The new Act on the Optimisation of Money Laundering Prevention is the culmination of many recent statutory amendments on money laundering. The impulse for this legislative activity was the February 2010 Germany report of the Financial Action Task Force on Money Laundering (FATF), in which the FATF pointed out many deficiencies in German money laundering law. Germany was required to report on its progress for the first time in February 2012.
The draft act caused considerable controversy: the Federal Council harshly criticised parts of the draft, while the hearings of the financial committee were so controversial that the committee's final vote had to be postponed. The recommendation of the financial committee was accepted by all parties in Parliament with the exception of Die Linke, which abstained, and the act – apart from a number of provisions, which became legally binding after a three-month delay – entered into force on December 29 2011.
The last-minute amendments caused by the financial committee are generally to be welcomed. This applies in particular with regard to the clear relaxation of the obligation to appoint a money laundering officer and the introduction of a de minimis threshold for the distribution of e-money products.
Money laundering officer
The government draft extended the duty to appoint a money laundering officer to all obliged persons under the Money Laundering Act with more than nine staff. In the final version of the act, such a duty (apart from the special legislative provisions in the Banking Act, the Payment Services Supervisory Act and the Insurance Supervision Act) applies only to financial companies and casinos – the number of staff no longer matters. The option for the relevant authorities to issue exemptions from this obligation was maintained.
For almost all other obliged persons, including distributors of e-money issuers, while the general obligation to appoint a money laundering officer has been removed, the relevant authorities can order them to appoint a money laundering officer if they consider this to be reasonable. The term 'reasonable' is rather vague and therefore is likely to provide the authorities with considerable latitude. From the point of view of obliged persons, greater specification of such term (eg, based on criteria of size, customer structure or risk profile) would have been desirable.
Issue and distribution of e-money
The question of whether, in the course of the distribution of e-money, the 'zero threshold' should apply, with the consequence that the purchaser of a pre-paid card even with a value of €0.01 would have to be fully identified, was the subject of vehement controversy in the hearings of the financial committee.
A similar provision had already had become law with effect from April 30 2011 under the act implementing the new EU E-money Directive (2009/110/EC) for 'e-money agents' (ie, distributors of e-money issued by institutions within the meaning of the Payment Services Supervisory Act (for further details please see "New e-money regulatory law enters into force").
However, at that time the legislature failed to impose a similar provision on e-money distributors of deposit-taking credit institutions within the meaning of the Banking Act, which are entitled under their full banking licence to issue e-money. The legislature therefore took the opportunity afforded by the Act on the Optimisation of Money Laundering Prevention to remedy the resulting unequal treatment of e-money intermediaries of e-money institutions within the meaning of the Payment Services Supervisory Act on the one hand, and deposit-taking credit institutions within the meaning of the Banking Act on the other, at least with respect to money laundering law. The government draft therefore included e-money distributors of deposit-taking credit institutions as obliged persons under the Money Laundering Act and subjected them to a zero threshold in the same way as e-money agents within the meaning of the Payment Services Supervisory Act.
This resulted in fierce protests on the part of the e-money industry, which apparently had been oblivious of the parallel provision in the Payment Services Supervisory Act already implemented for distributors of e-money institutions with effect from April 30 2011 (presumably primarily because the act provided for de minimis thresholds for issuers of e-money to the effect that simplified duties of care may be applied and, due to a somewhat impenetrable reference technique in the act, it was not automatically apparent that these thresholds did not apply to e-money agents). The e-money industry argued that the distribution of e-money would effectively be killed off if a zero threshold applied, because compliance with the associated identification obligations could not, for the majority of e-money distributors – typically filling stations, kiosks and supermarkets – be handled in a manner which would enable the distribution of e-money products to be conducted profitably. On the other hand, BaFin, the German regulator for e-money business, insisted on the maintenance of a zero threshold. Its primary justification was that in the case of certain e-money card products, there is the possibility of obtaining cash from money dispensers and therefore of conducting a genuine financial transfer in connection with criminal money (often with the use of financial agents).
Finally, the following compromise was agreed on (and inserted in a new Section 25i of the Banking Act) for the issue and distribution of e-money. In principle, the full identification and monitoring obligations apply (but the obligations to collect information and to clarify and identify any beneficial owner do not). However, these obligations need not be fulfilled if the amount issued to the card holder and stored on an e-money carrier is €100 or less each calendar month and it is ensured that:
- the issued e-money cannot technically be associated with the e-money of another holder of e-money or with the e-money of another issuer;
- in the course of the redemption of the issued e-money against cash, the above-mentioned duties of care are fulfilled, unless the redemption of e-money refers to a value of €20 or less or the redemption is conducted by a credit note on an account of the e-money holder at a deposit-taking institution or e-money institution; and
- if the e-money is issued on a rechargeable e-money carrier, the maximum amount of €100 each calendar month cannot be exceeded.
These somewhat complex provisions are accompanied by comprehensive recording obligations for the e-money issuer with regard to rechargeable e-money carriers, and by the creation of a range of intervention instruments in favour of BaFin, in particular where the facts justify the assumption that, with the use of an e-money carrier, the issued e-money can be associated with e-money of another e-money holder or of another issuer. In reverse, where the use of an e-money carrier means that there is a lower risk of money laundering, terrorist financing or other criminal acts within the meaning of Section 25c of the Banking Act, and subject to the reservation of revocation at any time, BaFin can allow an institution (but not an e-money agent) to apply simplified duties of care or abstain from complying with other obligations.
The compromise aims mainly at granting BaFin the greatest possible authority to act in combating e-money products which are especially suitable for money laundering purposes, but without completely blocking the distribution of, in particular, e-money products in respect of which there are no reservations. Of course, it remains to be seen whether and how these strict provisions can be technically applied to compliance with the new €100 threshold. BaFin recently published a leaflet on the provisions of the new Section 25 of the Banking Act, without, however, addressing these topics in a more specific manner. From a technical point of view, it is regrettable that the legislature has again not adhered to the terminology of the Payment Services Supervisory Act. The final version of the act (eg, in connection with e-money distributors) no longer refers to the terms 'distribution and redemption' of e-money, as used in the government draft, but rather uses the term 'issue' of e-money; although Section 23a of the Payment Services Supervisory Act provides an express prohibition on the issue of e-money (ie, the establishment of a civil law obligation to pay an amount corresponding to the e-money created) through e-money agents.
For further information on this topic please contact Florian Bentele at Noerr LLP by telephone (+49 69 97 14 77 0), fax (+49 69 97 14 77 100) or email ([email protected]).