Financial supervisors, prosecutors and banks in Germany have joined forces in the fight against financial crime. Together with over a dozen banks, the Federal Financial Supervisory Authority (BaFin), the Central Customs Authority’s Financial Intelligence Unit (FIU) and the Federal Criminal Police Office founded the Anti Financial Crime Alliance (AFCA) at the end of September. The new public-private partnership aims to tackle money laundering and terrorist financing. It primarily focuses on exchanging information and expertise.

BaFin Chief Executive Director Dr Thorsten Pötzsch is one of six members of the Management Board, which is at the helm of the new institution. In an interview with BaFinJournal, he discussed his new role, recent money laundering scandals and how abuse of the financial system can be prevented.

Dr Pötzsch, you have recently established a task force with other authorities and a number of banks. Is the problem of money laundering in Germany getting out of hand?

No, even if those who read the papers every day might have the impression that this is the case. But it can still be said that this issue has gained a lot more public attention. In fact, there has been an increase in the number of suspected money laundering cases reported by obliged entities, particularly from the financial sector, which is at the heart of BaFin’s activities.

How significant is the damage caused by money laundering and terrorist financing?

The damage is huge for the economy. There are only approximate estimates regarding the extent of money laundering activities, and these estimates are immensely difficult to verify, as many crimes remain undetected. But if we look at the few studies that have been conducted on this topic, we can see that the entire volume of money laundering within and outside the financial sector in Germany is significantly above the amount of EUR 50 billion and probably amounts to over EUR 100 billion a year. The 4th EU Anti-Money Laundering Directive also points out that the threat posed by money laundering and terrorist financing can cause significant damage to the soundness, integrity and stability of both credit institutions and other financial institutions. Trust in the financial system can also dwindle.

Critics are calling Germany “a money laundering paradise”. Is Germany making it easy for criminals to launder money that has been obtained illegally?

There is certainly room for improvement as far as the prevention of money laundering is concerned. This does not only apply to Germany, as this can also be seen internationally. This is why I welcome the fact that regulatory loopholes are being closed and that money laundering risks that have been identified are being addressed with the implementation of the 5th Anti-Money Laundering Directive. At BaFin, we will be providing our close and strong support from a supervisory point of view.

Until now, only public authorities had been tasked with fighting money laundering. Why have you called on over a dozen banks from the private sector to get involved in the new AFCA anti-money laundering alliance?

It is a well-known fact that the best results are achieved when we all pull together. And despite our different roles, we share a common commitment: the fight against money laundering and terrorist financing. This is why I am delighted that a wide range of entities have united as part of the AFCA to ensure that knowledge and information are shared extensively.

What interests do banks have in preventing money laundering?

It is in their own interest not to be taken advantage of for money laundering or terrorist financing purposes – simply to avoid any damage to their reputation or to prevent significant financial losses which may also jeopardise a bank’s very existence. The most recent international money laundering scandals, such as the Russian Laundromat, the Azerbaijani Laundromat, the Troika Laundromat, mirror trading and Danske, have shown that the potential damage for individual banks can reach an unpredictable scale – and even lead to the insolvency of a bank. This actually happened last year: Latvia's third-largest bank, ABLV, slipped into an existential crisis following allegations of money laundering. Now, the bank is insolvent.

What was the decisive factor for establishing the AFCA anti-money laundering alliance?

The last few years have shown that a network between industry on the one hand and supervisors on the other is essential for preventing money laundering and terrorist financing. This is why we have established the AFCA. We founded the alliance with the intention of establishing an ongoing, strategic partnership in the fight against money laundering and terrorist financing. In this alliance, various approaches are to be developed in order to strengthen the strategic exchange of information. The objective is to identify patterns and phenomena that will help us develop new typologies to generally improve the prevention of money laundering and terrorist financing.

What will be BaFin’s duties as a member of the alliance?

BaFin, the Central Customs Authority’s Financial Intelligence Unit and the Federal Criminal Police Office represent the public sector, under the leadership of the FIU, on the AFCA’s Management Board. The financial industry is also represented by three board members. As a member of the Management Board, BaFin will contribute towards decisions on the overall direction of the AFCA’s strategy. Moreover, BaFin is co-chairing the first working group that is in charge of the financial sector. Of course, BaFin will assert its position by drawing on its expertise as an integrated financial supervisory authority. BaFin will also be playing a monitoring role and serve as a link within this context, too. In the medium term, we will need to see how the AFCA’s productive results can be applied in the security systems of obliged entities.

The United Kingdom serves as a prime example with its Joint Money Laundering Intelligence Taskforce (JMLIT). What will you be taking on board from the UK?

During the conceptual stage of the AFCA, other existing models were examined, of course. We also looked at the Joint Money Laundering Intelligence Taskforce, which is a joint working group between the public sector and the private sector that is led by the National Crime Agency. All of these models are essentially aimed at allowing for a structured and strategic exchange of information between different players – the public sector on the one hand and the private sector on the other. Information that is initially fragmented is then systematically amalgamated. This offers potential for further information, which, in turn, is to be taken into account in the prevention systems used in the private sector. We want to learn from all comparable projects, and we will certainly take on good approaches that can work for the AFCA, now and in the future.

Dr Pötzsch, thank you for your time.

Interview by Annkathrin Frind, BaFin Division for Speeches and Publications