Extending criminal liability for money laundering: update on Germany’s new draft law implementing the latest EU AML directive

August 21 2020

In January, a draft bill reforming the crime of money laundering in Germany (section 261 of the German Criminal Code (StGB)) was leaked. In a February blog post, we criticised how broad the suggested definition was. Last week, the official draft bill was published by the Federal Ministry of Justice. Much to the surprise of German anti-money laundering (AML) circles, it goes even further.

The most important change compared to the unofficial draft and the law in place today is the complete elimination of a catalogue of suitable predicate offences. A ‘predicate offence’ is the underlying crime that originally generated the incriminated funds. Instead, in future, all crimes and criminal offences may constitute a suitable predicate offence (the so called ‘all-crimes approach’).

Secondly, the German legislator recognises the dilemma criminal defence lawyers face when accepting money from their clients and therefore raises the requirements regarding the necessary level of intent.

Content of the draft bill

As reported in the February blog post, the draft bill contains multiple amendments to Germany’s criminal code, criminal procedure code (StPO) and the courts constitution act (GVG). These changes (in the bill’s own words) ‘enormously’ expand criminal liability for money laundering in Germany.

Extension of the crime of money laundering

Section 261 of the criminal code will be fundamentally revamped.

Under the new law, it will be a criminal offence, among other things, to intentionally conceal, exchange, transfer, procure, store or use the proceeds of any crime or criminal offence.

In Germany today, money laundering is above all an offence of organised crime. Only serious crimes (criminal, commercial fraud but not, for example, ‘simple’ tax evasion, corruption offences, insider trading, etc.) can infect funds.

In future, money from all criminal offences will be covered and handling money originating from any criminal offence may therefore constitute criminal money laundering in the future.

This means that, with the stroke of a pen, the legislator has multiplied the proportion of incriminated funds on German bank accounts and in the economy.

Penalties

The draft bill lowers the minimum penalty for money laundering from three months’ imprisonment to a fine. However, there will still be a minimum penalty of three months’ imprisonment if the money-laundering violation is committed by someone obliged under German’s anti-money laundering act (GwG).

Intent

Crimes under the new money-laundering statute will always require intent. This means that reckless behaviour – punishable today – will be decriminalised. Recklessly failing to notice that certain funds resulted from an unlawful act will no longer constitute the crime of money laundering.

The criminal liability of criminal defence lawyers will be limited – at least for some variants of the offence – to cases in which the criminal defence lawyer has certain knowledge of the illegal origin of the funds accepted. For this purpose, a hunch or mere suspicion that money may be ‘dirty’ is not sufficient.

Confiscation

Confiscating assets connected to the new criminal statute of money laundering will be limited to cases in which the crime is carried out on a commercial or organised basis.

Criminal procedure

To deal with the vastly extended scope of the new criminal statute, the draft bill proposes some changes to the StPO.

In money-laundering investigations, law enforcement will still be allowed to wiretap phones (StPO, section 100a), remotely search computers (StPO, section 100b) and gather traffic data (StPO, section 100g) – but only if the predicate offence falls within a more limited catalogue of serious predicate offences.

Court jurisdiction

Today, money laundering cases are treated as cases of general crime. In future, some of the more complex money-laundering offences will be treated as white-collar crimes.

If a case is serious enough to fall under the jurisdiction of the regional courts (Landgericht), the case will be dealt with by the regional courts’ specialised white-collar crime divisions (Wirtschaftsstrafkammer), provided the case requires specialist knowledge of economics.

Practical impacts for companies doing business in Germany

The draft bill will significantly increase the overall number of money-laundering investigations in Germany and the number of ‘successful’ investigations leading to an indictment. Naturally, the number of criminal proceedings increases once the scope of a criminal provision is extended.

The draft bill’s explanatory memorandum furthermore states that the new law aims to ‘bring money laundering more strongly into the focus of the criminal prosecution authorities and enable even more intense prosecution’.

In fact, the Ministry expects such an increase in money-laundering investigations to entail ‘considerable additional costs’ for criminal law enforcement and the judiciary.

Furthermore, the new law would make it easier to prove the illegal origins of the proceeds of crime, thus making it easier for prosecutors to prove the crime of money laundering.

Today, we see quite a few money-laundering investigations fail to meet the requirements for an indictment as prosecutors are unable to provide evidence for a specific predicate offence from which the illicit funds allegedly originated. But in future, it will be enough to show that funds are the proceeds of any criminal offence. According to the draft bill’s explanatory memorandum, the legislator also expects more indictments under the new law.

Reassigning the more complex money-laundering trials that currently fall under the jurisdiction of the regional courts to the specialised white-collar crime divisions seems appropriate. However, proceedings before these divisions are already taking a long time: in some cases it has taken years for a trial date to be set. Unless this part of the criminal justice system gets more resources, affected individuals and corporations should be prepared to wait a long time for their cases to be heard.

While it’s welcome that the mere reckless disregard of the illegal origin of funds won’t lead to criminal liability, this change may have limited practical effect. German criminal law sets a low bar for intent. With the scope of the new offence being broader, public prosecutors may well argue in future that the perpetrator must at least have thought it possible – and accepted – that the funds in question came from any crime. The courts would likely decide that this satisfies the requirement for intent under the new statute.

For companies doing business in Germany, this extension of the criminal liability for money laundering should be closely watched, particularly against the background of the currently discussed introduction of a German corporate criminal law. There is some concern that future proceedings will be initiated based on only vague suspicions and lead to potentially expensive settlements for the affected companies.

Businesses are therefore well advised to closely look at their AML-compliance systems, particularly their suspicious activity reporting (SAR) processes, which are mandatory for most corporations doing business in Germany.

Under section 43 of the GWG, obliged companies must notify the German Financial Intelligence Unit (Zentralstelle für Finanztransaktionsuntersuchungen) of any suspicious transactions, ie transactions where there are indications an asset originates from a criminal offence that could constitute a predicate offence to money laundering.

The draft bill’s explanatory memorandum argues that, as companies are already obliged to report even rather vague suspicions, the effects of the draft bill on SAR obligations are supposedly limited. But we expect prosecutors and regulators to apply even more scrutiny when investigating alleged violations of SAR obligations under the new regime.

Against the backdrop of an exponential increase of SARs in general – in 2019 the number of SARs increased by nearly 50 per cent compared to 2018, amounting to nearly 115,000 reports – and the backlog the FIU is already facing (see our latest blog post on the raid of the FIU by the Osnabrück public prosecutor’s office) it looks like the FIU will need to be much better equipped in future.

In this context, compliance officers and general counsel should know that there is already a very strict system of sanctions under the GwG for companies that fail to meet their AML obligations. For example, under section 56, a corporation can be fined up to 10 per cent of its previous fiscal year’s turnover for certain more serious AML infringements.

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