b of the German CC:

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Source: BKA

75. START’s Terrorist Organization Profiles (TOPs) database lists 18 terrorist organizations as either operating or that have operated in Germany. The authorities point out that some of the organizations listed in this database are not considered terrorist organizations in Germany and that many others have broken up or their activities curtailed as a result of the German authorities’ law enforcement measures. The latter lends support to a view that Germany has a long tradition in dealing (effectively) with terrorist threats, especially home grown terrorism.

76. As of February 2009, the 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 and 146 under section 129b of the StGB. The other criminal investigations relate to criminal offenses such as homicide, ML, smuggling of illegal immigrants, violation of foreigners law.

77. The authorities acknowledge that the actual costs for planning and carrying out terrorist activities are quite low, relative to the loss or damage that terrorist attacks can cause, A terrorist group with ample financial resources will, however, be able to achieve its objectives more easily. Thus solvent terrorist groups are more likely to be able to develop the infrastructure (flats, vehicles, communication, forged documents, etc.) necessary to facilitate the commission of a terrorist attack. Findings in Germany show, however, that individual perpetrators or small groups (two to three perpetrators) more or less spontaneously decide without any major logistical effort to plan and carry out terrorist attacks, although in some cases they resort to existing terrorist structures and networks. According to the findings of the Federal and State Security Agencies, both legal and illegal sources and transfer methods are used to finance terrorism.

78. It is highly likely that Germany continues to be exposed to the potential of further terrorist activity and Germany could be expected to have a higher than average risk profile for TF activity.

1.3. Overview of the Financial Sector

79. The German financial sector is a motor of the German economy. The banking sector comprises a number of large, internationally active commercial banks as well as a high number of savings and cooperative banks. The insurance market is sizeable. Germany is furthermore home to the sixth largest stock exchange in the world, the Frankfurt Stock Exchange (Frankfurter Wertpapierbörse).

80. The German financial system comprises 3,400 institutions approximately. It is dominated by the banking sector. At the end of 2008, out of 2,048 German banking type financial institutions, 1,878 were commercial banks, savings banks, and cooperative banks (universal banks) and 170 other banks. The non-universal banks are specialized in such activities as mortgage banking and investment. In addition, as of September 2009, there were 1,344 financial services institutions (including money transmitter, currency exchange, credit-card, finance-leasing, and factoring businesses.

Banking

81. Two types of institutions operate in the German banking market: credit institutions, defined as companies involved in “banking business” and financial services institutions.19 All institutions operating in the German banking market are licensed and supervised by the Federal Financial Supervisory Authority (Bundesanstalt für Finanzdienstleistungsaufsicht, BaFin).

82. The banking sector itself has, in turn, traditionally been characterized as comprising three pillars: commercial banks; savings banks, and the cooperative banking network. The number of banks in each sector is set out in the following table:

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83. The commercial bank sub-sector, which holds less than 30 percent of system-wide assets, is relatively concentrated due to the size of the four largest, internationally active banks. This sub-sector also includes a number of subsidiaries of foreign banks.

84. The savings banks (Sparkassen) are retail banks that are normally market leaders in their respective localities. The majority of them are owned by administrative districts and municipalities. The State Banks (“Landesbanken”) are mainly owned by the States and the savings banks. The credit cooperatives (credit unions—“Volksbanken” and “Raiffeisenbanken”) are owned by their members. All types of bank groups are headed by apex or regional associations which provide marketing and common services support to all their member banks.

Insurance

85. With premium income in 2007 of €163 billion ($227 billion), Germany is the fifth largest insurance market in the world after the U.S., Japan, the United Kingdom, and France. With total assets under management of €1.3 trillion ($1.8 trillion), the German insurance industry fulfils its function as a financial intermediary for term coverage and provisions for retirement income and surviving dependents. With approximately €700 billion ($974 billion) on their balance sheets in total, the AML-relevant life insurance companies and accident insurance companies with premium redemption are a major factor in the German financial market.

86. Insurance companies in Germany are restricted in terms of the risks they can insure—a life insurance company cannot also sell health insurance, and vice versa. However, it is possible (and common) for parent companies to hold subsidiaries in each of the areas of insurance.

87. Federal insurance companies are licensed and supervised by the BaFin. Insurance companies operating only in a single Land are regulated by the respective Länder authority.

Securities Industry

88. The Frankfurt Stock Exchange is one of the world’s largest trading centers for securities. The most stock trading is conducted via the Frankfurt Stock Exchange and Xetra (as of March 2008, they accounted for 98 percent of trading in German shares and 84 percent in foreign shares). Deutsche Börse AG operates the Frankfurt Stock Exchange, an entity under public law. The Frankfurt Stock Exchange facilitates advanced electronic trading, settlement and information systems. Today, the Frankfurt Stock Exchange is an international trading centre. This is also reflected in the structure of its participants. Some 160 of around 330 market participants come from abroad.

89. There are six other regional stock exchanges based in: Stuttgart, Munich, Hamburg, Düsseldorf, Hannover, and Berlin. In addition, the derivatives exchange Eurex is based in Frankfurt, the European Energy Exchange in Leipzig, and the Risk Management Exchange in Hanover.

90. The proper conduct of exchange trading, as well as the correct pricing process, is monitored by the Trading Surveillance Office (Handelsüberwachungsstelle). The exchange supervisory authorities (Börsenaufsichtsbehörden) are responsible at the Länder level.

91. According to German law, all business related to securities trading is considered either banking business or financial services and as such are subject to a licensing requirement. This ensures that the entire securities sector is regulated and supervised. In the field of asset management, the BaFin regulates and supervises credit institutions and financial services institutions on the basis of the Banking Act and capital investment companies, custodian banks, investment funds, and investment stock corporations on the basis of the Investment Act (Investmentgesetz, InvG).

92. In the investment services sector, all financial intermediaries fall under German legislation. Natural persons, as well as enterprises providing investment services on a professional basis by mediating transactions relating to financial instruments between retail clients, other intermediaries or professional clients or execution venues such as regulated markets or other trading platforms, require authorization granted by the BaFin. However, there are some exemptions for persons providing certain investment services only as an ancillary service to another main business activity outside the capital markets.

93. The following statistical table sets out the types of financial institutions that can engage in the financial activities that are within the definition of “financial institutions” in the FATF 40+9 (data as of end of 2007:20)

Statistical Table 9.

Financial Activity by Type of Financial Institution

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Balance sheet sums do not include institutions exempted from supervision until 25 December 2008 according to Section 2 of the previous AML Act.

No statistical data, as these companies only came under supervision on 25 December 2008.

39 domestic branches registered. However, Deutsche Postbank AG, for example, serves as intermediary for Western Union.

No mandatory reporting.

Data exclude insurance intermediaries supervised by the Länder.

94. The authorities provided the following information about the international dimensions of the German financial system:

Statistical Table 10.

Foreign Financial Institutions, 2008

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1.4. Overview of the DNFBP Sector

95. The DNFBPs that are subject to AML/CFT obligations encompass a wide range of businesses and professions. In some cases, the scope of coverage in Germany is broader than that called for in the FATF recommendations. The scope includes businesses, liberal professions (self-employed professionals), and others.

96. The professions, which are all subject to specific legislation regulating their activities, include lawyers, who total approximately 150,000, regulated under 28 separate regional chambers of lawyers. Patent attorneys number approximately 2,800, organized under a single nationwide Chamber of Patent Attorneys. Notaries, who play a central function in verifying the legal provisions of real estate and corporate transfer contracts, number approximately 8,400 persons, organized into 21 regional Chambers of Notaries, each under the oversight of regional courts. An additional category of legal professionals, registered legal advisers, is provided for in the Legal Services Act in 2007. The professionals in this category (which was also provided for in the predecessor 1935 Legal Consultancy Act) provide specialized legal advice with respect to debt collection, pensions, and foreign law. Approximately 3,800 legal advisers are registered nationwide.

97. In the accounting professions, there are approximately 14,000 qualified auditors, organized under a single national Chamber of Auditors. A distinction is usually made between auditors and chartered accountants, with only auditors being qualified to certify the final annual accounts of listed companies and other public interest companies, as defined in Section 319 of the German Commercial Code. Chartered accountants are authorized to carry out and certify the statutory audits of final accounts of smaller and unlisted companies. Chartered accountants are now subsumed under the general auditor profession. The business of accounting firms typically consists of 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. These arise particularly in insolvency practices, but also as part of their consultancy services, auditors may manage and administer financial accounts for some clients, usually foundations or wealthy clients. This activity, however, is more typically handled by banks.

98. Tax advisors, who can compile end-of-year statements and prepare tax returns but may not carry out statutory audits, are recognized and regulated as a distinct part of the accounting profession under the Tax Consulting Act. Tax advisers are typically organized as 2–3 person offices or as large tax consulting firms. For the small firms, typical clients are small- and middle-sized firms. Tax advisers are subject to the same AML/CFT obligations as auditors. They number approximately 85,000 persons and are organized into 21 regional chambers.

99. In addition to these liberal professions, the DNFBP sector includes the unregulated real estate agents business, which numbers approximately 12,000. No national statistics were available for the scale and scope of business conducted by real estate agents. Under the AML Act, all persons who deal in goods are subject to AML/CFT obligations. This category includes the DNFBP sectors of dealers in precious metals and dealers in 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 is estimated at 6,140. Annual domestic turnover amounted to €807 million ($1,123 billion), with exports of €884 million ($1,230 billion) and 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.

100. Casinos are subject to AML/CFT obligations. There are approximately 80 casino locations in Germany, 49 of which offer table games and slot machines and another 31 which operate slot machines only. A total of 19 companies operate casinos under a mix of private and public ownership. Eleven purely private companies account for 40 percent of turnover and 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. Casino activity has been in decline in recent years, in part because of legislative initiatives to curb problems related to addictive gambling. No national statistics are available on casino activity.

101. Trust and Company Service Providers (TCSPs), to the extent they are not separately covered as lawyers, notaries, independent legal professionals, or accountants, are subject to the AML Act. The broad range of trust and company services identified in the Glossary to the Methodology is not typically organized as a separate line of business in Germany so the country does not have a well-developed, distinct TCSP sector. Rather, such services are primarily provided by lawyers, independent legal professionals, notaries, or accountants. However, there are independent German companies, not run by a covered profession, that do provide office services such as accommodation mailing addresses, mail handling, and telephone answering services. While these office services companies are subject to AML/CFT obligations, no regulatory arrangements have been developed to ensure compliance and no statistics were available on the scale and scope of business handled by independent office service companies.

Statistical Table 11.

Structure of DNFBP Sector, 2008

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1.5. Overview of commercial laws and mechanisms governing legal persons and arrangements

102. Several types of legal entities may be established under German law, mainly under its company law which differentiates between corporations (Körperschaften) and partnerships (Personengesellschaften):

103. Corporations are legal entities separate and distinct from their associates or shareholders. There are 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), and

  • the Foundation (Stiftung), in some instances.

104. All have legal capacity. They can therefore own assets, are subject to rights and obligations and are capable of being a party to legal proceedings. The most frequently used corporations in Germany are the Limited Liability Companies (of which there are about 980,000) and the Stock Corporations (of which there are approximately 17,000).

105. Partnerships take the form of the association (Verein). They may be defined as a group of persons who contractually agree to promote a shared objective. Unlike corporations, not all partnerships have legal capacity. According to prevailing opinion in legal literature, even partnerships that have legal capacity are not legal persons per se. An association that has no legal capacity is not a partnership either. It is true that in providing for associations without legal capacity, Section 54 of the Civil Code (Bürgerliches Gesetzbuch) makes a reference to the stipulations governing corporations; however, this reference is outdated and the adjudication handed down by the courts as well as the legal scientific literature generally acknowledge that sections 21 et seq. of the Civil Code, regarding the registered association, are to be applied to associations not having legal capacity as well.

106. Legal arrangements may also be concluded in the form of the Treuhand. Not every German Treuhand is regulated by law; it is mainly the result of case law and doctrine. It is a very flexible arrangement by which the Treugeber places assets under the control of the Treuhänder for a specific purpose. In some instances, it is very similar to the Anglo-Saxon trust. While some forms of Treuhands must be disclosed to be effective towards third parties, others remain private.

107. The typical Anglo-Saxon trust may not be established under German law. The authorities were not aware of foreign trusts being administered from Germany and the German government did not ratify The Hague Convention on the recognition of foreign trusts.

1.6. Overview of strategy to prevent money laundering and terrorist financing

AML/CFT Strategies and Priorities

108. The main policies and objectives of the German government for combating ML or TF relate to coming into compliance with international obligations to implement an effective AML/CFT regime. Hence, the current focus lies in monitoring the proper implementation of the Third EU Money Laundering Directive (Directive 2005/60/EC of October 26, 2005), and, through that implementation, improving Germany’s compliance with the FATF 40+9 Recommendations. The practical current focus of this objective relates to implementing the Act Supplementing the Act to Fight Money Laundering and Terrorist Financing (Geldwäschebekämpfungsergänzungsgesetz, GwBekErG), which came into force on August 21, 2008, by educating affected parties about its contents, answering questions, and solving implementation problems that arise.

109. Specifically, in relation to combating TF, Germany’s strategy is anchored in a comprehensive counter-terrorism strategy comprising four dimensions, of which the following two are especially significant for fighting TF:

a. Operational approach (threat prevention and prosecution): This approach includes structural investigation to establish and substantiate suspicion, in which financial investigations represent an important element for establishing structural connections, both in order to identify perpetrators and prevent planned activity, and to stop the flow of funding and freeze or seize financial assets. Key factors for success include:

  1. 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);

  2. close information-sharing networks (in particular through the Joint Counter-Terrorism Centre (GTAZ), in which all competent security authorities cooperate, and the counter-terrorism database, which contains all the counter-terrorism information gathered in Germany);

  3. pooling of resources or the efficient division of labor (for example in the Joint Internet Surveillance Centre, where the federal security authorities share the task of monitoring the Internet); and

  4. a comprehensive response, for example, including association bans and seizing assets of organizations. Further, the EU regulations on combating the financing of Al Qaeda and the Taliban (implementation of the UN lists under Community law) also apply in Germany.

110. The authorities state that this operational approach has proved very successful, resulting in a number of convictions on charges of TF and in association bans: Al-Aqsa e.V., which collected donations for Hamas, was banned and its assets confiscated in 2002 on the basis of intelligence service investigations using bank information, and Yatim-Kinderhilfe e.V., which intended to continue the work of collecting funds for Hamas, was banned and its assets confiscated in 2005.

a. Protection: This mainly entails preventing opportunities for crime to take place, including steps taken by the financial sector to prevent TF, such as:

  1. providing for possible future investigations (in particular, by means of identification, documentation and retention requirements);

  2. establishing and reporting suspicious activity, also via the internal organization of the financial sector and its reinforcement with government support (e.g., typologies).

111. Such action is largely based on the relevant FATF standards, including best-practice recommendations. The authorities state that, given the complexity of TF, this approach has not been as effective, especially with regard to the financial sector itself generating useful reports of suspicious activity, as the operational approach described above, which is one priority of the strategy for combating TF. Further, Germany believes that most sources of funding for Islamist terrorism lie outside Germany’s area of sovereignty.

112. A key part of the overall strategy involves analyzing the implications of FIU identified ML and TF typologies and FATF typologies or other findings for Germany and to modify or adopt adequate measures.

113. The authorities also indicate that the fight against ML in Germany is based largely on preventing anonymous money flows and opaque conveyance of title under property law. By largely preventing the undetected introduction of incriminated funds into legal circulation, offenders are denied the ability to secure their proceeds of crime. The authorities contend that this not only serves to combat ML, but also generally reduces the incentive to commit offenses.

114. The authorities also state that a current priority is to use the AML/CFT regime to fight against tax evasion, as the authorities have identified that, at present, ML is significantly associated with tax evasion

115. The Money Laundering Contact Group23 is also focusing on developing adequate countermeasures in relation to the following three groups that it has identified as being of particular interest:

  1. Professional fields and areas of business in the German economy,

  2. Products, and

  3. Societal actors and professions.

The Institutional Framework for Combating Money Laundering and Terrorist Financing

116. The key government and nongovernment Ministries, regulatory and other authorities, and other bodies involved in combating ML or TF are set out below.

117. Policy Ministries:

  1. a. The Money Laundering Contact Group (MLCG) is an informal coordinating body on AML/CFT matters comprising representatives of the Federal Ministry of the Interior (Bundesministerium des Innern, BMI), the Federal Ministry of Finance (Bundesministerium der Finanzen, BMF), the Federal Ministry of Justice (Bundesministerium der Justiz, BMJ) and the Federal Ministry of Economics (Bundesministerium für Wirtschaft, BMWi). The latter, while a member, is not an active participant. The group was established in 1993. On a regular basis, also delegates from the BaFin, from the Bundesbank, and from the FIU (and if required also from other concerned authorities or from the private sector) participate in the meetings of the MLCG.

  2. b. The Federal Ministry of Finance (BMF): is responsible for the legislation in the field of banking, insurance, brokering, and securities business as well as for customs and fiscal matters. This responsibility includes the legislation on preventive measures against ML and TF in the financial sector. The BMF has the leading role for legislative procedures concerning directives and regulations of the European Community dealing with financial issues as well as with AML/CFT. The BMF exercises legal and supervisory control over The BaFin, the Customs Criminological Office, and the customs offices in the field of countering ML and TF among others.

  3. c. The Federal Ministry of Justice (BMJ): Responsible for legislation pertaining to substantive criminal law and the law on criminal procedure. The BMJ, in conjunction with the Federal Foreign Office and other affected ministries handles and makes mutual legal assistance (MLA) requests, unless responsibility for the provision of legal assistance rests with an authority belonging to the portfolio of a different federal ministry, in which case the decision would then rest with such ministry. The power concerning requests to and from specific countries and relating to specific forms of MLA has been delegated to the Länder governments—and the enforcement authority for legal assistance requests is always the locally responsible public prosecutor with the Regional Court. The Federal Attorney General (Generalbundesanwalt), who is under the purview of the BMJ, takes action in cases of criminal offenses with a terrorist background (sections 129a and 129b of the CC). The BMJ is also responsible for the law relating to legal persons and arrangements.

  4. d. The Federal Ministry of the Interior (BMI) has a wide spectrum of tasks ranging from internal security, policy in the field of asylum and foreigners, the public service, modernization of the administration and constitutional law to sport. Focal tasks of the BMI in the field of internal security include combating ML and TF, in particular:

    1. i. Development and adoption of measures, including legislative measures, to deter ML and TF. Therefore, it has the main task to review the effectiveness of the system to combat ML and TF schemes by maintaining comprehensive statistics on matters relevant to the effectiveness and efficiency.

    2. ii. Implementation of the provisions issued by the EU.

    3. iii. Implementation of the FATF Recommendations.

    4. iv. Expert supervision of the BKA sections responsible for combating ML and TF, which includes Germany’s Financial Intelligence Unit (FIU).

  5. e. The Federal Ministry of Foreign Affairs (AA) through the Federal Foreign Office is responsible for international cooperation in the fight against terrorism and organized crime, including international cooperation against ML.

  6. f. The Federal Ministry of Economics and Technology (BMWi) is responsible for the Foreign Trade and Payments Act (Auβ;enwirtschaftsgesetz - FTPA) and, in conjunction with Deutsche Bundesbank and the Federal Office of Economics and Export Control (BAFA), for the implementation of financial sanctions regarding the fight against the financing of terrorism. Deutsche Bundesbank is in charge of the administrative implementation of the freezing of funds. The Federal Office of Economics and Export Control (BAFA) is responsible for the administrative implementation of freezing orders on economic resources and other assets.

118. Criminal justice and operational agencies:

  1. The Federal Criminal Police Office (BKA) is Germany’s central police agency. It is an essential cornerstone in a comprehensive system of crime control and works as a partner with the police forces of the Federation and of the individual German states. According to the German Constitution, for the most part police jurisdiction in Germany lies with the 16 German states. To co-ordinate crime suppression at national and international level, the BKA was established as the central office for police information and communications as well as for the German CID. By acting as information and communications centre of the German police, the BKA provides support to the police forces of the federation and of the states in connection with the prevention and prosecution of crimes that involve more than one German state and that are of international significance or otherwise of considerable significance. A number of centralized systems and facilities for the German police are maintained at the BKA. This is where the most important police messages come together, and this is also where information about criminal offenses and criminals is stored in a central location. New crime suppression methods are investigated and developed here to ensure that the police are always state-of-the-art in terms of science and technology. The BKA has also been assigned the task of promoting police co-operation in Europe and throughout the world as a legal mandate. All official communications between the German police and other countries are routed through the BKA. The BKA acts as the national central office for Interpol, Europol and the Schengen Information System.

  2. Financial Intelligence Unit (FIU) is a special subsection within the BKA. The FIU is also responsible for international information-sharing with other FIUs.

  3. Public prosecutor’s offices within each Länder pursue cases for ML offenses that occur within that Länder’s jurisdiction. They also generally have special departments, which deal with the implementation of measures to recover or confiscate assets.

  4. State Bureaus of Criminal Investigation (LKA) within each Land are 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.

  5. Asset Recovery Offices (AROs): On the basis of EU Council Decision 2007/845/JHA Germany appointed two authorities as AROs to support the cross-border exchange of information for detecting and identifying assets. The tasks of the German AROs are performed by the Federal Office of Justice (Bundesamt für Justiz) from the judicial side and by the BKA from the police side.

  6. The Federal Customs Administration is the national border control agency and it has the task of monitoring cross-border cash movements.

  7. The Customs Investigation Service (ZFD) is the investigation service of the federal customs administration. It is organized nationally and does not fall under the jurisdiction of the individual Länder. Customs investigation officers are investigating officers of the public prosecutor’s office and have the same rights and duties as police officers. The customs investigation offices (Zollfahndungsämter) and the Customs Criminal Office (Zollkriminalamt [ZKA]) are generally the competent criminal prosecution offices within the meaning of Section 11 (1) of the Money Laundering Act. This implies that they may also receive reports of suspected cases from those institutions obliged to submit such reports under the Money Laundering Act. Pursuant to Section 1 (3c) of the Customs Administration Act (CAA), the customs investigation offices have the task of investigating and prosecuting internationally-organized ML and related criminal offenses to the extent that these are connected to the movement of goods from and to external territories. Investigations conducted by the Customs Investigation Service into ML activities are carried out by order of the respective competent state prosecutors (who, under the Courts Constitution Act, have the authority to instruct all investigators), who are duly notified of the investigation results and then decide how to proceed (for example, whether to discontinue investigations or bring a charge).

119. Financial sector bodies

  1. The Federal Financial Supervisory Authority (BaFin) is Germany’s integrated financial supervisory authority responsible for regulation and supervision of the entire financial system. Its tasks include preventing any abuse of the financial system for the purposes of ML and TF. These responsibilities are carried out in the Money Laundering Prevention Group (MLPG).

  2. The Central Bank (Deutsche Bundesbank) plays a major role in banking supervision in cooperation with The BaFin. The Bundesbank does not possess any sovereign powers in combating ML, but it is involved in coordination efforts to combat ML both nationally and internationally. At the national level, the Bundesbank participates in all legislative measures in an advisory capacity. It is represented in the Money Laundering Contact Group by the Federal Ministry of Finance. At the international level, a representative of the Bundesbank is a member of the German delegation at the meetings of the FATF. The Bundesbank administers the restrictive measures imposed through financial sanctions and is the competent authority regarding funds. It collects information and may issue authorizations for exemptions.

120. DNFBP and other matters

  1. Casino supervision body. There is no national casino regulator. Instead, casinos are regulated at the Länder level usually by the interior ministry.

  2. Professions: AML/CFT oversight of the regulated professions is conducted by the authorities and institutions of each Länder or by SROs. The SROs are professional bodies, organized under public and, in this context, mostly national law, and are responsible for self-regulation of the profession within their jurisdiction. Examples of SRO include the following:

  3. The chambers of notaries are professional associations but, since notaries are holders of public office, the chambers do not have SRO functions. Rather, notaries are supervised by presidents of regional courts.

  4. Other DNFBPs: The real estate agents, dealers in precious metals and dealers in precious stones come under trade law. Because of the way competencies are divided in the Basic Law, this means that the Länder are responsible for these groups. The 16 Länder have introduced various different arrangements for the supervision of these two professional groups. In some Länder, the interior ministry is responsible.

121. Registry for companies and other legal persons, and for legal arrangements:

  1. The commercial register (Handelsregister) in Germany is a public register holding entries about the registered merchants (Kaufleute) including information (such as on the founders, boards) of all commercial companies, and is held by the district of the competent register court (Registergericht). The commercial register is maintained by the local courts as the register courts. In most cases, the local jurisdiction falls to the local court in whose district the relevant regional court is located. A judge or registrar is responsible for making entries in the register. An electronic form of the commercial register has been in place in Germany since 2007. The commercial register is for publicizing information, providing evidence and acting as a control mechanism and protective measure. Anyone may request a print-out or can inspect the corresponding files without having to substantiate the request.

  2. The register of cooperatives (Genossenschaftsregister) in Germany is a public register providing information about the legal status of a registered cooperative (eingetragene Genossenschaft, eG). Anyone may request a print-out or can inspect the corresponding files without having to substantiate the request.

  3. The register of associations (Vereinsregister) is a public register holding entries about registered associations. Associations are established pursuant to the provisions of the Civil Code (which is where the law on associations is set out). The register is maintained at the local courts (with subject-matter jurisdiction). Entry into the register of associations is possible upon application. Through entry in the register, the association becomes a registered association (eingetragener Verein) and its name carries the corresponding abbreviation “e. V.”

122. Non-profit organizations

  1. All non-profit associations established pursuant to the provisions of the Civil Code are registered in the register of associations if they apply for this to be done. There is no specific mechanism in Germany for the supervision of NPOs.

Approach Concerning Risk

123. The authorities informed the assessors that there has been no national assessment undertaken of the ML risks in Germany. They advised that the 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. The assessors were not provided with a copy of that assessment due to its sensitive nature.

124. While there may not have been a formal national ML risk assessment undertaken, the authorities claim, that they regularly assess the existing system relating to the prevention of ML and TF in Germany through the following mechanisms:

  1. The FIU publishes an annual report providing an overview of the suspicious operations notified as well as an indication of the financial entities, non-financial businesses and professions that are most active on this issue.

  2. The BaFin publishes an annual report which gives an overview of its activities and important events and developments during the reporting period. This also includes a chapter on the activities of the BaFin’s MLPG and the essential findings resulting from its AML-supervisory tasks with regard to banks, insurance undertakings, financial services institutions, investment stock corporations and capital investment companies.

  3. The BaFin holds meetings regularly with the industry associations in which practical issues in implementing and interpretation of the legal AML/CFT-requirements as well as the effectiveness of practical procedures and supervisory requirements are subject to discussions.

  4. There are periodical meetings between the authorities (in particular the FIU) and financial and non-financial bodies (Verbände und Kammervertretungen) to discuss the potential difficulties in applying existing legal provisions. These meetings have led to improvements in procedures, such as the feedback for entities which notify the authorities of suspicious or unusual operations. Furthermore, representatives of the BaFin do regularly take part in seminars of the financial services industry on AML/CFT issues and illustrate the administrative practice of the BaFin on the implementation of the AML/CFT framework.

  5. There are regular meetings of all Ministries and authorities involved in the German FATF delegation. These Ministries and authorities are also part of the so-called AML/CFT-Contact Group, which holds its meeting regularly in order to discuss apart from question relating to the implementation of international standards.

  6. Once a year, the German Government surveys the federal authorities about the implementation of Government measures relevant to combating terrorism (including measures and projects to combat TF).

125. Germany has adopted a risk-based approach (RBA) in the AML Act, Banking Act and Insurance Supervisory Act. The RBA replaced the previous “rule-based approach.” The RBA applies to the obligations of institutions, particularly due diligence obligations, and also governs the BaFin’s approach to supervision. The RBA is aimed at enabling measures to combat ML and TF to be structured in a more targeted and more efficient manner and, by isolating risk situations, also aimed at reducing the burden for institutions.

126. The institutions and persons subject to the AML Act are permitted to determine the extent of CDD measures on a risk based approach and take adequate internal measures against ML and TF. In order to be able to make such determinations and define what adequate internal measures should be, the BaFin requires, in circular 8/2005, financial institutions to develop and update institute-specific threat analysis of potential threats with regard to ML/TF (and for credit and financial services institutions also with regard to fraudulent activities). The BaFin requires that the systems of safeguards must be aligned with the size, organization and threat situation of the individual financial institution, as well as its business structure and its customer structure in particular. In consultation with the Central Association of the German Banking Industry (Zentraler Kreditausschuss; ZKA) and the German Insurance Association (Gesamtverband der Versicherungswirtschaft; GDV), the BaFin and banking industry bodies, the BKA has drawn up an outline paper on TF (catalogue of indicators) that is constantly updated on the basis of intelligence concerning this phenomenon, in particular the latest modus operandi, centrally gathered and analyzed by the BKA.

127. In addition, several private sector banking associations (e.g., the Association of Public Banks (Verband öffentlicher Banken–VÖB), the Federal Association of Credit Unions and Credit Cooperative Banks (Bundesverband der Volksbanken und Raiffeisenbanken–BVR), and the Federal Association of German Banks (Bundesverband deutscher Banken–BdB) which are all members of the ZKA have issued their own guidance papers on internal risk analysis, the latest being the guidance paper of the Federal Association of German Banks (BdB) issued in December 2008. Other Associations (e.g., the German Insurance Association–GDV) intend to provide similar guidance for their members.

128. The BaFin focuses most of its supervisory resources on the financial institutions it believes display the highest levels of net risk. Since 2007, the BaFin has operated a system of risk classification for AML/CFT supervision according to which each supervised entity is assigned to one of three risk classes: simplified basic supervision; basic supervision; and enhanced supervision. Each institution is first rated by the BaFin against five key inherent risk criteria. Then, the assessment of the quality of an institution’s AML/CFT measures and safeguards is assessed based largely on the contents of audit reports.

129. The combined result of the threat and the quality of prevention ratings are combined on the following 12-cell risk classification matrix:

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130. Each supervised entity is allocated a score on this matrix, ranging from a rating of 1A (low risk–high quality) to a rating of 3D (high risk–low quality). This matrix is then used to determine the extent of supervisory effort.

131. Section 3 of this 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

132. Germany’s AML/CFT regime was last assessed in 2004, using the previous assessment methodology. According to the authorities, the following progress has been made to deal with the recommendations contained in that assessment:

  1. Complete ratification and implementation of international Conventions. Extend current TF provisions to terrorists (as opposed to terrorist organizations): The UN International Convention for the Suppression of Financing of Terrorism (1999) was ratified in 2004. The Palermo Convention against Transnational Organized Crime was ratified in 2006. Germany claims that its TF provisions do apply to individual terrorists so no further action was required.

  2. Adopt a new provision in relation to domestic terrorism. Develop comprehensive statistics: Section 6a of the Banking Act enables the BaFin to stop dispositions with regard to an account of an EU-based person in cases where there is a suspicion that the account relationship is used for terrorist purposes. This Section also allows the BaFin to freeze the assets of such accounts.

  3. Implement the planned new reporting form is planned. Adopt sanction for failure to report suspicious transactions. More comprehensive statistics: The detailed technical concept for using electronic transmission reports is in development. The aim is to launch trial operation before the end of 2009. Breaches of the obligation to report are punishable with an administrative fine of up to €100,000 ($139,170). Sanctions are also available under supervisory and administrative law in case of culpable noncompliance with the obligation to report suspicious transactions.

  4. Improve feedback provisions between the Land prosecutor’s office and the FIU: The requirements for the public prosecutors to notify the FIU at the BKA were significantly expanded through the redrafting of the Money Laundering Act in 2008. The reporting requirement was 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.

  5. Render legal mutual assistance notwithstanding the absence of dual criminality. More comprehensive statistics: Mutual legal assistance is already rendered in spite of the 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.

  6. Extend the 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 the meaning of Section 1(1a) of the Banking Act. All leasing and factoring companies are now also subject to limited supervision by the BaFin. Financial enterprises within the meaning of Section 1(3) of the Banking Act are fully subject to the Money Laundering Act.

  7. 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 Section 1 (6) of the Money Laundering Act (in force since August 21, 2008) for the definition of “beneficial owner.”

  8. Regarding 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.

  9. Investment firms should identify the real customer when performing business relationships with foreign counterparts acting on behalf of clients: According to German law, all business related to securities trading is considered either banking business or financial services, and as such 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, too. This ensures that the entire securities sector is regulated and supervised. 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.

  10. FIU to establish guidelines with regard to reporting obligations to assist the institutions which must report suspicious activity: The FIU developed a standardized STR in 2005. However, the use of this standardized STR is not compulsory. The FIU plans to introduce electronic reporting of STRs in the future. The FIU publishes relevant cases that are examples for typologies and methods of ML and TF in annual reports and newsletters, as well as through its public relations work.

  11. On-site inspections should cover those medium sized or small credit institutions where the STRs are lower than average. More on-site inspections to increase the understanding of the degree of implementation of AML/CFT measures: In 2007, the BaFin conducted 21 special audits and in 2008 18 special audits. In 2009, 18 on-site inspections are scheduled. In 2007, the BaFin began to accompany external certified accountants in the context of their follow-up work on the annual audit reports of credit institutions. In 2007, the BaFin conducted 17 audit-accompaniments and in 2008 14. For the year 2009, 11 audit-accompaniments were planned. However, in Germany, unlike many other countries, the main source of supervisory information is the detailed annual AML/CFT audit reports of all financial institutions supervised by the BaFin. In addition, money remittance services providers and providers of currency business have to forward monthly reports to the BaFin.

  12. Incorporate specific sanctions regime for non-compliance with the identification requirements in case of suspicious transactions to make enforcement mechanisms more operational in practice: Breaches of the main provisions relating to identification constitute administrative offenses under either Section 17 (1) or Section 17 (2) of the Money Laundering Act, and are punishable by an administrative fine of up to €100,000 or €50,000 respectively ($139,170 or $69,585).

2. LEGAL SYSTEM AND RELATED INSTITUTIONAL MEASURES

Laws and Regulations

2.1. Criminalization of Money Laundering (R.1 & 2)

2.1.1. Description and Analysis

Legal Framework:

133. Germany has 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, hence, Section 261 entered into force on September 22, 1992. One of the main aims of this legislation was to improve the legal means for depriving criminals from the proceeds of criminal offenses.

134. Since then, Section 261 of the CC has been subject to a number of amendments, most of which were primarily aimed at extending the list of predicate offenses for ML, particularly to cover criminal offenses related to organized crime. The last amendment took place in August 2009 through the Act on the Prosecution of the Preparation of Serious Violent Acts Endangering the State (Gesetz zur Verfolgung der Vorbereitung von schweren staatsgefährdenden Gewalttaten, GVVG), for purposes of establishing TF offenses as predicate offenses for ML. This amendment was passed after the assessors’ on-site visit and entered into force on August 5, 2009 (i.e. within the two months timeframe set out by the FATF). The previous amendment took place in 2008 through the “Act Supplementing the Act to Fight Money Laundering and Terrorist Financing” (GwBekErgG -Geldwäschebekämpfungsergänzungsgesetz) which had the purpose of implementing the Directive 2005/60/EC of the European Parliament and of the Council of October 26, 2005 on the prevention of the use of the financial system for the purpose of money laundering and terrorist financing (Third EC Money Laundering Directive). This amendment entered into force on August 21, 2008.

Criminalization of Money Laundering (c. 1.1—Physical and Material Elements of the offense):

135. Section 261 of the CC provides that “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 of Section 261 defines predicate offenses for ML to include any serious criminal offense (Verbrechen) and a listed number of less serious criminal offenses (Vergehen).24

136. The second part of Section 261 provides that 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. The offense covers the material elements of the ML offenses as defined in the Vienna and Palermo Conventions. The “concealment or disguise of the source and location” as well as the “acquisition, possession or use” of property derived from a predicate offense are covered explicitly. While the text of Section 261 of the CC appears narrow with regards to the conduct of concealing, making reference only to the conduct of “concealing the origin” of property, the authorities have demonstrated through well-established doctrine that the text should be interpreted broadly as comprising all forms of concealment required by the Vienna and Palermo conventions.25

In addition, while Section 261 does not criminalize explicitly the “conversion or transfer” of property derived from a predicate offense, the authorities have stated that the missing conducts would typically be covered by one or more of the conducts that have been criminalized explicitly, and have provided cases as examples that demonstrate convictions for “conversion or transfer.”26

The Laundered Property (c. 1.2):

138. The offense of ML under Section 261 of the CC does not refer to the term “property.” Instead, it refers to the term “object” (Gegenstand) which is not defined under German law. The authorities stated that the term was especially chosen by the legal drafter precisely because it was not legally defined and because it was meant to cover a broad range of “things involving some kind of economic value.” Therefore, the authorities argue that the term covers “any type of property, regardless of a specific value, including for instance movable and immovable property, money, securities and accounts receivables.” The authorities also confirmed that use of the expression “derived from an unlawful act” can be interpreted broadly to cover any object that directly or indirectly represents the proceeds of crime and provided doctrine to support these arguments.

Proving Property is the Proceeds of Crime (c. 1.2.1):

139. Section 261 of the CC does not specify explicitly whether it is necessary that a person be convicted of a predicate offense to prove the illicit origin of proceeds. While the terms of Section 261 do not appear to suggest that a prior conviction for the predicate crime is necessary when proving that property is the proceeds of crime, assessors received conflicting views regarding this issue. The authorities first made reference to cases where convictions for stand-alone ML were obtained. Some prosecutors explained that, in practice, while it may not be a statutory requirement, it is easier to prosecute and convict a person for ML under section 261 of the CC when there is a prior conviction for the predicate offense, as prosecutors always need to establish a “link” or “connection” between the ML conduct and the predicate offense involved (i.e., the court must be convinced of the existence of the predicate offense). This means that the prosecutor will have to prove the specifics of the predicate offense, e.g., that the conduct amounted to a designated offense, the perpetrator, and the types of assets that originated from the predicate offense, which is a rather high standard of proof. Most prosecutors and judges met by the assessors indicated that the standard of proof required to link ML to the predicate offense constitutes one of the most difficult obstacles to obtaining a conviction for ML in Germany. In light of the above, assessors conclude that it is not a requirement to have a prior conviction for the predicate offense but that there is some practical advantage if one has been obtained. In addition, the high burden of proof to show that property is the proceeds of crime may hinder, in a practical sense, the pursuit of the ML offense.

The Scope of the Predicate Offenses (c. 1.3):

140. The predicate offenses to ML in Germany cover all serious offenses as well as a number of specifically listed less serious offenses under German law. All but two of the FATF-designated categories of predicate offenses are covered under German law. First, while “insider trading and market manipulation” have been criminalized, there are no offenses under this category that constitute predicate offenses for ML (although the authorities indicated that to pursue the charge of ML, they would attempt to charge the perpetrator with fraud, provided that a fraudulent element was present). In addition, “the counterfeiting and piracy of products” is not fully covered, as only the “falsification of documents” is cited as a predicate offense under this category (e.g., would apply to false passport, or presenting a document indicating that the seller of a product had a valid patent).

141. In addition, some of the less serious criminal offenses constitute predicate offenses only if certain requirements (aggravating circumstances) are met, namely, that they have been committed with the intention to make a profit, or by a member of a gang founded for the recurrent commission of such an offense. The assessors consider this to be a minor deficiency because it only creates minor practical issues of implementation (e.g., may preclude being able to charge perpetrators for one-off minor frauds).

142. Pursuant to Section 261 (1) second sentence of the CC, tax evasion under Section 370 of the Fiscal Code (Abgabenordnung, AO) constitutes a predicate offense for ML under German law if it was committed with the intention to make a profit or by a member of a gang founded for the recurrent commission of such an offense.27

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Threshold Approach for Predicate offenses (c. 1.4):

143. Germany has taken a combined approach in defining the predicate offenses for ML and this approach meets the requirements of criterion 1.4: Section 261 of the CC defines “unlawful act” as covering any serious offense (Verbrechen) as well as certain enumerated less serious offenses (Vergehen). Section 12 of the CC provides that “serious offenses” are unlawful acts sanctioned with a minimum of imprisonment of one year or more and “less serious offenses” with a fine or a minimum of imprisonment of less than one year, whereby the minimum sanction is the determining factor for the differentiation. Section 12 further provides that aggravation or mitigation, which is provided under the provisions of the General Part or for especially serious or less serious cases, shall be irrelevant to this classification.

Extraterritorially Committed Predicate offenses (c. 1.5):

144. Paragraph 8 of Section 261 of the CC provides that objects which have been obtained through the commission of a predicate offense abroad are equal to those obtained through the commission of a predicate offense in Germany if the act constitutes a criminal offense in the country where it occurred. Therefore, all predicate offenses for ML under German law extend to conducts that occurred abroad, provided that dual criminality is met. It should be noted that the additional requirements (aggravating circumstances) that need to be met for some of the “less serious offenses” to constitute predicate offenses in Germany, as described under 1.3 above, may also create problems of effectiveness when applying Paragraph 8 of Section 261 of the CC. However, the authorities confirmed that to date, no such problems have arisen.

Laundering One’s Own Illicit Funds (c. 1.6):

145. Section 261 of the CC does not distinguish between self laundering and third party laundering. Therefore, the ML provision could in theory be applied to persons who commit the predicate offense. However, paragraph 9 of that same section also provides that a person who has been punished for the commission of the predicate offense may not be punished for ML as well. Accordingly, a person cannot be punished for both the predicate and the ML offenses at the same time. This was confirmed by the authorities, who stated that there can be no conviction for ML if the alleged offender is criminally convicted as a perpetrator of, or aider to, the predicate offense.

146. The authorities indicated that the impossibility of convicting a person for the predicate offense and for ML at the same time derives from fundamental principles of German domestic law, such as the general principle of express immunity from criminal proceedings for instances in which perpetrators assist themselves after the fact (Selbstbegünstigungsprinzip), which is granted by section 257 and 258 of the CC. According to this principle, an offender (i.e., the one having committed the predicate offense) cannot be additionally and separately punished for a “post-offense behavior” that relates to the proceeds of his or her own crime. This implies that one punishable act (the predicate offense) includes another concurring act (the concealing or disguising of property items that derive from the predicate offense’s perpetrator) and that the penalty set forth for the punishable act is deemed to cover the entire unlawfulness of the offenders’ act.

147. Basing its considerations specifically on section 261 (9) of the CC, the Federal Court of Justice (BGH) has ruled28 that the ML offense was not intended to punish perpetrators twice, once for the predicate offense and once for the act of ML. It also stated that the provision of section 261 (9), second sentence, of the CC, which has been worded as personal grounds for exemption from punishment for an unlawful act, is in fact a concurrent provision of the law excluding criminal liability for ML in all cases in which the perpetrator is already punishable by law due to being involved in the predicate offense.

148. However, these rulings do not indicate explicitly that self-laundering is contrary to a fundamental principle of German law and some practitioners met by the assessors did not have a uniform view as to whether there is a fundamental principle on the subject.

149. The above explanations raise serious doubts regarding the autonomy of the ML offense under German law and contribute to explain some of the difficulties in applying the ML offense in Germany. ML does not always involve instances where perpetrators assist themselves after a fact. In particular, when the laundering activity does not simply amount to the mere possession or use, but also involves the transfer or the concealment and disguise through the financial system—an additional damage to further rights than the one already caused by the predicate offense—as well as an additional social danger (to the soundness and the integrity of the financial system) can be envisaged autonomously and therefore could deserve a separate punishment.

150. While the ML conduct in a self laundering case could be investigated, and even punished if no punishment has been applied for the predicate offense, due to the principles of mandatory investigation and mandatory prosecution that govern German criminal procedures, it is more likely for a self launderer to be first investigated, prosecuted, and punished for the commission of the predicate offense. As a result, in cases of self laundering, it is very likely that the ML conduct will remain unpunished. This was confirmed by the majority of the prosecutors that met with assessors.

151. The authorities have asserted that, in cases of self laundering, the ML conduct would typically be considered as an aggravating circumstance when applying the punishment for the commission of the predicate offense and that this would result in a more severe punishment for the offender. However, based on the above, assessors must conclude that it was not established that the offense of ML can apply to persons who commit and are convicted of the predicate offense. In addition, it was not established that the impossibility to apply the ML offense to persons who commit and are convicted of the predicate offense is supported by principles that amount to fundamental principles under the FATF’s standards.

Ancillary offenses (c. 1.7):

152. Ancillary offenses are defined in the general section of the CC and apply to all offenses, including ML. All ancillary offenses provided for under the Vienna and Palermo conventions are covered under German law.

153. Section 23 of the CC provides that attempts to commit a “serious offense” (Verbrechen) are always criminalized, whereas attempts to commit a “less serious offense” (Vergehen) are only criminalized if specifically provided for in the law. In the case of ML, which is a less serious offense, Section 261(3) specifically provides that any attempt to commit ML is a criminal offense. The 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 should be interpreted in a broad sense, therefore, covering aiding and abetting, facilitating, and counseling the commission.

154. The conducts of “declaring one’s willingness, accepting the offer of another, or agreeing with another to commit a “serious criminal offense” (Verbrechen)” are punished as attempts to commit a crime. However, since the basic ML offense is a “less serious criminal offense” (Vergehen), the “attempt to participate in it” is not covered by this provision.

155. Conspiracy to commit ML, in the sense generally known in common law systems (that envisage conspiracy also in the case of an agreement of only 2 persons), is not to be found under German criminal law. Germany has a civil-law based criminal system and the basic concepts of such a system do not provide that such behavior constitutes punishable criminal conduct. Instead, Section 129 of the CC provides that it is a criminal offense to “form a group, the objectives or activity of which are directed towards the commission of crimes”, including ML. This is in line with the Vienna and Palermo Conventions (Article 3 (1), c, iv and Art. 6, (1), b, ii, respectively, which require the establishment of an offense either for conspiracy or association, subject to the constitutional or basic concepts of the jurisdiction’s legal system).

156. A group within the meaning of sections 129 et seq. is deemed to be an organizational combination of at least three persons, designed to exist for a certain period of time, where—with subordination of the will of the individual to the will of the group as a whole—the members pursue common goals, while standing in such relation to one another that they feel themselves to be a uniform cluster.29

157. Other offenses that cover certain aspects of ancillary conducts 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 and “handling of stolen property committed with aggravating circumstances” pursuant to Section 260 and 260a of the CC.

Additional Element—If an act overseas, which does not constitute an offense overseas but would be a predicate offense if it occurred domestically, leads to an offense of ML (c. 1.8):

158. As a general principle, conduct criminalized in Germany and abroad constitutes a predicate offense to ML under German law. However, Sections 5 and 6 of the CC provide for certain exceptions to this rule and apply German law even in the absence of dual criminality.

159. According to Section 5 of the CC, Germany’s criminal law is applicable, regardless of the law of the place where the act was committed, to certain forms of sexual abuse of children and certain environmental crimes, as well as to the offenses of “child stealing,” among other unlawful acts committed abroad and considered to be against domestic legal interests. Furthermore, Section 6 of the CC provides that Germany’s criminal law is applicable, regardless of the law of the place where the act was committed, to piracy, trafficking in human beings and migrant smuggling, illicit trafficking in narcotics and counterfeiting of currency or securities, among other unlawful acts committed abroad and considered to be against international legal interests.

160. Accordingly, for all predicate offenses committed abroad and listed in Sections 5 or 6 of the CC, a conviction for ML may be obtained under German law even if the predicate offense is not criminalized in the country where it occurred.

Liability of Natural Persons (c. 2.1):

161. Pursuant to Section 15 of the CC, only “intentional” acts are considered crimes under German law unless a specific provision expressly criminalizes negligence. Section 261 (1) of the CC applies to any natural person who commits any of the acts constituting ML. The conduct requires the perpetrator to know that the objects being dealt with derived from an unlawful act, and prosecutors must prove this beyond reasonable doubt.

162. ML pursuant to Section 261 (1) and (2) generally requires intentional commission of the act by the perpetrator. However, Section 261 (5) also provides for criminal liability of negligent ML if the perpetrator “recklessly did not know that the objects in question stem from the commission of a predicate offense.” This considerably lightens the burden of proof placed on the prosecution and goes beyond the requirements of the FATF 40+9 Recommendations.

163. Whereas Section 261 (2) (keeping proceeds of crime in custody or using them) requires that the perpetrator knew at the time of receipt that the origin of the object is criminal, no specific knowledge with respect to the property is required for the acts of Section 261 (1) (hiding proceeds of crime, concealing its origin or obstructing or endangering the investigation of its origin, its discovery, its forfeiture, its confiscation or its being taken into custody). However, as already stated above, Section 261 (5) provides that a person may be held criminally liable for ML pursuant to both Sections 261 (1) and (2) even when the person did not know, due to negligence, that an object was the proceeds of crime. This would imply that in all other cases, Section 261 (1) and (2) require that the perpetrator knew or should have known that the object in question has been derived from the commission of a predicate offense.

Inference of the Mental Element of the ML offense (c. 2.2):

164. The law permits the intentional element of the offense of ML to be inferred from objective factual circumstances. Article 261 of the Criminal Procedures Code (CPC) establishes the principle of free evaluation of evidence. This principle states that the facts and circumstances related with the purpose of the proceeding may be admitted by any means of evidence, except for the exceptions provided for in the laws. A means of evidence is admitted if it refers directly or indirectly to the purpose of the investigation and is useful for revealing the truth. Accordingly, the mental element of the offense may be inferred through indicia, constituted by external facts and circumstances that are proved in the proceedings. The authorities have provided case law where the courts have upheld these principles.30

Liability of Legal Persons (c. 2.3); Criminal Liability of Legal Persons should not preclude possible parallel criminal, civil or administrative proceedings (c. 2.4):

165. Under German law, legal persons are not subject to criminal liability. The German legal system follows the principle of “societas delinquere non potest” (no criminal liability for legal entities) which is based on the long standing criminal law principle of “nulla poena sine culpa” (i.e., no punishment without guilt), and is characterized by an individual and personal conception of criminal liability. The arguments that derive from these principles are that legal persons are unable to act in a criminal law sense due to the absence of will; that, in the absence of will, legal persons are not capable of being considered guilty in a criminal law sense; and that, without guilt, no criminal punishment may be imposed on legal persons. These notions have been upheld by Germany’s Federal Constitutional Court31 and are, therefore, considered fundamental principles of domestic law.

166. Notwithstanding these principles, legal persons involved in ML may be subject to administrative fines and the fines can also contain a component aimed at recovering the profit from the criminal activity. The level of regulatory fine that can be imposed is up to €1 million ($1.4 million) pursuant to Sections 30 and 130 of the Administrative Offense Act. In addition, pursuant to Section 17 (4) of the Administrative Offenses Act, the fine shall exceed the financial benefit that the perpetrator has obtained from the commission of the regulatory offense. The authorities have provided evidence of recent corruption cases where the statutory fine was exceeded up to €75 million ($ 104 million)32. If the case involves a criminal offense, the administrative fine may be imposed by the criminal court.

167. Section 30 specifies that, an administrative fine may be imposed on a legal person where someone acting on its behalf has committed a criminal offense or a regulatory offense as a result of which duties incumbent on the legal person have been violated, or where the legal person has been enriched or was intended to be enriched. Where an administrative fine is incurred by a legal person or an association of persons, a forfeiture order with respect to the same offense is precluded against such person or association of persons, as the fine is meant to deprive the person of the benefit of the crime.

168. Other laws provide for administrative sanctions against legal persons (i.e., revocation, suspension or termination of the legal person’s license, exclusion from public contract, etc.).

Sanctions for ML (c. 2.5):

169. ML is sanctioned with imprisonment of three months to five years if committed intentionally and with imprisonment of up to two years or a fine if committed negligently.

170. The negligent type of ML requires a lower standard of proof and could therefore contribute to achieving more convictions. In recent years, the amount of convictions for negligent ML (Section 261 (5)) has grown significantly in Germany, amounting to nearly half of the total number of convictions for ML per year.

171. In aggravated circumstances, i.e., when the perpetrator acts with the intention to make a profit or as part of an organized group whose purpose is the continued commission of ML, the applicable sanction is six months to ten years. Both the basic and the aggravated offense therefore constitute a less serious crime (Vergehen) under the CC. The statistics below show that only a small number of convictions per year are connected with the aggravated type of ML (Section 261 (4)). This is consistent with the statistics showing that only a small number of convictions involve more than two offenders.

172. Persons held criminally liable for “inciting another” to commit ML pursuant to Section 26 of the CC are sanctioned to the same extent as the main perpetrator of the offense. Attempted acts of 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 of the CC. The sanctions applicable to the offense of “assisting another” to commit ML pursuant to Sections 27 and 49 are basically the same as for the principal offense, but the court is obliged to reduce them to no more than three quarters of the statutory maximum term.

173. Pursuant to Section 40 of the CC, a fine is imposed on a per diem basis, and amounts to a minimum of five per diems and, if the law does not provide otherwise, a maximum of 360 per diems. The ML offense under Section 261 of the CC does not provide a lower maximum, so the 360 per diems apply as the top of the range. The court determines the amount of the per diem, taking into consideration the personal and financial circumstances of the perpetrator. In doing so, it takes as its starting point the perpetrator’s average net income per day. The minimum daily rate is fixed €1.00 ($1.39) and a maximum of €30,000 ($41,751). In determining the daily rate, the income of the perpetrator, the perpetrator’s assets and other bases may be estimated. The number and amount of the daily rates shall be indicated in the decision.

174. While the CC permits the imposition of “imprisonment” or “fines,” it generally does not allow for these sanctions to be applied jointly. However, pursuant to its Section 41, if by the act the perpetrator was enriched, or tried to be enriched, then a fine, which otherwise would have been inapplicable or only optional, may be imposed as collateral to imprisonment, if it is appropriate, taking into consideration the personal and financial circumstances of the perpetrator.

175. In accordance with Section 56 of the CC, upon a sentence for an offense of imprisonment of no more than one year the court shall suspend the execution of the punishment and grant probation if it can be expected that the sentence will serve the convicted person as a warning and the person will commit no further crimes in the future even without the influence exerted by serving the sentence. The court must take into account the personality of the convicted person, previous history, the circumstances of the criminal act, conduct after the act, living conditions and the effects which can be expected as a result of the suspension. The court may also suspend the execution of a term of imprisonment which does not exceed two years and grant probation if a comprehensive evaluation of the act and personality of the convicted person reveals the existence of special circumstances. In making the decision the efforts of the convicted person to make restitution for the harm caused by the act should be particularly considered.

176. As stated above, the offense of ML is criminalized in Germany as a less serious crime (Vergehen). In effect, when compared to some of the serious offenses (Verbrechen) in the assessed jurisdiction, the level of sanctions for ML does not seem to be proportionate and dissuasive (i.e., formation of terrorist organizations = 1–10 years imprisonment, trafficking human beings = 6–10 years imprisonment, trafficking stolen goods = 1–10 years imprisonment, counterfeiting = 1–10 years imprisonment). However, when compared with other less serious offenses (Vergehen) in the assessed jurisdiction, the level of sanctions appears more proportionate (i.e., robbery, fraud, breach of trust, falsification of documents and racketeering are all sanctioned with a fine or imprisonment up to five years).

177. The sanctions for basic ML offenses are lower relative to the sanctions for ML offenses in some of the FATF countries (i.e., Argentina = 2–10 years imprisonment, Brazil = 3–10 years imprisonment, Mexico = 5–15 years imprisonment, Italy = 4–12 years imprisonment, United States = fine, imprisonment up to 20 years or both, United Kingdom = fine, imprisonment up to 14 years or both) but nearer relative to ML offenses in other FATF countries (i.e., Finland = fine or imprisonment up to 2 years, Japan = fine, imprisonment up to 5 years, or both).

178. The sanctions applied for ML, with a focus on imprisonment or youth custody are shown in the following tables. The tables reflect that the majority of convictions for ML do not involve prison sentences and that the vast majority of convictions involving prison sentences are suspended. The tables also reveal that 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).

Statistical Table 12.

Imprisonment or youth custody sanctions for those convicted of offenses pursuant to Section 261 of the Criminal Code

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Source: Federal Statistical Office (Statistisches Bundesamt) (ed.), Strafverfolgung (Prosecution). The figures for the years up to and including 2006 refer to the so-called “old” Länder, in other words the Federal Republic of Germany prior to reunification, including greater Berlin. From 2007, the figures represent all of Germany.

179. 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. Germany has not provided statistics on the application of administrative fines to legal persons and assessors were, therefore, unable to evaluate the effectiveness in this area.

Statistics (R.32):

REPORTED OFFENSES (SELECTED)

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Source: Bundeskriminalamt, Police Crime Statistics 2003–2007

PRELIMINARY CRIMINAL INVESTIGATIONS BY STATE PROSECUTORS FOR ML (2004–2008)34

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Source: Federal Statistical Office (Statistisches Bundesamt) (ed.), Fachserie 10, Rechtspflege Staatsanwaltschaften (series 10 on the administration of justice by the state’s prosecution). The figures for 2004–2007 refer to the entire area of the Federal Republic of Germany. *2004 without information on Schleswig-Holstein. No information is available for 2003. For the year 2004, no information has been made available by the Land Schleswig-Holstein. For all other years, the figures cited refer to the entire area of the Federal Republic of Germany.

CHARGES FOR ML BY SECTION

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180. The number of charges is always lower than the number of preliminary investigations, as the investigations do not always confirm the suspicion of a criminal offense against the suspect. The vast majority of all investigations concerning ML are in fact suspended for that reason. In addition, due to the limitations in punishing a person for the predicate offense and for ML at the same time (section 261 subsection 9 of the CC), criminal proceedings initiated on the basis of an STR for ML are usually discontinued and new proceedings are initiated for the predicate offense. As a general rule, after discontinuing a criminal proceeding for ML and opening a new criminal proceeding for the predicate offense, the competent public prosecutor changes. As a result, no conclusions can be drawn as to how many proceedings initiated on the basis of an STR resulted in the commencement of an action or a conviction for a predicate offense.

181. The statistics do not allow any conclusions to be drawn concerning the reasons why the number of charges for ML increased from 2005 to 2006 and Germany was unable to provide a reasonable explanation regarding this increase.

Statistical Table 13:

CONVICTIONS FOR ML

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182. The statistics do not allow any conclusions to be drawn concerning the reasons why the number of convictions for money laundering increased from 2005 to 2006 and Germany was unable to provide a reasonable explanation regarding this increase.

SANCTIONS FOR ML

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183. The increases recorded for ML charges, convictions, and sanctions from 2006 to 2007 can be partially explained by the fact that the information provided for the years 2004 until 2006 exclusively represents the situation of the so-called “old” Länder, i.e., the Federal Republic of Germany prior to re-unification, including greater Berlin. Data for the entire Federal Republic, i.e., including the Länder of Brandenburg, Mecklenburg-Western Pomerania, Saxony, Saxony-Anhalt and Thuringia, has only been recorded since 2007.

184. No information can be provided on the average length of the sentences handed down since the statistics on criminal prosecution only record the term of prison sentences in groups (less than 6 months, 6 months, more than 6 to 9 months, more than 9 months to 1 year, more than1 to 2 years, more than 2 to 3 years, more than 3 to 5 years, more than 5 to 10 years, more than 10 to 15 years, and life imprisonment).

185. The average amount of fines imposed cannot be determined for the same reason, since these are only captured in groups (5 to 15, 16 to 30, 31 to 90, 91 to 180, 181 to 360, and 361 daily rates and over). It should be noted in this context that the amount of a fine, as an absolute number, does not allow any conclusions to be drawn as to the seriousness of the offense since the total fine levied is a factor of the number of daily rates imposed.

186. In accordance with the general practice in Germany for similar crime types, the vast majority of imposed sanctions are fines, and the vast majority of custodial sentences for ML are suspended. The authorities indicated that these data do not show the full picture relating to how offenders are dealt with and that some offenders may have been sentenced to custodial sentences for other more serious charges.

Statistical Table 14:

ACQUITTALS ON ML CHARGES BY SECTION

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NUMBER OF ACCUSED INVOLVED IN ML INVESTIGATIONS IN 2008

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PROSECUTIONS AND CONVICTIONS FOR MAIN PREDICATE CRIMES

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187. Where the fines levied against legal persons are concerned, the statistics published by the Federal Statistical Office on the administration of justice do not distinguish between the facts and circumstances on which such fines are based. Thus, it is not possible to provide any information on the number of instances in which a fine was levied against legal persons for ML.

188. A preliminary analysis by IMF staff of the number of ML convictions secured in 23 countries assessed under the FATF 2004 Methodology for which data are available suggests initially that 327 convictions per year in Germany is an impressive result despite the fact that in many cases the predicate offense rather than the ML offense is pursued. Germany has the second highest annualized number of convictions in the group of countries studied. The result also appears credible when compared to the 18 countries assessed as LC or higher, when the convictions are normalized by reference to either population or GDP. This is illustrated in the following table:

Statistical Table 15.

ML Conviction Statistics for Selected Countries

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The countries are: Albania, Australia*, Belgium*, Canada*, Colombia*, Cyprus*, Denmark*, Dominican Republic, Fiji*, Greece, Iceland*, India, Ireland*, Norway*, Portugal*, Russia*, Slovakia*, Spain*, Sweden*, Switzerland*, Thailand, U.K.*, and U.S.A.*. * indicates assessed as LC or higher.

The data for the years prior to 2006 has been analyzed using estimates of population and GDP for those years for the equivalent of pre-unification West Germany.

Analysis of Effectiveness:

189. The CC is the centerpiece of German criminal law and, as such, benefits from a rich experience of doctrinal analysis and case law that facilitates its interpretation. In addition, the institutional foundations of the criminal system are solid and comprise extremely well informed officials that guarantee a reasonably uniform application of the law. These are major advantages of the German criminal law system which contribute to its general effectiveness.

190. Germany’s criminal justice system appears to achieve effective outcomes for dealing with profit motivated crimes. The authorities assured the assessment team that offenders are convicted and sentenced on the basis of the most serious crime, and deprived of their assets (see commentary under Recommendation 3). However, the specific charge of ML is not the primary tool for achieving this outcome. Moreover, the authorities were unable to point to any statistics that demonstrated the link between the investigations into ML and subsequent convictions and sanctions for other crimes.

191. Germany’s choice to categorize the ML offense as a “less serious offense” appears to entail a number of disadvantages. In addition to sending a weak message on the relevance that German criminal law assigns to this offense, this categorization offers prosecutors and judges a weak range of sanctions to apply as a punishment for the ML conduct. Moreover, it opens the path to the suspension of the execution of the punishment and the benefit of probation to a large number of ML offenders. In effect, it is clear that the majority of sanctions applied for ML do not involve prison sentences, and that the vast majority of sanctions involving prison sentences are suspended.

192. This said, the statistics that are available reflect that German courts obtain a high number of convictions for ML per year and that there is a high percentage of convictions for ML vis-à-vis the number of charges laid. However, based on the low-end range of sanctions, the fact that most sanctions do not involve prison sentences, and because the vast majority of sanctions involving prison sentences are suspended, the assessors concluded that the sanctions were not effective, proportionate and dissuasive.