As a result of the recent financial scandals (e.g. Panama Papers) and the financing of terrorist groups in the terrorist attacks in Paris and Brussels, the EU has taken countermeasures with the 5th EU Money Laundering Directive. With it, money laundering prevention is now centered around a new risk-based approach. Obliged entities are required to implement effective risk management that addresses money laundering concerns and includes (group-wide) risk analytics and internal safeguards. Since January 1, 2020, based on the 5th EU Money Laundering Directive, the requirements for money laundering-related risk management have again increased, in particular also for goods traders and real estate agents. With the new Anti-Money Laundering Act, these requirements have now been enacted in Germany.

The main changes are outlined in the following chart.

The first question that arises is which companies are deemed obliged entities within the meaning of the AMLA. These are named conclusively in section 2 (1) AMLA. In addition to companies in the financial services sector – credit and financial services institutions and certain insurance companies – this also includes a number of companies in the non-financial sector.

These include:

Particularly in the case of companies with a group structure, it stands to reason that such identification across all subsidiaries can be quite challenging. Even more so if parts of the company are located abroad and the applicable national regulations must also be observed. In addition, there are numerous exceptions that make the identification of obliged entities increasingly difficult: for example, social insurance carriers or the Federal Employment Agency are not among the addressees of the AMLA, even if they would be subject to the Money Laundering Act according to the criteria set out in section 1 of the German Banking Act (KWG).

Risk analysis is the starting point of money laundering compliance. Pursuant to s5 AMLA, obliged entities are required to identify and assess the money laundering-related risks of their transactions through risk analysis. The specific design of the risk analysis is the responsibility of the obliged company. However, the AMLA provides some indications as to when the analysis is to be considered appropriate.

The challenge for obliged entities is now to apply the risk indicators to their specific company and to prepare a coherent analysis from which appropriate measures can be derived.

The internal security measures are based on the risk analysis mentioned above. They are the procedural focus and serve the purpose of effectively preventing money laundering. Companies that fail to implement the new legislation on security measures run the risk of high fines.

The foundation of internal safeguards is formed by internal policies, procedures, and controls. They are the framework within which all other measures are put into context and integrated to achieve specific money laundering-related compliance.

On top of that, the legislation includes several additional measures in section 6 et seq. AMLA, which are listed below as examples:

The following steps must be considered when setting up or rolling out an effective and appropriate money laundering prevention system: