Money laundering

Money laundering describes the channeling of incriminated - i.e. illegally acquired - funds into the legal economic cycle. The aim is to provide the criminal with legal assets that can be explained and that do not allow any evidence of criminal activity. Money laundering is used in particular to finance organised crime and global terrorism.

For this reason, there are many complex obligations that do not always make it easy for obligated parties to achieve full AML compliance (compliance with the obligations under the Money Laundering Act or money laundering prevention compliance). Non-compliance with the requirements and obligations according to the Money Laundering Act is still widespread. The authorities are increasingly imposing high fines for this. Fines of up to five million euros are possible.

In principle, everyone should be aware of the consequences of money laundering. Not only does it support the crime behind it, money laundering also has a lasting impact on the market economy as such and can, under certain circumstances, influence price formation.

First of all, of course, the state law enforcement authorities as well as the political representatives have a duty to take appropriate measures to prevent money laundering as well as to prosecute money launderers themselves. In addition, however, obligated parties under the Money Laundering Act in particular are required to combat money laundering.

Successful money laundering prevention or the effective combating of money laundering can only succeed if both the public sector (authorities) and the private sector (companies) play their part. The Money Laundering Act also takes this idea into account. Thus, the obligated parties under the Money Laundering Act - all of whom are from the private sector (cf. § 2 GWG) - are obliged to cooperate in the prevention of money laundering. The authorities are also broadly positioned in this regard:

• The Financial Intelligence Unit (FIU) is the central office for receiving, collecting and evaluating suspicious activity reports. It analyzes all reports related to money laundering or terrorist financing and transmits the results of its analysis to the competent law enforcement authorities if it determines that an asset is related to money laundering, terrorist financing or any other criminal offense.
• The Federal Financial Supervisory Authority (BaFin) is the competent supervisory authority in the financial sector and supervises the compliance of credit institutions, insurance companies, capital management companies and financial services institutions, etc. with their obligations under money laundering law.
• The supervisory authorities of the non-financial sector supervise the compliance with money laundering obligations of obligated parties of the non-financial sector, including dealers in goods, real estate agents, art brokers and organizers and brokers of games of chance etc.. Here, the responsibility is a "federal state matter" with the consequence that - depending on the federal state - different authorities may be responsible, including regional councils, senate administrations, district governments, ministries and chambers, etc.
• The state criminal investigation offices and public prosecutors' offices are responsible for criminal investigations in the area of money laundering. Here, the specific jurisdiction is usually based on the crime scene or place of residence principle (cf. §§ 7 ff. Strafprozessordnung).

According to the German Money Laundering Act (GwG), money laundering is not only punishable once a certain amount of money is exceeded. For the legislator, it is also largely irrelevant whether cash or non-cash transactions are involved.

A well-known and easy-to-understand model to describe money laundering is the so-called "three-phase model of money laundering" which is also taught by the UNDOC (United Nations Office on Drugs and Crime) in training courses. Money laundering is divided into three phases: Placement, Layering and Integration.

The three phases can be illustrated with an example in the motor vehicle sector: A customer orders several cars from a car dealer and makes the down payment in cash (placement). Shortly before delivery, the customer cancels the order and has the deposit paid back by bank transfer (layering). Afterwards, the alleged customer can invest the money laundered in this way further into the legal economic cycle (integration), as he has a proof of origin through the repayment of the down payment of the cars at the car dealer. The legislator therefore starts the fight against money laundering at the placement stage. Car dealers may also have to identify their customers when they are seriously interested in buying and subject them to a risk analysis.

Structuring" is the deliberate splitting of larger sums into smaller amounts in order to circumvent thresholds.

The Money Laundering Act provides for certain threshold values for transactions in specific sectors, above which obligated parties must implement their obligations under the Money Laundering Act. These thresholds can be circumvented through structuring. If, for example, KYC checks only have to be carried out above a certain threshold, the sums to be laundered are broken down into smaller amounts.

In the case of jewellers and traders of precious metals, for example, individual items could be regularly acquired by the same person, the amount of which is below the threshold value in each case, without there being a comprehensible reason. This makes it possible for money launderers to circumvent identification and documentation even in the case of larger, accumulated sums and thus to conceal the origin of funds. Even though it is difficult to identify this form of money laundering in practice, such attempts must be reported. If no report is made, a company is in danger of making itself liable to prosecution in case of doubt.

"Smurfing" is similar to the concept of "structuring", but this process is more complicated and requires more human resources from the money launderer. Smurfing involves distributing the payment or execution of a transaction among different people. In this way, amounts can be pieced together and then distributed via middlemen and women. The clients act in the background.

This form of money laundering can also be detected if the company has an effective money laundering prevention concept that includes staff training, KYC checks and monitoring of transactions.