The legislator indirectly extends the obligations of those who are obliged to make suspicious activity reports according to the Money Laundering Act (AMLA). It is doubtful whether the legislator was fully aware of the consequences for those obliged to report under the AMLA, but also for the prosecution authorities.
With the Act to Improve the Criminal Law Against Money Laundering, the German legislator has enormously expanded the offence of money laundering under section 261 of the Criminal Code (StGB). According to the so-called all-crimes approach, all criminal offences, whether felonies or misdemeanours are now considered predicate offences to money laundering. Previously, the catalogue of predicate offences was limited to felonies, i.e., offences with a minimum sentence of one-year imprisonment, and a few, particularly qualified misdemeanours, such as drug trafficking and, in particular, offences committed on a commercial or gang basis. The increase in money laundering offences is likely to lead to a considerable increase in reporting requirements.
But let’s take it one step at a time:
The offence of money laundering
The offence of money laundering is directed at persons who come into contact with an object resulting from an unlawful act. Money laundering is a so-called perpetuating offence, i.e., an act that consolidates the unlawful state of affairs. This can be done by concealing, keeping or using the object or exchanging, transferring or moving it to another place.
Objects in the sense of the anti-money laundering regulation are not only physical objects but also bank balances and other monetary claims.
A classic case of money laundering is the smuggling of drug money into the banking system through cash deposits, but also the forwarding of these funds via as many accounts as possible at as many different banks as possible. The aim is that in the end, the origin of the money can no longer be traced.
Obligated persons according to the Money Laundering Act (AMLA)
The AMLA defines so-called obligated persons. These are groups of persons for whom the legislator assumes that they are particularly inclined to come into contact with objects that originate from criminal acts, so-called predicate offences in the course of their professional or commercial activities. These include, among others, banks, insurance companies and financial service providers, payment institutions such as PayPal or credit card providers, but also lawyers, tax advisors, auditors, real estate agents and insurance brokers.
Obligation to report to the Financial Intelligence Unit (FIU)
In addition to the obligation to identify their business partners, i.e., to collect their personal data, obligated persons are in particular obliged under the Money Laundering Act to submit so-called suspicious activity reports. Whenever an obligated party has reason to believe that an object with which it comes into contact in the course of a business relationship stems from a predicate offence, it must report this to the Financial Intelligence Unit (FIU). Banks and insurance companies maintain entire departments just to meet these reporting obligations.
The reporting obligation is independent of the value of the incriminated object or the amount of the transaction in question. The obligation to report is triggered by the mere existence of facts indicating that an object originates from a predicate offence. There are no high requirements for this. The threshold is far below the initial suspicion of a public prosecutor’s investigation. The Higher Regional Court of Frankfurt am Main assumes that a bank must file a suspicious activity report when a person of public interest deposits a large amount of cash if the bank cannot prove with certainty that the origin of the money complies with the law in every respect. Only a report “out of the blue” is excluded.
For those obliged to report, this low threshold is a double-edged sword. It is true that they do not have to conduct their own elaborate investigations. On the other hand, even minor facts are sufficient to trigger a reporting obligation.
What is new now?
Within the framework of the all-crime approach, the legislator has now made all offences predicate offences to money laundering. Whereas the catalogue used to be fairly clear and contained mainly “serious” offences, every offence is now a predicate offence in the sense of the anti-money laundering regulation. It is true that the obliged party no longer has to worry about whether the possible predicate offence is also a catalogue offence. However, eliminating the catalogue of predicate offences enormously expands the scope of reporting obligations, especially since “commonplace offences” such as simple embezzlement or simple fraud can now also be considered as predicate offences.
Consequences for those obliged to report, especially payment service providers and banks
Especially for payment service providers, but possibly also for banks that offer payment transactions, the spectrum of suspicious cases to be reported is drastically expanded. Just think of the millions of unauthorised card payments that occur in Germany every year. Behind every refused authorisation can be a card theft, an (attempted) fraud or a credit card misuse. The same applies to the millions of requests for repayment (chargebacks) from credit cardholders. Does the cardholder demand the chargeback because the underlying transaction, for example, the purchase the card payment is based upon, was fraudulent? Or, in turn, does the demand for chargeback constitute an attempted fraud because the value transaction was perfectly fine, and thus the chargeback demand is not justified? What about the millions and millions of chargebacks that occur every year at German banks and payment institutions?
The answer to these questions depends largely on what information the payment service provider or the bank has in the specific individual case. The bottom line is that in many of these cases, a reporting obligation must indeed be assumed.
Obligated persons are confronted with these and other questions as a result of the amendment to the law. Unfortunately, neither the law and its explanatory memorandum nor the BaFin’s interpretative and application notes on the Money Laundering Act (AuA-GwG) offer substantial assistance – not really a satisfactory state of affairs in view of the impending fines and supervisory sanctions for violations of the due diligence and reporting obligations under anti-money laundering regulation.
Cover picture: Copyright © Adobe / ArLawKa