BaFin´s role in preventing money laundering, terrorist financing and other criminal offences

It is the goal of BaFin to prevent the misuse of the financial system for the purpose of money laundering, terrorist financing and other criminal offences, which can lead to a threat to assets of an institute. Bodies in the financial sector subject to the money laundering supervision of BaFin include not just credit institutions, financial services institutions and payment institutions, but also life insurance undertakings, German asset management companies (Kapitalverwaltungsgesellschaften) and persons and companies that sell or convert e-money. BaFin is the only competent authority in this field (whereas Deutsche Bundesbank does not have AML/CFT-competence).

BaFin ensures that the companies and persons under its supervision implement any statutory obligations adopted for this purpose. These obligations are derived from the Money Laundering Act (Geldwäschegesetz – GwG), the Banking Act (Kreditwesengesetz – KWG), the Insurance Supervision Act (Versicherungsaufsichtsgesetz – VAG), the Payment Services Supervision Act (Zahlungsdiensteaufsichtsgesetz – ZAG) or the Investment Code (Kapitalanlagegesetzbuch – KAGB).

Department for the prevention of money laundering

In order to simplify this process, since 2003 BaFin has bundled all responsibilities relating to these tasks under the Department for the Prevention of Money Laundering, which carries out money laundering supervision of all institutions, companies and persons specified under section 50 of the GwG. The department is also responsible for supervision of the implementation of statutory regulations to prevent the commission of other criminal offences within the meaning of section 25h of the KWG.

Transparency helps to avoid risks

The main aim is to ensure transparency in business relationships and financial transactions using specific precautions on a risk-oriented basis.

According to section 4 of the GwG obliged parties have to have a risik management, which includes a risk analysis according to section 5 of the GwG and internal risk measures according to section 6 of the GwG. This obligation is the core of the risk-based approach regarding money laundering and terrorist financing. According to section 4 (1) of the GwG type and extent of the business of the obliged parties must be taken into account in the design of the risk management.

Obliged parties have also to comply with the customer due diligence duties. In addition to identifying the customer, any person acting on his behalf and any different beneficial owner or beneficiary in the case of insurances it is also necessary to determine whether these persons are politically exposed persons, relatives of such persons or known close associates.

In addition, information on the purpose and the type of business relationship must be obtained and evaluated where not self-explanatory. Furthermore, a continuous monitoring of the business relationship or transactions processed must take place. As part of this continuous monitoring, the obliged parties must ensure that the relevant documents, data or information are updated within an appropriate timeframe taking into account the relevant risk. Such measures make it possible to retrace cash flows and to discover uncommon or even suspicious transactions or business relationships.

Persons and companies subject to money laundering provisions are required to follow up on such transactions or business relationships. If, inter alia, they discover facts indicating that an asset related to a business relationship or transaction originates from a criminal act that could constitute a predicate offence of money laundering or a business transaction related to terrorist financing, such suspicions must be notified to the Central Customs Authority´s Financial Intelligence Unit. For further information on this obligation reference is made to section 43 of the GwG and the corresponding information in the so called BaFin´s “Auslegungs- und Anwendungshinweise”, which are currently being consulted.

Simplified and enhanced due diligence measures

Obliged parties can apply simplified due diligence measures if they determine that there is only a low risk of ML/TF in certain areas. In doing so they have to take into account the risk factors listed in Annex 1 of the GwG.

According to section 15 (2) of the GwG obliged parties have to comply with enhanced due diligence measures if they determine in the course of their risk analysis or in individual cases that there might be a higher risk of money laundering or terrorist financing. In doing so they have to take into account the risk factors mentioned in Annex 2 of the GwG. Enhanced due diligence measures have to be applied in addition to the general due diligence measures

Electronic Account Retrieval System

The Department for the Prevention of Money Laundering is also responsible for automated account information access pursuant to section 24c of the KWG (“Electronic Account Retrieval System”). Under certain conditions, this allows for the accounts of suspected terrorists or other criminals with credit institutions registered in Germany to be identified and for information to be passed on to the corresponding authority making the request (particularly law enforcement agencies).

If accounts are uncovered belonging to (alleged) terrorists resident in the European Union, the Department for the Prevention of Money Laundering may freeze such accounts and prohibit the corresponding bank from making any transactions with respect to such accounts.

International cooperation

The Department for the Prevention of Money Laundering also represents BaFin in various international and European bodies, such as the Financial Action Task Force on Money Laundering – FATF or the Sub-Committee on Anti Money Laundering (AMLC), a sub-committee of the Joint Committee of the European Supervisory Authorities.