Draft Combatting Financial Crimes Act: revolutionising money laundering enforcement in Germany?

Germany is burdened with the unwelcome label of being a ‘haven for money launderers.’ This is due to – among other things –  the prevalent use of cash payments and also because there is deemed to be insufficient cooperation between national anti-money laundering (AML) supervisors. Hence, it did not come as a surprise when the Financial Action Task Force (FATF), an international AML watchdog, gave Germany poor marks in its 2022 evaluation report. FATF noted that it could not find Germany sufficiently prioritising combatting money laundering (for a summary of the key findings of the report, please see our separate blogpost).

In response, the German Ministry of Finance has drafted a Combatting Financial Crimes Act (Finanzkriminalitätsbekämpfungsgesetz) (FKBG), setting out a comprehensive set of measures to tackle money laundering. If it becomes law, the FKBG could result in a profound reorganisation of Germany’s AML efforts.

In this blogpost, we introduce the four key proposals of the draft FKBG:

1. The BBF – a new federal authority

The FKBG proposes the creation of a specialised agency – the Federal Office for Combating Financial Crime (BBF) – supervised by the Ministry of Finance. The BBF, with proposed offices in Cologne and Dresden, is scheduled to begin operations on 1 January 2024. Overall, a total of about 1700 employees are expected to move into the new BBF. The BBF will combine analysis, criminal and administrative investigations, and supervision under one roof in a holistic approach.

The BBF shall (eventually) consist of the following units:

• The Money Laundering Investigation Centre (EZG): The EZG will be responsible for investigating significant cases of international money laundering with a connection to Germany.
• A Central Office for AML Supervision (ZfG): The primary purpose of the ZfG will be to strengthen a uniform, stringent risk-based approach to money laundering supervision of the non-financial sector and to coordinate and support supervisory measures under German AML law across all 16 federal states.
• The Asset Concealment Investigation Centre (EZV): The EZV will be established as a unit for tracing significant assets under the newly established Asset Identification Act (Vermögensermittlungsgesetz) – for more on this, see point 2 below.

In addition, the existing Central Office for Sanctions Enforcement (ZfS) and the Financial Intelligence Unit (FIU) are expected to be integrated into the BBF by the start of 2025.

The FKBG foresees the BBF to be equipped with far-reaching powers, underlining the intent of establishing a powerful new law enforcement authority. The BBF will be a federal police unit within the ministry of finance. Similar to other law enforcement authorities, officers of the BBF shall, for example, be able to bear arms or request individuals’ bank account information from German financial watchdog BaFin.

However, many questions are left unanswered. It remains to be seen how the proposed BBF will fit into the landscape of supervisory and law enforcement agencies, including the new European AML Authority AMLA (see our separate blogpost for a full overview), the German Federal Criminal Policy Authority (Bundeskriminalamt) (BKA), AML supervisors such as BaFin and state-level AML authorities.

2. Introducing administrative asset tracing

In addition to police capacities, the BBF shall also have extensive asset tracing powers under a new Asset Identification Act (Vermögensermittlungsgesetz) (VErmG). The stated purpose of the VErmG is to avert risks to the economic and financial system resulting from a lack of transparency regarding the beneficial owner of a significant asset or assets (and funds to purchase them) with unclear origins.

The VErmG includes a very broad definition of the term ‘assest’ (including rights and shares), but shall only apply to significant assets, ie assets with a value in excess of €500,000 or €10,000 in cases where the asset is required to be registered in a public register. The administrative asset tracing will, therefore, apply to the overwhelming majority of all real estate, ships, cars and planes in Germany, but also apply to shareholdings or mortgage loans.

Under the VErmG, the BBF shall be able request a court order if there is an assumption that the asset is very likely to pose a risk to the economic and financial system. This assumption can be based on a variety of factors, such as a

• Mismatch between the income of a person and the value of a significant asset; or
• person’s association to a criminal organisation.

Notably, where the significant asset is owned by a company, the unusualness and economic pointlessness of the asset (eg a sportscar for a small business), or a complicated ownership structure, which significantly complicates the identification of the ultimate beneficial owner (UBO), shall also be indicators for such risks.

The court can compel individuals to provide information on, among others, the UBO of the asset and the detailed circumstances of the origin and acquisition of the significant asset, in particular how the asset was paid for. The court order can also allow the BBF to search premises or temporarily seize significant assets.

3. Creating a real estate transaction registry

The German real estate sector has long been identified as one of the major AML risks in Germany. The FATF found that the access to the Euro in a cash-intensive economy makes Germany an attractive destination to launder foreign proceeds, in particular by investing it in real estate. Germany has already taken steps to improve the effectiveness of its AML measures in the context of real estate acquisitions, for example by prohibiting the use of cash payments (see our blogpost for a full overview).

The FKBG now provides for the introduction of a real estate transaction registry, which will provide AML and law enforcement authorities with full digital access to real estate data. The real estate transaction registry will be fed with data collected from sale notices from courts, public authorities and notaries, as well as data from the German land register.

4. Broader investigative powers for law enforcement authorities

Moreover, the FKBG seeks to broaden the powers of law enforcement agencies (including the BBF) by amending the German Criminal Procedure Code (Strafprozessordnung) (StPO). Effective covert investigative measures such as telecommunications surveillance and online raids are currently dependent on the designation of a specific predicate offense for the money laundering offence. This allegedly stands in the way of implementing the all-crimes approach, according to which all crimes can be a predicate offence for the money laundering offence (see our separate blogpost for a full overview). Thus, the FKBG seeks to allow covert investigative measures in all serious money laundering cases, regardless of the underlying offence that generated the illicit funds. The purpose of this amendment is to target professional money launderers and to make money laundering investigations multidimensional, starting both from a known predicate offense and from money flows that show certain suspicious traits (“follow-the-money”).

It has not yet been decided whether the proposed package of laws will be adopted as is. Currently, the draft is in the stage of interdepartmental coordination.