Compliance & Investigations
Fines imposed on anti-money laundering officer
In a press release issued on 25 October 2018, the Frankfurt am Main Higher Regional Court announced that it had confirmed fines imposed on a major international bank’s anti-money laundering officer. In particular, the Higher Regional Court emphasized the statutory rights and duties of an anti-money laundering officer.
In the case that was the subject of the announcement, Germany’s Federal Financial Supervisory Authority, the BaFin, had imposed several fines on a major international bank’s anti-money laundering officer for having violated her duty to file suspicious activity reports relating to money laundering without undue delay. In the first instance, the Frankfurt am Main Local Court had reduced the amount of the fines imposed for negligent delay in filing suspicious activity reports, but confirmed the fines in substance.
According to the ruling, the facts at hand had required that suspicious activity reports be filed without undue delay, but the officer only filed such reports after several months had elapsed since the payment. Moreover, she had only done so because other credit institutions involved in the transactions had in turn complied with their reporting duties and had informed her of this.
In the appeal she brought before the Higher Regional Court, the officer concerned had argued that she had had to undertake her own investigations so as not to file the reports just on the off chance that they might be right. She also argued that the shortcomings found at the bank were the responsibility of the bank’s executive board.
The Higher Regional Court did not accept this view. The Court made special reference to the explanatory memorandum in Germany’s revised Money Laundering Act (Geldwäschegesetz). In this memorandum, the Court stated, legislators have again made it clear that “the view propagated in legal literature and at training sessions on implementing the Money Laundering Act, whereby reporting only becomes necessary where there is reasonable suspicion of a criminal act having occurred, is not correct”.
The Higher Regional Court made it clear that a suspicious activity report relating to money laundering is not a criminal complaint within the meaning of section 158 German Code of Criminal Procedure (Strafprozeßordnung). Only the investigating authorities, the Court stated, are qualified to initiate investigations, not the anti-money laundering officer of a credit institution. Such officers’ task is simply to report the information available in house regarding any event subject to a reporting requirement.
In some cases, the bank’s executive board may be liable in addition to the anti-money laundering officer, but not instead of him or her. Because of the many shortcomings found in the present case, intent rather than negligence was to be assumed, the Court concluded.
Germany’s Federal Financial Supervisory Authority, the BaFin, has long disputed the view that reports of suspected money laundering (Verdachtsanzeigen) constitute a criminal complaint within the meaning of section 158 German Code of Criminal Procedure, which therefore requires reasonable suspicion in terms of criminal prosecution. In fact, this view was only taken in a commentary on the Money Laundering Act and never established itself as “prevailing opinion” in the financial sector. In relation to reports of suspected money laundering, by contrast – and even before such reports were renamed “suspicious activity reports” (Verdachtsmeldungen) in the 2011 reform of Germany’s Money Laundering Act – it was recognized that the threshold of suspicion for this mandatory notification under laws regulating the due conduct of business (Gewerberecht) lies considerably below the threshold for reasonable suspicion for criminal prosecution. All the same, there must at least be a conceivable and possible connection to potential criminal acts involving money laundering for a suspicious activity report to be necessary, so that no reports are filed “on the off chance.” If there are plausible explanations for a transaction that do not point to money laundering, then a suspicious activity report does not need to be filed.
In the case at hand, the key fact appears to have been the requirement for the report to be filed without undue delay. This was not complied with because the officer undertook her “own investigations”. But the matter is not quite as clear cut as the Higher Regional Court makes it out to be in its press release (the original court order is not available, unfortunately). Before a suspicious activity report is filed, the anti-money laundering officer does indeed have to carry out his or her own fact-finding, and this could also be termed an “investigation”. Enhanced due diligence, section 15(5) no. 1 Money Laundering Act expressly states, requires that the obliged entity examine transactions that are especially complex or large-scale compared to similar cases, that follow an unusual course, or which are taken without an economic or lawful purpose being evident, “in order to be able to verify, where necessary, whether a duty to file a report under section 43(1) may exist.” Institutions falling under Germany’s Banking Act (Kreditwesengesetz) will even need to draw on “their own experience and knowledge”, section 25h(2) states, when applying this principle of judicial investigation.
So the anti-money laundering officer in the institution or undertaking is in fact legally required to examine the matter him or herself before filing a suspicious activity report, and a reasonable period needs to be granted for this. The Higher Regional Court stated that “in Germany, only the investigating authorities are qualified to initiate investigations”, but this seems to be an overly terminological view of matters.
It should be conceded, however, that such internal fact-finding should not generally be drawn out over several weeks and that it does not override the requirement to file such reports without undue delay. The anti-money laundering officer’s job here is to find an objectively justified and reasonable balance between collecting information (investigation) and filing the report without culpable delay.
The Higher Regional Court’s decision should serve as a warning to all obliged entities under Germany’s Money Laundering Act to organize their processing of suspected cases of money laundering so as to meet the requirement of prompt reporting and not to draw out the decision-making process unnecessarily. For compliance managers in general, and for anti-money laundering officers in particular, decisiveness is a key personal requirement.