Ministry of Finance publishes draft of the Act to Improve the Fight against Financial Crime (FKBG)
On 13 September 2023, the German Federal Ministry of Finance published the draft bill for a law to improve the fight against financial crime (FKBG). The FKBG is a so-called article law, through which on the one hand new laws are to be created and on the other amendments to existing laws are to be made. The aim of the FKBG is to close the deficiencies identified by the Financial Action Task Force (FATF) in the context of the 2022 Germany Review and thus to sustainably combat money laundering, as well as to create the basis for comprehensive cooperation and data exchange between authorities at national and international level.
Creation of a new Federal Office for Combating Financial Crime
The core of the bill is the creation of a new higher federal authority, the Federal Office for Combating Financial Crime (Bundesamt zur Bekämpfung von Finanzkriminalität, BBF). The BBF is to combine analysis and criminal as well as administrative investigations; in addition, the BBF is to assume the role of coordinating supervisory authority. The BBF's task is to combat international money laundering with reference to Germany as well as to support and coordinate the supervision of persons obliged under money laundering law. In addition, the BBF is to coordinate and respond to requests for information from other authorities and persons concerned (Section 2 of the BBF Establishment Act-E). In terms of organization, both the Central Office for Sanctions Enforcement (ZfS) and the Central Office for Financial Transaction Investigations (FIU) are to be transferred to the BBF.
Establishment of a Money Laundering Investigation Centre
For the prosecution of international money laundering with reference to Germany, a Money Laundering Investigation Centre (Ermittlungszentrum Geldwäsche, EZG) is to be established at the BBF. The EZG is to be given police investigative powers for cases of international money laundering (Section 1 GwEG-E) and thus become active under criminal law. However, the already existing competence of the Federal Criminal Police Office (BKA) is not only to be maintained in parallel, but even expanded and bundled in a new organizational unit. It is planned to form a joint investigation group between the BBF and the BKA. In addition, the EZG is to investigate other significant cases of money laundering at the request of the competent federal or state authorities. In order to fulfil its tasks, the EZG is to be given extensive powers corresponding to those of the police under the Code of Criminal Procedure (Section 4 GwEG-E). In addition, it is envisaged that the EZG will also be given powers for so-called "security and protective measures" (sections 6 et seq. GwEG-E), the legal nature of which is likely to be of a danger-prevention nature. In this respect, the EZG may, among other things, search persons or property without a court order, establish the identity of persons, seize objects or take persons into custody if this is necessary to protect essential assets, life, limb and health of the officers, but also to protect their decision-making and activity. It is precisely this last connecting factor that allows the EZG to circumvent restrictions on interventions in the legal interests of citizens under criminal procedure law. In addition, comprehensive regulations on data collection, processing and disclosure are to be created.
Central Office for the Supervision of Money Laundering
It is also planned to establish a new Central Office for Money Laundering Supervision (Zentralstelle für Geldwäscheaufsicht, ZfG) at the BBF. Its task is to ensure a nationwide and cross-sectoral uniform approach of the supervisory authorities and to support them (Section 50a GwG-E). In particular, the ZfG is to coordinate the respective national supervisory authorities, assist in the preparation, harmonization and updating of interpretation and application guidelines as well as the implementation of due diligence obligations, provide guidelines for a uniform approach in the exercise of supervisory measures as well as develop criteria to determine the effectiveness of supervisory measures and conduct analyses on this. In this respect, exceptions are provided for the existing tasks of BaFin. At the request of a supervisory authority, the ZfG can assist in the implementation of supervisory measures and then has the same powers as the supervisory authority itself (Section 50b GwG-E).
The German states are also requested to establish their own coordinating bodies to coordinate the activities of the respective state supervisory authorities and to ensure cooperation at state level as well as the exchange of information with the Coordination Bodies at the federal level (Section 50c GwG-E).
Amendments to the Sanctions Enforcement Act
The regulations on the powers of the Central Office for Sanctions Enforcement (Zentralstelle für Sanktionsdurchsetzung, ZfS) are to be partially reworded. The ZfS is also to be authorized to search objects or persons (section 2 (2) nos. 7-8 SanktDG-E). Furthermore, a ban on the disclosure of information is to be introduced. Persons from whom information or documents have been requested shall be prohibited from informing third parties thereof (Sec. 2 para. 2 sentence 2 SanktDG-E).
In accordance with a practical need, the freezing of real property, ships and aircraft is to be effected by entering a blocking notice in the land register, ship register or aircraft register.
It is also envisaged that the ZfS may also issue orders to legal entities or partnerships that are at risk of violating a freezing order or making available funds or economic ressources to establish or ensure proper business organization, including sanction compliance (Section 9 (1) sentence 3 no. 4 SanktDG-E).
With regard to the register to be kept by the ZfS, only information on the entry of of a sanctioned person will be publicly accessible. Access to the register should only be possible if there is a legitimate interest whereas obligated persons under the Money Laundering Act shall be entitled to inspect the register for the purpose of fulfilling due diligence obligations or for the purpose of complying with sanctions (Section 14 (3a) no. 2 SanktDG-E).
Amendments to the German Banking Act (KWG)
By means of amendments to the KWG, it is planned that auditors, when auditing the annual financial statements of financial holding companies and mixed financial holding companies, also examine whether the companies have fulfilled their obligations under Sections 25h - 25m KWG to establish appropriate internal safeguards and to fulfil due diligence obligations under the Money Laundering Act (GwG). Furthermore, the regulations on the Ownership Control Ordinance are to be amended so that in the future participations in financial holding companies will be subject to ownership control even if a significant participation in an institution is not acquired at the same time.
Amendments to the Money Laundering Act (GwG)
It is also planned to partially revise the regulations on persons subject to money laundering obligations. It is to be clarified in Section 1 (24) GwG-E that companies which, pursuant to Section 2 (6) No. 5 of the German Banking Act (KWG), as holding companies, provide financial services exclusively for their parent, subsidiary or sister companies and are not considered financial services institutions, also do not have to fulfil any obligations under money laundering law.
Financial holding companies and mixed financial holding companies are to be explicitly included in the GwG as obligated parties under money laundering law (Section 2 (1) no. 2a GwG-E) and Section 25l of the German Banking Act (KWG) is to be deleted accordingly, which, however, has so far only applied to financial holding companies licensed under Section 2f KWG. However, this does not entail any change because non-licensed financial holding companies are already considered financial undertakings within the meaning of Section 2 (1) no. 6 in conjunction with Section 1 (24) GwG.
There will also be changes to the group of obligated parties in the insurance sector. Insurance holding companies, companies pursuant to Section 243 (4) of the Insurance Supervision Act (VAG) as well as companies that exercise a controlling influence on an insurance company or a pension fund shall explicitly become obligated parties under money laundering law (Section 2 (1) No. 7a - 7c GwG-E).
Obligated persons according to the planned § 2 (1) nos. 2a and 7a must register with their respective supervisory authority according to § 51 (5c) GwG-E.
Insofar as money laundering officers are only to be appointed by order of the supervisory authority, the latter shall also be able to order the appointment of a deputy (7 (1) sentence 3 GwG-E).
An amendment to Section 8 (2) GwG-E is intended to further clarify that identity cards which do not show the issuing authority, but only the issuing state, are also suitable for identification purposes.
The second sentence of Section 10 (3) GwG-E is intended to clarify that obligated persons must also fulfil their due diligence obligations under money laundering law if the business relationship or transaction is carried out wholly or in part abroad.
Under Section 51 (11) GwG-E, the supervisory authorities are to be able to determine by means of a general decree which notifications, notices, reports, applications or other information are to be submitted electronically, in which data format, to what extent or at what time, and which electronic communication procedures are to be used for this purpose. Furthermore, the BaFin is to be able to determine by general decree, pursuant to Section 52 (7) GwG-E, which information necessary for banking supervision is to be transmitted to it regularly and at what times.
As a result of the planned new structure of the authorities, the regulations on data transmission by the FIU are also to be changed.
So far, the presidents of the regional court have been the supervisory authority for notaries. This task is now to be transferred to the presidents of the Higher Regional Court.
It is planned that those obliged under money laundering law register with the FIU by 1.1.2024, regardless of whether they file a SAR. Failure to register is to be subject to a fine under Section 56 (1) no. 69a GwG-E. The obligation to register for dealers in goods is to be extended until 1.1.2027, while that for acceptance centres for sports betting pursuant to Section 29 (6) of the State Treaty on Gambling is to be dropped (Section 59 (6) GwG-E).
Amendments concerning the transparency register
In addition, efforts are to be made to improve the data quality of the transparency register. For example, the transparency register shall be allowed to request suitable proof of the right of representation from the notifying persons. In addition, the office keeping the register is to be allowed to query the data to be entered in the transparency register by means of retrievals pursuant to section 24c of the German Banking Act, from the registers of residents, the land registry or the register of foundations. In addition, with effect from 1 January 2027, not only the date of birth but also the place of birth is to be entered in the transparency register. If information cannot be verified in connection with discrepancy reports because the company concerned does not cooperate in due time, this will be noted on the register extract.
Establishment of a real estate transaction register
In addition, a real estate transaction register is to be set up at the BBF, which concerns reporting data pursuant to § 18 GrEStG from courts, authorities and notaries in the case of acquisitions with a purchase price of EUR 100,000 or more. In this respect, the BBF is to receive corresponding data records via an interface. The FIU, the ZfS, the EZG, law enforcement agencies and courts should be able to retrieve data upon request (sections 26b et seq. GwG-E). The keeping of the real estate transaction register can also be transferred to a legal person under private law.
The FKBG is intended to improve the often criticised fight against money laundering in Germany. In particular, the work of the FIU has been the focus of criticism for some time, so that the planned organizational changes are to be understood as a reaction to the publicly discussed deficits. It seems remarkable, however, that an essential part of the intended solution is the creation of a new higher federal authority and the establishment of multiple and parallel structures. In addition to the BKA, which has been relatively successful in combating cross-border money laundering, the BBF is to be another federal authority with similar tasks. Furthermore, with the ZfG, a new institution is to be created whose task is to coordinate supervisory authorities. Here, one could also have thought of concentrating supervisory responsibilities. In addition, the states are to create independent coordinating bodies. It remains to be seen whether this approach, which increases rather than reduces the complexity of the authority structure in the area of AML and terrorist financing, will actually lead to progress in the fight against money laundering.
The intended changes in connection with the transparency register may lead to an improvement in data quality. However, the actual problem that the transparency register is based on reports by the obligated parties and that there is no accuracy control remains.
This gives the impression that the draft FKBG is a path that is certainly well intentioned, but in typical German fashion will lead to (even) more bureaucracy. Streamlining through concentration at the BKA would be an alternative worth considering.