One click and the money is gone: investors entrusting their savings to apparently reputable online financial services providers experience this kind of thing time and again. Stock deals, loans, insurance policies or the crypto currency jackpot – dubious providers are increasingly expanding their presence on the worldwide web and particularly promoting financial products and services on online trading platforms. And all this without the required authorisation and without being supervised by BaFin. Yet quite often they claim that they are actually under BaFin’s supervision or that of another supervisory authority. Some even operate under the name of a licensed company, which is identity theft plain and simple. All these tricks have one thing in common: they can lead their victims to ruin.

To avoid becoming a victim of fraud, investors are advised to obtain information about the provider before signing any contractual agreement, also and particularly for online transactions. We especially recommend that investors take a look at the warnings published on the BaFin website, and check BaFin’s database of companies. If a company is not listed there, the message is clear: be cautious.

BaFin: averting danger on the illegal unregulated capital market

Anyone in Germany conducting business in the area of banking, financial services, investments, insurance, payment services and e-money must have written authorisation from BaFin to do so (see info box “Business activities that require authorisation”). This is prescribed by law. The market segment in which providers conduct business operations without the required authorisation is known as the illegal unregulated capital market (see info box “The regulated, illegal unregulated and grey capital market“.)

The BaFin Directorate for the Integrity of the Financial System (IF) is responsible for the enforcement of the statutory authorisation requirement and conducts investigations into illegal business activities on the illegal unregulated capital market. If necessary, it also goes before the Administrative Courts to contest cases in which supervisory laws have been breached. By law, BaFin is an authority with responsibility for averting danger (Gefahrenabwehrbehörde) – and the work to combat activities conducted without the required authorisation is a core concern of Directorate IF. In the pursuit of these activities, BaFin works closely with the law enforcement authorities (see info box “Working together with the law enforcement authorities”).

What line of approach does BaFin take? The supervisors begin by checking whether the business activities in question require authorisation under supervisory laws.

If BaFin comes to the conclusion that a provider is, for example, conducting banking business or providing investment services without the required authorisation, it orders that these operations be ceased and liquidated. In order for these orders to be implemented as fast and effectively as possible, they are accompanied by the threat and imposition of coercive fines. The orders are immediately enforceable by law. BaFin publishes these orders as a means to warn potential investors.

As a rule, BaFin applies a risk-based approach also when conducting its investigations into unauthorised business activities. It takes market conditions into account, keeping an eye on new business models and trends, and responds all the more resolutely, the greater the potential damage of the unauthorised business activities is.

Illegal financial transactions: record level reached in 2022

The number of formal measures implemented by BaFin reached a record level of 354 in 2022.

Valuable information from the public

BaFin often launches investigations in response to complaints filed by investors. Business partners, rivals or law enforcement authorities also provide BaFin with information on unauthorised business activities. BaFin then inspects the commercial register and carries out research using online sources and other media. In most cases, it calls on the operators to comment on the activities in question and submit specific documents relating to this.

If the operators fail to cooperate, BaFin is permitted to search their business and residential premises in order to clarify the matter and seize evidence. Specially trained staff members from BaFin’s Directorate IF are sent all over Germany to carry out these searches.

In our interview “We’ll use force if necessary” , a BaFin staff member describes what happens in these searches and who takes part.

BaFin’s special powers to issue orders

BaFin has special powers to issue orders to secure consumers’ money and other assets, for example by having the accounts of the criminal operators frozen. In a best case scenario, these measures make it possible for funds obtained through unauthorised business operations to be paid back to the investors in the course of a liquidation at a later date. BaFin issues such orders especially if there is a danger that an operator intends to transfer illegally generated funds to a foreign country, for example in order to prevent the German authorities from gaining access to this money. Once money has been transferred abroad, investors usually have no hope of ever seeing it again.

In addition, BaFin has special powers to issue orders to account-servicing companies, such as credit institutions. Such orders – especially those issued for the purpose of having accounts frozen – are an effective way to secure money obtained by unauthorised means within a short space of time. BaFin has often, and in many different situations, had accounts frozen – for example for Ponzi schemes, which, depending on their particular structure, can constitute cases of unauthorised deposit business. The amounts in question are sometimes significant: there have been cases of frozen accounts in which BaFin has secured assets running into millions of euros. And another interesting fact: BaFin’s powers of access are not just limited to bank accounts. Directorate IF has also secured holdings of gold and silver as well as cash.

Bitcoin ATMs: high money laundering risk

BaFin also conducts investigations into companies that illegally operate bitcoin ATMs. Bitcoin can be bought or sold at such ATMs. The key point is that a company offering this relatively new financial service in Germany requires authorisation from BaFin to do so.

A number of bitcoin ATMs are operated by licensed companies, which means that they are legal. But there are also many providers operating such ATMs without the required authorisation. For example, they advertise the fact that anyone can use their ATMs anonymously, i.e. without an identity check being made of the person using the ATM. In return, they charge a fee for this that far exceeds market levels. Operating such ATMs without the required authorisation is a punishable offence. The ATMs can be used for money laundering purposes, i.e. to conceal profits gained from criminal activities. And at a very low risk of discovery.

BaFin is therefore intensifying its efforts to combat the unauthorised operation of such bitcoin ATMs, confiscating the ATMs as evidence in order to further clarify the matter and for any administrative court proceedings that might follow.

Focus on fraudulent online brokers

For many members of the public, settling banking and financial transactions online is part of their everyday lives. Criminals from the world of organised crime also use this to their advantage. The huge efforts made by criminals to create an impression of reliability and obtain good reviews for their companies on the web make this especially dangerous for potential clients. They operate very professionally online and in their personal communications while abusing the identity of existing law-abiding companies.

BaFin therefore continues to focus on fraudulent online investment platforms as part of its work to enforce the authorisation requirement. Cases continuously come to light in which investors active on the internet are encouraged by apparently reputable online brokers to invest large amounts of money on online trading platforms. The offerings are tempting as they promise high profits and the trades are simple to carry out.

These criminals frequently pursue their activities in groups and across borders. BaFin is therefore stepping up its national and international cooperation with the investigating authorities. It also focuses its activities on prevention by providing the public with information on specific topics. To shield potential investors from investments in fraudulent products and services and curb these activities, BaFin publishes warnings on its website.

Beware of the latest tricks

Since mid-2021 there have been more and more incidents of potential investors being contacted directly – mostly by phone. They are offered the chance to invest in shares of well-known companies that have announced an intention to float either their own shares or those of an affiliated company on the stock market. However, after transferring the money for the shares mostly to a foreign account, the victims of this scam never receive the shares and are no longer able to make contact with the providers. In most cases, the providers do not even exist; in other words, they are complete fakes.

In other cases, investors are offered the chance to invest in what are claimed to be term deposits. They are led to believe that an account will be opened under their name at a well-known foreign institution. After transferring the money, the investment is lost. And BaFin has no means of accessing foreign accounts.

Fraudulent job offerings: financial agents wanted

Since mid-2021, there has been a new trend in which private individuals are hired for supposedly lucrative jobs as “financial agents”. Their task is to allow their own current account to be used by alleged customers for paying in or transferring amounts of money or to open an account allegedly for test purposes. Their “employer” then instructs them to transfer sums of money.

In actual fact, these victims’ accounts are being abused for payment settlements. The victims might even be committing a crime themselves without knowing it. This is because the funds usually stem from criminal activities, the intention being to mask where they came from and where they can be found. For the purposes of money laundering prevention and to caution people against accepting such offerings, BaFin regularly publishes warnings and latest news on its website.

Huge amounts of money lost – and even more money saved

Conservative estimates show that the value of the illegal financial transactions in the focus of BaFin’s prevention activities lies in the region of several hundred million euros. The financial damage that BaFin spares investors each year is likely to be significantly higher.