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The Money Laundering Act – What is it all about?
General information about money laundering prevention
The term money laundering refers to processes intended to disguise the true source of illegally obtained profits. This includes, for example, the ‘laundering’ of profits from drug trafficking by feeding them into the legal economic and financial cycle to evade access by the law enforcement authorities.
Affected companies are usually not aware of the fact that they are being used for money laundering purposes. Money laundering has detrimental effects on the economy and it affects industries that are characterised by medium-sized company structures in particular. Pursuant to § 261 of the Penal Code, money laundering is punishable in Germany and is subject to prosecution by the respective competent law enforcement authorities: the Public Prosecution Department and the State Office of Criminal Investigations (Landeskriminalamt, LKA).
The purpose of money laundering prevention is to avoid in advance that the true source of illegally obtained income can be disguised in the first place. The primary goal of money laundering prevention is to protect the affected companies against being used as ‘tools’ for money laundering offences. After all, this would affect the integrity and reputation, as well as the stability of Germany’s economic and financial system as a whole, as well as the individual affected companies.
Money laundering prevention is therefore a part of an active approach to promote the economy.
The relevant regulations concerning money laundering prevention are provided for in the law regarding the detection of profits from serious crimes (Money Laundering Act (Geldwäschegesetz, GwG).
This act is based on European Union specifications and it is designed to fight money laundering and terrorism financing in a comprehensive, sustainable and effective manner. In pursuit of this objective, members of the professional groups (individuals and organisations) from the financial and non-financial sector, who are covered by the regulations of the GwG and known as obliged entities, are instructed to comply with the duties indicated in the GwG.
These duties are primarily intended to serve the ‘know your customer’ principle: Companies from certain professional groups must not conclude any anonymous transactions, but must verify who their customers are and in whose financial interest they are conducting the business. The GwG that relates to the fourth EU guideline became effective on 26 June 2017 and it was last amended on 12 December 2019. Significant changes that have entered into effect on 1 January 2020 are listed in the chapter titled Updates.
Obliged entities (§ 2 subsection 1 GwG) are generally obliged to introduce risk management (§ 4 et seq. GwG), to comply with specific due diligence requirements with regard to their customers (§ 10 et seq. GwG) and if applicable, to report any suspicions (§ 43 et seq. GwG). In addition to this, certain companies and legal forms are required to report their beneficial owners to the so-called transparency register (§ 18 et seq. GwG) on the federal level, regardless of whether or not they are obliged entities in the sense of the GwG.
The respective competent supervisory authority (§ 50 GwG) must ensure that the duties under money laundering prevention law are actually complied with. For this purpose, they have the right to perform checks, including ones performed without a specific cause, to ensure that legally stipulated GwG duties are complied with, and they may take specific measures on a case-by-case basis (§ 51 GwG). It must be explicitly pointed out that many of the violations against the duties provided for by the GwG are considered administrative offences (§ 56 GwG). The competent supervisory authority may impose fines, if it becomes aware of such offences.
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