Germany’s new Federal Office to Combat Financial Crime (BBF - Bundesamt zur Bekämpfung von Finanzkriminalität) will face many tough tasks when it opens its doors in January 2024.
When the BBF or Federal Office to Combat Financial Crime was announced last year, the German government hailed it as a vital weapon in the country’s fight against growing money-laundering and terrorist financing (MLTF) risks.
Creation of the BBF was announced around the same time as a Financial Action Task Force report identified the country’s need for significant anti-MLTF improvements.
Germany is the largest economy in the European Union, but analysis of the FATF report showed it rated lower on anti-money laundering results when compared to Spain, France, and Italy.
The new Federal Office will have three main pillars:
Germany has been described as a paradise for money launderers – especially organized crime groups from Italy. Cash use is still high in Germany compared to other European countries, and this can include use of cash for buying properties, which makes it particularly attractive to money launderers.
Successfully fighting financial crime requires a highly connected and coordinated approach, and this is a particular challenge for Germany given its federal system in which states have significant control over prosecutions. The fragmentation of approach doesn’t necessarily create the best starting point for anti-MLTF action.
The FATF said Germany needs more proactive and systematic investigation and prosecution of financial crime. It should also focus more on resourcing MLTF investigations and ensuring a more consistent risk-based approach overall.
The FATF also recognized the country had made significant reforms over the previous five years, but these were in the early stages of implementation. The country needs to keep prioritizing implementation; and enhancing collection, analysis, dissemination, and use of financial intelligence to combat financial crime.
This is happening against the background of the EU’s rollout of a super-regulator - the Anti-Money-Laundering Authority (AMLA) - planned for 2024 to 2026. Many countries and cities are bidding to host AMLA’s headquarters. The creation of the new Federal Office might strengthen Germany's application to host AMLA in Frankfurt, but only if it can show concrete progress against money-laundering in the short term.
To strengthen anti-financial crime efforts, German Finance Minister Christian Lindner, pledged to:
These reforms aim to dedicate and bundle AML competencies, and bring analysis, criminal investigations, and supervision under the new Federal Office’s umbrella. This should create a holistic and networked approach to AML and overcome some of the issues of fragmentation.
Lindner called it a milestone in the fight against money-laundering, but the reforms have had a mixed response. While most politicians and other commentators have recognized them as a step in the right direction, some claim more needs to be done to tackle Germany’s pressing financial crime problems.
The new office should help increase resources for AML enforcement and criminal investigations. It could also help solve some of the much-discussed problems at Germany’s Financial Intelligence Unit (FIU), which will operate under the new Federal Office.
But others have said the FIU’s problems will not be easy to solve as it has repeatedly made negative headlines. For example, last year, it was widely reported that, between 2020 and 2022, suspicious activity reports (SAR) were processed too slowly and forwarded to police and prosecutors too late.
The backlogs were blamed on FIU's lack of internal control and insufficient personnel, as well as IT system adjustments.
Another commentator has lamented FIU officials’ lack of a legal basis for risk-based filtering of SARs. But the government is now attempting to right this following a September 2023 proposal to change the law in a way that clarifies what constitutes a risk-based approach.
Newspaper, Suddeutsche Zeitung, reported critics saying the new federal authority will lack power to solve Germany’s complex anti-financial crime problems.
In addition to the new authority, Germany needs more transparency of individual’s fortunes, limits on cash-based transactions, and a rapid move towards the proposed ban on cash property sales, they said.
In this regard the new real estate transaction register should help, which concerns reporting data from courts, authorities, and notaries in the case of acquisitions with a purchase price of EUR 100,000 or more. In this respect, the BBF is to receive corresponding data records via an interface.
Perhaps the biggest challenge highlighted by observers is Germany’s strong federal system with states holding power over prosecutions. The German government therefore needs to get each state on board and working in a coordinated system to turn the tide its way.
It will cost German taxpayers a reported EUR 700 million to set up the new Federal Office over four years. That’s nothing compared to the estimated EUR 100 billion laundered in Germany every year. If the states buy into the new reforms, the new BBF could make rapid progress in tackling its to-do list next year, but the challenges remain significant.
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