Nine times out of ten authorities find it impossible to investigate money laundering and terrorist financing offences without the input of a great deal of additional support. The establishment of the private entities´ duty to provide information on potential criminal behaviour virtually helped to increase the authorities´ effectiveness when investigating such offences. On April 10 2018, the Higher Regional Court (OLG) of Frankfurt a. M. decided - 2 Ss-Owi 1059/17 - inter alia that obliged entities, if sufficient grounds exist, immediately have to report relevant circumstances - indicating that money laundering or terrorist financing have been committed - to the competent authority. As a result, a long-term controversial discussion has been bolstered by the court which prompts the need to spotlight reporting requirements under German Anti-money laundering law.

What is the domestic legal framework?

The obligation to report suspicious circumstances stems from the Fourth Anti-Money-Laundering Directive (4. AMLD) which established a higher level of requirements. According to its Art. 33(1) Member States shall require obliged entities, and, where applicable, their directors and employees, to cooperate fully by promptly (…) informing the FIU, including by filing a report, on their own initiative, where the obliged entity knows, suspects or has reasonable grounds to suspect that funds, regardless of the amount involved, are the proceeds of criminal activity or are related to terrorist financing, and by promptly responding to requests by the FIU for additional information in such cases (…). All suspicious transactions, including attempted transactions, shall be reported.

In transition of the 4. AMLD entities are - under further specific requirements - obliged to immediately report the facts which indicate the suspicion of money-laundering or terrorist financing irrespective of the amount of the transaction or the value of the traded property. Under sec. 43(1) German Anti-money laundering Act the reporting obligation requires facts which indicate that

  • property in relation to a business relationship, brokerage or a transaction derived from a criminal offence which could constitute a predicate offence for money laundering
  • a business transaction, a transaction or property is related to terrorist financing, or
  • the contracting party has not fulfilled its obligation to disclose to the obliged entity whether it intends to establish, continue or conduct the business relationship or transaction on behalf of a beneficial owner.

Additionally, German law requires that the obliged entity runs a branch in Germany and the reportable matter is related to an activity of this particular branch.

What are sufficient grounds to indicate the suspicion of money laundering and terrorist financing?

As regards the OLG Frankfurt, sufficient grounds to indicate the suspicion of money-laundering and terrorist financing are not equal to the level required for the initiation of criminal proceedings in general. For reasons of the law´s purpose to prevent unlawful transactions, grounds that indicate a suspicion of money laundering and terrorist financing are on a lower level to grounds that initiate the criminal proceedings conducted by the prosecution office. Prior to this decision legal advisors regularly considered the level at which criminal proceedings must be initiated to be the same as the level at which a report must be made in respect of section 43(1) Anti-money laundering Act. The chamber explicitly considers such professional legal advising practice as incorrect because the report´s purpose is to enable the authorities to prevent suspicious transactions before they are conducted. Consequently, the report should be made immediately as soon as any suspicion of anti-money laundering or terrorist financing occurs.

What are the consequences of non-reporting?

The effective support of the competent authorities requires strict enforcement of the obliged entities´ duty to report suspicious circumstances. According to section 56(1) No. 59 Anti-money laundering Act an offence is committed by anyone who wilfully or with gross negligence, in violation of section 43(1), fails to submit a report or fails to do so correctly, completely or in due time. As the FIU regularly demands further documents in case of incorrect or improper reporting, this part of the provision is just of minor importance. Pursuant to section 56(5)(2) Anti-money laundering Act, the Central service agency of the Federal Government investigates suspicious cases. The fine imposed may reach the amount of 100,000 EUR, section 59(3) Anti-money laundering Act, or in severe cases up to 1,000,000 EUR or twenty times the amount gained through the violation, section 59(2) Anti-money laundering Act.

In contrast, omission of either reporting or reporting in due time take on immense importance in practical terms due to the proximity of the provision to the criminal offence of section 261(5) Criminal Code. Accordingly, anybody who is – in gross negligence - unaware of the fact that the object is a proceed from an act of money laundering or terrorist financing may face severe consequences such as financial penalty or imprisonment up to two years. Essentially, the difference between omission of reporting and unawareness of money laundering or terrorist financing merely depends on the subjective aspects of representatives of the obliged entities.

Are persons held liable if they do not report in due time?

The same circumstances that underly the reporting obligation under section 43(1) Anti-money laundering Act can be subject to the report of the offence pursuant to section 261(9) No. 1 Criminal Code. This provision stipulates a reason to suspend of a criminal sentence. As the report - besides further requirements - essentially must be made voluntarily, it competes with the reporting obligation provided by section 43(1) Anti-money laundering Act. In normal circumstances one cannot act both in compliance with a legal duty and voluntarily at the same time. A person, who reports a suspicious transaction based on section 43(1) Anti-money laundering Act after the transaction was conducted, may fear criminal prosecution due to his participation in this transaction and therefore might be inclined to refrain from reporting relevant circumstances. To prevent obliged persons to be confronted with this dilemma section 43(5) Anti-money laundering Act stipulates that the reporting obligation does not preclude the report from being voluntary under section 261(9) Criminal Code.

Is it likely to be prosecuted regarding other offences?

As a consequence of the report to the authorities, the initiation of every type of investigation either concerning tax evasion, fraud or any other offence against any person involved in the reported transaction is possible. Former section 11(6) Anti-money laundering Act of 2008 stipulated that authorities were entitled to use content of the reporting obligation exclusively to initiate certain proceedings regarding offences such as money laundering, terrorist financing, tax evasion, offences with a minimum sentence of three years imprisonment, proceedings to monitor specific business sectors and proceedings with regard to security needs. After the cancellation of this provision the content of the reporting obligation may be shared with authorities without any limitation. Therefore, the prosecution of other minor offences such as minor tax offences or any other business-related offences is more likely.

Conclusion

Regarding the legal framework and the decision made by the OLG Frankfurt, obliged entities face severe consequences if they do not comply with their duties in respect of German Anti-money laundering law. From now on, entities will report any information which might lead to a large amount of data the authorities have to deal with.