Anti-money laundering and financial crime prevention

Requirements

What are the main anti-money laundering and financial crime prevention requirements for private banking and wealth management in your jurisdiction?

The main anti-money laundering and financial crime prevention requirements for private banks are twofold:

  • banks and other financial institutions must have organisational procedures and functions in place to avoid money laundering and financial crimes. This includes the appointment of an anti-money laundering officer within the financial institution; and
  • in addition, financial institutions must identify their customers and verify the customer’s identity. This includes identifying beneficial owners. The law also requires an ongoing monitoring of the business relationship with the customer.

Since the last amendment dated 26 June 2017, German anti-money laundering and financial crime prevention requirements are based on the Fourth Money Laundering Directive (Directive 2015/849/EU). The European Union has introduced the Fifth Money Laundering Directive (Directive 2018/843/EU), which extends the rules set out in the the Fourth Money Laundering Directive; however, it has not yet been implemented into German law.

Politically exposed persons

What is the definition of a politically exposed person (PEP) in local law? Are there increased due diligence requirements for establishing a private banking relationship for a PEP?

A PEP is simply an individual who is or has been entrusted with prominent public functions, such as heads of state, ministers and members of parliament, as well as certain relatives. The specifics of the definition essentially follow the PEP definition in Directive 2015/849/EU.

If a PEP is involved, senior management needs to approve the business relationship with the customer. In addition, the institution must take adequate measures to establish the source of wealth and source of funds that are involved in the business relationship or transaction with the PEP. Furthermore, the relationship must be put under enhanced ongoing monitoring.

Documentation requirements

What is the minimum identification documentation required for account opening? Describe the customary level of due diligence and information required to establish a private banking relationship in your jurisdiction.

Customers must be identified on the basis of official identification (ID) documents, such as an ID card or passport. In practice, institutes make a copy of the ID document for their records and check whether the likeness of the customer resembles the photograph on the ID document.

Tax offence

Are tax offences predicate offences for money laundering? What is the definition and scope of the main predicate offences?

Generally, tax evasion is not a basis for a money laundering offence. The bases for the money laundering offence are only crimes (ie, an illegal activity with a minimum sentence of one year’s imprisonment) and certain enumerated offences, such as drug-related offences.

Compliance verification

What is the minimum compliance verification required from financial intermediaries in connection to tax compliance of their clients?

There are no express verification requirements for financial intermediaries in connection with tax compliance of clients. However, a bank employee will be charged with abetment of tax evasion if the employee:

  • incites the tax evasion of the client; or
  • encourages or assists the tax evasion of the client.

In addition, the bank employee abetting tax evasion is liable for the non-payment of evaded taxes plus interest thereon. There is no clear line between acts by an employee that are still legal and acts that already abet tax evasion. The line to a criminal act will likely be crossed if it is obvious to the bank employee that the client wants to open the account to evade taxes.

Liability

What is the liability for failing to comply with money laundering or financial crime rules?

Non-compliance with money laundering crime rules by an institution can lead it to being fined up to €5 million or 10 per cent of its revenue in cases of serious, repeated or systematic infringements. In other cases, non-compliance by an institution can lead it to being fined up to €100,000. In addition, the employee can be charged with the criminal offence of money laundering. This can also lead to an additional fine against the financial institution of up to €1 million. The client itself may be charged with the criminal offence of money laundering (depending on the circumstances).