Concept and definition of money laundering
Money laundering refers to the process by which assets originating from criminal acts are introduced into the legal economic cycle in order to conceal their illegal origin. The goal of money laundering is to hide the origin of the funds and pass them off as legitimate. In legal terms, money laundering in Germany is in particular governed by Section 261 of the German Criminal Code (StGB), which contains the relevant criminal provision.
Legal basis for money laundering in Germany
Criminal Code (StGB)
The offense of money laundering is anchored in Section 261 StGB. Under this provision, anyone who conceals assets derived from an unlawful act, obscures their origin, or introduces them into the financial and economic cycle is liable to prosecution. Any action that is capable of thwarting or preventing the investigation of the origin, discovery, or confiscation of such assets is also covered by Section 261 StGB.
Elements of the offense
- Assets: This includes money, securities, real estate, or other assets, irrespective of their physical or virtual form (for example, cryptocurrencies).
- Predicate offense: Money laundering requires that the assets originate from an unlawful act (predicate offense). The law applies to both serious and less serious offenses, as long as they are punishable.
- Acts of commission: Typical actions include transferring money abroad, exchanging cash into other assets, or transactions via third-party accounts to make tracing more difficult.
Criminal liability and sanctions
The criminal offense of money laundering is punishable by imprisonment of up to five years or a monetary fine. In particularly serious cases, such as if offenders act commercially or as members of a gang, the prison sentence can be up to ten years. Attempted money laundering is also punishable.
Voluntary disclosure and mitigation of penalties
Under certain conditions, active remorse under Section 261 (9) StGB can lead to a mitigation of penalty. The prerequisite is that the offender contributes in time to the clarification of the facts.
Prevention and combating money laundering
Money Laundering Act (GwG)
The Money Laundering Act (GwG) plays a central role in the prevention of money laundering. The legislator has established various obligations for so-called obligated parties (e.g., banks, real estate agents, and notaries) within the GwG. The objective is to prevent illegal funds from being introduced into the legal economic cycle.
Obligations under the GwG
- Obligation to identify: Obligated parties must identify their contracting partners when establishing business relationships or conducting certain transactions.
- Obligation to report suspicious activity: If there is suspicion of money laundering, a report must be filed without delay to the Financial Intelligence Unit (FIU) at the General Customs Directorate.
- Record-keeping and retention obligations: Business transactions and transaction documents must be retained for a specified period.
- Internal safeguarding measures: Companies are required to implement internal safeguarding measures such as risk analyses, appointment of money laundering officers, and appropriate employee training.
Supervision and sanctions
Compliance with the Money Laundering Act is monitored by supervisory authorities. Violations of the obligations under the GwG can be sanctioned with fines and, in serious cases, with severe penalties against responsible persons within the company.
International regulations and cooperation
EU law and FATF
Combating money laundering is not only a national but also an international task. The European Union has introduced comprehensive measures to harmonize anti-money laundering efforts among Member States through several EU directives, including the 5th EU Money Laundering Directive. In addition, the Financial Action Task Force (FATF) sets international standards for the prevention of money laundering, which must be implemented by the Member States.
International cooperation
In cross-border money laundering cases, different investigative authorities such as Interpol, Europol, and national FIUs cooperate with each other. The aim is to trace money flows and to sustainably dismantle international money laundering networks.
Typical methods of money laundering
Stages of money laundering
The money laundering process typically takes place in three steps:
- Placement (introduction): Illegal funds are introduced into the financial cycle, for example, by depositing into accounts, purchasing securities, or through gambling.
- Layering (concealment): The origin of the money is disguised through numerous transactions, such as transfers and exchanges.
- Integration (inclusion): The now seemingly legitimate assets are used for investments or consumer goods and thus finally enter the legal economy.
Modern methods and challenges
Digitalization has given rise to new methods, such as the use of cryptocurrencies, digital payment service providers, or international e-commerce platforms. This creates new challenges for combating money laundering, particularly regarding the traceability of transactions.
Money laundering and asset confiscation
Securing and confiscation
The legal regulations on asset confiscation permit the seizure and subsequent confiscation of assets resulting from money laundering. This is an important tool to deprive perpetrators of the material incentive to commit the offense and to protect the integrity of the market.
Limitation and recovery assistance
Money laundering offenses are subject to the general statutes of limitations for criminal offenses. In addition, there is the possibility of international recovery assistance, whereby foreign authorities cooperate in the confiscation, securing, and repatriation of illegally acquired assets.
Money laundering in the corporate environment
Companies can become involved in money laundering cases both unintentionally and intentionally. It is therefore particularly important for companies to establish effective compliance structures and internal control mechanisms. Suspicious activity reports and transparency in all business processes are essential elements of prevention.
Summary money laundering encompasses not only criminal law aspects but also far-reaching preventive, supervisory, and international dimensions. The legal provisions serve to protect the integrity of the financial system and are central to combating organized and corporate crime.
Frequently asked questions
How does a typical money laundering criminal proceeding unfold in Germany?
Criminal proceedings for money laundering usually begin with an initial suspicion, which is typically established by law enforcement authorities, especially financial supervisory authorities or the police. Information is gathered through the reporting procedure (Section 261 (9) StGB) and money laundering suspicion reports in accordance with the Money Laundering Act (GwG). After criminal investigations are initiated, the public prosecutor’s office conducts the investigations, during which searches, account seizures, or the freezing of assets (Section 111b StPO) are possible to ensure so-called recovery assistance. Parallel to this, banks and financial service providers are usually requested to provide information. If charges are brought, a trial is held before a criminal judge and evidentiary proceedings are conducted. The defense may raise extensive objections—especially regarding the origin of the funds and the recognizability of the predicate offense. The proceedings conclude with a judgment, in which, in addition to a criminal conviction, ancillary consequences such as confiscation and monetary fines are often imposed. Appeals may be lodged against the judgment, and in particularly serious cases, prison sentences without probation are also possible.
What reporting obligations do obligated companies have under the Money Laundering Act?
Under the Money Laundering Act (GwG), so-called obligated parties—which include, in particular, banks, financial service providers, real estate agents, traders, lawyers, and notaries, under certain conditions—are required to report unusual or suspicious transactions promptly (without delay) as per Section 43 GwG to the Financial Intelligence Unit (FIU). The reporting obligation exists regardless of whether the attempted transaction or its completion has been detected. The obligation includes, among other things, the requirement to identify the beneficial owner (Section 10 GwG), to collect and retain documentation, and to establish effective internal safeguarding measures (Sections 4–6 GwG). If obligated companies fail to comply with these duties, high fines are threatened under Section 56 GwG, as well as further supervisory measures, including the possible withdrawal of business licenses.
What are the consequences of violating the Money Laundering Act?
A violation of the Money Laundering Act (GwG) can have civil, criminal, and regulatory consequences. Administrative offenses can be punished with fines of up to 5 million euros or twice the economic benefit obtained from the violation. In cases of intentional or negligent failure to report suspicious situations, criminal liability for punishable money laundering (Section 261 StGB) can also arise. Companies also risk reputational damage, loss of business or operating licenses, and entries in the central trade register. Furthermore, confiscation of crime proceeds and asset forfeiture must be expected. Employees may face employment law consequences such as warnings or dismissal.
What due diligence obligations do banks and financial institutions have in the context of money laundering prevention?
Banks and other financial institutions are subject to enhanced due diligence obligations under the Money Laundering Act, particularly in establishing and continuously monitoring business relationships. The most important obligations include: identifying the contracting partner and the beneficial owner (Section 10 GwG), assessing the risks associated with business relationships (Section 5 GwG), documenting and retaining all relevant information and documents (Sections 8, 10 GwG), the ongoing monitoring of transactions including the detection of anomalies, as well as implementing an effective risk management system (Section 4 GwG). In addition, employee training must be conducted and a central reporting office (money laundering officer) established, which reports directly to management. Non-compliance can lead to regulatory measures and severe fines.
What role does the confiscation of assets and asset forfeiture play in money laundering proceedings?
The confiscation of assets and asset forfeiture are central elements in the fight against money laundering. Pursuant to Sections 73 et seq. StGB, all assets obtained through a criminal offense can be confiscated by the state. This serves to eliminate criminal profits and prevent offenders from benefiting from unlawful acts. In money laundering proceedings, courts must examine whether assets originate directly or indirectly from a predicate offense and are thus subject to confiscation. Law enforcement authorities can already take interim security measures (seizure, garnishment) during the investigation to secure the subsequent judgment. Confiscation is also possible if the offender can no longer be found or if the proceedings are discontinued for other reasons. Under certain conditions, victims have a right to recover confiscated assets.
When does a duty of confidentiality exist for lawyers towards law enforcement authorities in connection with money laundering?
Lawyers are generally subject to a special duty of confidentiality under Section 43a BRAO. However, under the Money Laundering Act, there are exceptions: the reporting obligation does not apply to lawyers if they receive information in the course of defense, representation in proceedings, or legal advice before, during, or after legal proceedings (see Section 43 (2) GwG in conjunction with Section 2 (1) no. 10 GwG). However, as soon as lawyers participate to a certain extent in business transactions outside these areas (e.g., in the formation of companies, management of money, real estate, and assets), they may be required to report. Violations of the reporting obligation can also result in disciplinary and criminal consequences for lawyers.
What international obligations must Germany observe in the area of anti-money laundering?
As a member state of the European Union and signatory of international agreements, Germany is obliged to comply with international minimum standards for money laundering prevention. These include, in particular, the 6th EU Money Laundering Directive, recommendations of the Financial Action Task Force (FATF), and United Nations conventions (especially the Palermo Convention against Transnational Organized Crime). These requirements are regularly implemented into national law and adjusted through corresponding amendments to the Money Laundering Act, criminal law, and further regulations. Compliance is monitored through international peer reviews, and violations can result in international sanctions and reputational damage.
