_battle against money laundering: enhanced due diligence and risk management
Anonymous transactions are becoming more difficult. Lawyers, tax advisors and real estate agents also have duties of care. For example, the purpose of the business relationship and the identity of the contractual partner must be clarified. In addition, internal risk management will be obligatory and suspicious cases must be reported. However, legal advisory professions could invoke their duty of confidentiality.
Telos and history of due diligence obligations
Insofar as mafia structures have become professionalised at the latest in the 1980s, the demands on the legislator have also grown. In 1991, the first EU directive to combat drug trafficking, arms smuggling, illegal gambling and corruption was passed under the name "Law on tracing the profits of serious crimes". Since then, the regulations have been steadily tightened with four further directives. The declared aim is to prevent the profits from flowing back into the legal financial cycle. The aim is to prevent "dirty" money from becoming "clean" again through concealment, diversion and conversion.
The Money Laundering Act (GWG) faces the challenge of tracking down illegal money. This requires the internationally coordinated cooperation of very many actors. In addition to the financial and business sectors, tax advisors, legal advisors, real estate agents and art dealers have recently been called upon to take a closer look.
What is money laundering?
Drug trafficking, illegal gambling, arms trafficking and corruption are the main sources of income for organised crime. To launder this money, it is channelled through various accounts and companies, for example. In the end, it is no longer possible to see where the money comes from and who it actually belongs to. The money becomes usable in normal economic transactions, for example to purchase real estate or other goods. After successful money laundering, no one should be able to understand that A's house in city X was financed with money from drug trafficking, which was earned by B in city Y. The aim of money laundering is to prevent the money from being used to buy property or other goods.
Aim of the Money Laundering Act
The fight against money laundering should be both repressive and preventive. On the one hand, the perpetrators are to be held accountable. On the other hand, closer scrutiny is to be carried out already in the case of suspicion in order to increase the transparency of financial flows and make money laundering more risky.
Ways of combating money laundering
In order to achieve these goals, the GWG obliges a whole range of economic actors to take a closer look (due diligence obligations). The exact requirements depend on the type and scope of the company's business activities as well as on the risk assessment.
Who are the legally obliged persons?
The Money Laundering Act lays down duties of care that so-called obligated persons must observe (§ 2 (1) and (2) GWG). In addition to combating money laundering, it also aims to prevent the financing of terrorism. Obligated persons include, among others:
- Lawyers
- tax consultants
- auditors
- credit institutions
- financial services institutions
- financial undertakings
- certain insurance companies
- real estate agents
- dealers in goods
- organisers of games of chance
- art brokers
General duties of due diligence for new customers (§ 10 GwG)
The general duties of due diligence apply in principle to the establishment of a business relationship. They must be fulfilled for all new customers (§ 10 (3a) GWG):
- Identification of the contractual partner
- Determining whether the contracting partner is acting on behalf of a beneficial owner (If this is the case: identifying the beneficial owner)
- Beneficial owners (§ 3 (2) GWG) are natural persons who, directly or indirectly
- hold more than 25 % of the capital shares,
- control more than 25% of the voting rights or
- exercise control in a comparable manner
- Clarification of the purpose of the business relationship
- Determining whether the contracting party is a politically exposed person or a related party
- Continuous monitoring of the business relationship and the transactions carried out.
These obligations primarily serve the principle of "know your customer": Anonymous transactions should thus be made more difficult.
Due Diligence outside of business relationships (§ 10 (3) GwG)
In addition, due diligence obligations must also be observed if a transaction is carried out outside the business relationship:
- In the case of money transfers already from EUR 1,000.
- For other transactions from 15,000 EUR value
- But also if this transaction is carried out in smaller tranches but has a common reference.
- Crypto assets with an equivalent value of EUR 1,000 or more are transferred.
What is a transaction?
Transactions are generally understood as all cash or non-cash transfers of value. Not only money, but also all other assets that are to change hands are covered by the term transaction: This also includes precious stones and metals, crypto-currencies, art, real estate and other goods of value and interest.
Enhanced due diligence obligations (§ 15 GwG)
In the event of an increased risk of money laundering, the duties of due diligence are reinforced. This is the case (among others) if a politically exposed person is involved in the business. It is also the case if the business relationship is maintained with a third country identified by the EU Commission as a high risk - both natural and legal persons.
Additional information about the contractual partner and the beneficial owners is then required. Inquiries must also be made about the reasons for the transaction and the origin of the assets. Furthermore, the transaction must be approved by a member of the management.
Suspicious activity reports (§ 43 GwG)
If there are facts indicating a criminal offence, i.e. if there is reasonable suspicion, this suspicion must be reported. It must be reported immediately and electronically, regardless of the value of the transaction. Electronic according to § 45 I GWG does not mean by e-mail, but by using the reporting portal goAML of the Financial Intelligence Unit (FIU) of the customs
The person affected by the suspicion must not be made privy to it according to § 47 GWG. The suspicious transaction may not be carried out at first. If the authority does not reply within 3 working days after the suspicious transaction report, the transaction may be completed. If a postponement of the transaction is not possible or if the postponement would jeopardise a criminal prosecution, it may still be carried out.
Special regulations apply to obligated persons from legal advisory professions as well as auditors, accountants and tax advisors (§ 2 I No. 10, 12 GwG). Due to their duty of confidentiality, they are not subject to the reporting obligation (§ 43 II S1 GWG). However, an obligated person must still report if he knows that the client relationship is connected to money laundering, terrorist financing or concealment of origin.
Contact
Damon Rahimi Moghaddam, Specialist Lawyer in International Economic Law.