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Germany's all set for MLD4: Parliament adopts implementing legislation

25 May 2017

On 18 May 2017, the Deutsche Bundestag adopted a draft law for the implementation of the Fourth EU Anti-Money Laundering Directive (Directive (EU) 2015/849) (MLD4), the amendments to MLD4 set out by the European Commission in its legislative proposal of July 2016 (so-called "5MLD"), the EU Funds Transfer Regulation (Regulation (EU) 2015/847) and for the reorganization of the Financial Intelligence Unit (FIU) of the BKA (Federal Criminal Police Office).  MLD4 is being implemented in Germany mainly by amendments to the existing German Anti-Money Laundering Act (GwG) which will enter into force on 26 June 2017, the implementation deadline for the Directive. The timely implementation of MLD4 is thus assured, but there are some changes ahead for firms subject to German anti-money laundering (AML) laws.

A more risk-based approach

The‎ amendments to implement MLD4 will change the structure of the GwG and there will be an impact on the current business conduct of firms which are subject to AML requirements. This includes not only financial institutions but also distributors of e-money, intermediaries such as real estate agents and companies trading in goods (Güterhändler).  In particular, the amended GwG generally applies a more risk-based approach by focusing on firms' assessment of risks and appropriateness of AML measures. This provides greater flexibility‎ in some aspects but also increases the importance of internal risk analysis and AML strategies. For instance, applying simplified due diligence measures will become risk-analysis based rather than rule-based.

 

New obligations, a new Central Office for Financial Transaction Investigations…

Companies also have to face a variety of new obligations under the amended GwG.  For example, on customer due diligence they will be required to verify the power of attorney of representatives of a contracting party in addition to complying with existing Know Your Customer requirements.

Anonymous e-money products will fall under stricter regulation.  E-money issuers will have to prove that they have taken adequate risk management measures in addition to mandatory risk-mitigating measures such as a monthly 100,- EUR threshold and the exclusion of peer-2-peer payments.  Another key element of the revised GwG will be the creation of a so-called “Transparency Register”, which is an externally maintained central register to which companies have to submit beneficial ownership information.

In order to ensure comprehensive enforcement of the new regime, the German legislator will establish a Central Office for Financial Transaction Investigations which will be set up at the General Directorate of Customs (Generalzolldirektion). The Central Office will receive and analyze notifications concerning money laundering or terrorist financing and then forward them to the relevant authorities.

 

…and higher fines for non-compliance

Finally, the German implementation act provides for higher fines for AML violations such as inadequate risk management.  Firms therefore need to take note of the new requirements and ensure that all relevant internal processes and procedures are updated in time for 26 June.

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