Assessors from the FATF (see info box), one of the most important international bodies for combating and preventing money laundering and terrorist financing, confirm that BaFin has made progress in the area of money laundering prevention. They attest to BaFin’s strong understanding of risks and an effective supervisory system overall. This enables BaFin to ensure that adequate preventive measures can be taken against money laundering and terrorist financing in the financial sector.

The assessment focused on the ministries and authorities involved in combating money laundering and terrorist financing in Germany. This includes the Federal Ministry of Finance (Bundesministerium der Finanzen – BMF), the Federal Ministry of Justice (Bundesministerium der Justiz – BMJ), the Federal Criminal Police Office, the Financial Intelligence Unit, various supervisory bodies at federal state level – and BaFin. The international assessment team also interviewed representatives from the private sector.

What happens during the FATF country assessment?

In its country assessments, the FATF looks into whether the member states are implementing the FATF standards on combating money laundering and terrorist financing (“mutual evaluations”). This is carried out by assessment teams – formed of representatives from other member states and the FATF Secretariat – which are sent to the respective countries. Germany was last assessed by the FATF in 2010.

The fourth round of FATF assessments has been underway since 2013. Germany’s assessment started in 2020 and was due to be completed in summer 2021, but this was delayed by a year due to the coronavirus pandemic.

Prior to this, BaFin had provided comprehensive information and documents to the FATF assessors explaining how it implements the international body’s standards and recommendations and how it ensures that institutions in the finance sector prevent terrorist financing and money laundering effectively. The assessment also involved an on-site inspection lasting several weeks.
During this on-site inspection, representatives from BaFin conducted a large number of interviews, primarily in the BMF, the authority responsible for the country assessment . As part of the inspection, BaFin also hosted the assessors in Bonn for a day in November 2021 and answered their questions.

Results of the country assessment

The FATF plenary – the organisation's decision committee, in which all member states are represented – adopted the country report for Germany in June 2022. The report describes the strengths and weaknesses in the combating of money laundering and terrorist financing in Germany from the perspective of the international assessors. It also contains a catalogue of recommendations for action to resolve the shortcomings identified.

The country assessments in the fourth FATF assessment round focus on two areas. In the area of “Technical Compliance”, the international experts examine whether the laws, regulations and measures needed to ensure compliance with the 40 FATF recommendations on money laundering are in place (see Figure 1). Germany and BaFin scored very well in this respect.

Figure 1: Technical Compliance results

In the second part of the assessment, “Effectiveness”, the assessors assess the effectiveness of the systems in place to combat money laundering and terrorist financing using eleven “immediate outcomes” (IOs) (see Figure 2). In comparison with the country reports for other FATF member states that have been released so far, Germany’s assessment result for effectiveness is in line with the average.

In the two IOs that are most important for BaFin, IO 3 (effectiveness of supervision) and IO 4 (effectiveness of preventive measures in the private sector), Germany received the rating “moderate” (moderate level of effectiveness). So far, more than 90 percent of the countries assessed have received this rating or lower in IO 3 and IO 4. The financial sector, which BaFin is responsible for supervising, and the non-financial sector, which includes, for example, the real estate sector and which is supervised at federal state level, were assessed jointly in IOs 3 and 4.

Figure 2: Results for effectiveness

Assessors highlight BaFin’s strengths

The assessors are particularly positive about BaFin’s strong understanding of risks in the field of money laundering and terrorist financing prevention as well as BaFin’s differentiated risk-based supervisory approach. They state that BaFin has created a satisfactory framework for supervising the financial sector. The assessors’ view is that the frequency, intensity and scope of BaFin’s supervisory actions are adequate and commensurate to the individual risk ratings of each financial institution. Also rated positively are the range of measures and sanctions that BaFin uses and the outreach activities BaFin employs to increase awareness of money laundering and terrorist financing in the private sector. These include BaFin's interpretation and application guidance as well as contributions made in the Anti Financial Crime Alliance (AFCA) and the annual money laundering symposium.

BaFin implements suggestions for improvement

The FATF assessors also see further potential for even more effective monitoring of the private sector – including by BaFin. Some of the recommendations correspond to projects that BaFin has already implemented or that are currently planned. This year, for example, BaFin increased staffing levels in anti-money laundering supervision and created additional supervisory divisions. Among other things, BaFin intends to use this increase in staff to strengthen its own inspection activities in the non-bank financial sector. BaFin will make greater use of its arsenal of measures and sanctions, in particular for long-standing shortcomings in the preventative systems in the banking and non-bank financial sectors.

Next steps

The publication of the country report means that the country assessment for Germany is officially completed. Next year, Germany will issues its first report on the progress of the FATF follow-up process. BaFin welcomes the initiative put forward by the Federal Finance Minister Christian Lindner in light of the report to create a new higher federal authority to combat financial crime and enforce sanctions. This authority would also be responsible for ensuring the coordination of supervisory activities in the non-financial sector.