According to a FATF assessment released today, Germany is having trouble keeping up with its AML obligations and conducting relatively few fincrime investigations.
The research also emphasizes Berlin's need to strengthen oversight of the non-financial sector in the biggest economy in Europe. According to the Country Report, Germany has more than 300 distinct regulatory organizations that are critically under-resourced.
In a critical statement, the authors claim that this has made it more difficult to stop and identify money laundering and terrorist financing.
While Germany has improved the quality of its Financial Intelligence Unit (FIU), among other things, FATF believes that "it needs to enhance access to & use of this information."
The watchdog states, "the number of money laundering investigations is lower than expected given its risk profile."
This will be a serious hit to Germany's anti-financial crime (AFC) reputation and in many respects mirrors the enormous Wirecard scandal's realities and the BaFin financial watchdog's well-publicized investigative shortcomings.
Christian Lindner, the federal finance minister, foresaw the Country Report earlier this week and announced plans to create a FinCrime Authority to consolidate many of the local watchdogs and coordinate the activities of the FIU and Tax Police.
Lindner stated on Wednesday that "in Germany, we focus a lot on the small fish, but the big fish swim away from us." He called the establishment of the agency "a paradigm shift."
Lindner stated, "We don’t want our country to be called a money-laundering paradise any longer. So what should apply is: ‘follow the money.' "
The authors' findings may have an impact on Berlin's bid to become the site of Europe's new AML Authority (AMLA). Although most observers view this as conservative accounting in the increasingly improbable event Frankfurt does win the bid to host the authority, the government has put aside a budget of €10 million per year to prepare for the entrance of AMLA.
The worldwide monitor for financial crime, FATF, concludes that financial institutions, including those that deal in crypto assets, are often effectively regulated.
"However Germany’s financial sector supervisor, BaFin, needs to do more in some higher risk non-bank sectors. There are major shortcomings in suspicious transaction reporting," according to FATF.
There is good news on the confiscation front since Germany has passed legislation allowing for asset forfeiture even in cases where there has been no conviction, and they also require prosecutors to take confiscation into account. In order to help with the seizure of criminal proceeds, it has also increased resources.
It has been discovered that Germany effectively looks into, prosecutes, and stops terrorist financing activity.
"The country proactively pursues terrorist financing investigations alongside terrorism-related probes. It understands and mitigates the risks linked to the non-profit sector," according to FATF.
The conclusions are presented in the FATF national report on Germany, which evaluates its capacity to stop the funding of terrorism and money laundering.
However, it has received acclaim for carrying out "significant reforms" over the previous five years to support its FinCrime initiatives, with some of these fresh initiatives "already delivering results".
To combat illicit money flows, Germany must "continue to implement reforms and take steps to make sure that there is resourcing and prioritisation at the operational level to combat illicit financial flows."
Germany's economy, the largest in the EU and the fourth largest in the world, presents "significant" threats for money laundering and terrorist financing.
According to the report's findings, the German government has a "good understanding" of these threats. While improving "coordination and consistency" between the various supervisory and law enforcement authorities, domestic coordination among Germany's 16 states is a "challenge."
"Priority should also be given to mitigating the risks associated with the high use of cash in the country and the use of informal MVTS services."
The watchdog also discovered that asset forfeiture is a "strong feature" of Germany's system and that the implementation of laws allowing for forfeiture of assets without a conviction has led to the seizure of "significant amounts" of criminal proceeds.
By fLEXI tEAM