Dear friends, dear interested,
Last week, on Wednesday 26 October 2022, Germany has taken a big step in the enforcement of sanctions against oligarchs and the fight against money laundering as well as organised financial crime: the Federal Cabinet passed the draft of the “Second Sanctions Enforcement Act” (SDG II). Unlike the first SDG, which mainly contained short-term measures, SDG II was about urgently needed structural reforms. These serve not only in the short term to better enforce sanctions against Russian actors connected to the war of aggression against Ukraine, but in the long term to strengthen the state and law enforcement in the fight against financial crime. This issue has accompanied me politically for more than 20 years now, so this was a success for me. In just a few months, in the Federal Government we have succeeded in doing what I fought for in the European Parliament for years.
These are the most important measures from SDG II:
- Central Office for Sanctions Enforcement (ZfS). Located at the Directorate General of Customs and, in the longer term, at the new higher federal authority for combating financial crime, the competences for the identification and seizure of sanctioned assets will be bundled here.
- Register of assets of sanctioned persons and partnerships. The ZfS creates a central register that also includes assets that cannot be clearly assigned. This will give us a clearer picture of where money from questionable sources is located!
- Real estate sector gets more transparency. In order to bridge the time until a nationwide electronic database land register will be completed, this draft law provides for real estate data, which is compiled in the Länder by the land registry offices and cadastral offices, to be made available for the transparency register as well. This will give us a quick insight into the ownership of real estate without having to wait for the establishment of a central land register database, which will probably take years.
- Cash payments for the purchase of real estate will be excluded in the future. Payment with crypto-currencies and commodities such as gold will also no longer be possible in the future. This will finally close a long known, gaping loophole for money laundering, for which Germany has often been rightly criticised in European comparison. In parallel, the EU is working on a (high) Europe-wide cash ceiling.
SDG II also contains further measures that can be read here on the BWMK website in German (and below in an unofficial translation), especially on the topic of whistleblowers and transparency in companies.
With this legislative package, we have achieved a first major step against organised financial crime. Only months ago, such a plethora of comprehensive regulations would have been unthinkable. This is also an important signal to our international and European partners, who have rightly criticised Germany for a long time for being too lax in dealing with financial crime.
Special thanks go to our colleagues in the Federal Ministry of Finance, the Federal Chancellery, the Federal Ministry of the Interior and all those involved here in the Federal Ministry of Economics. We have achieved a great deal under joint leadership. The trusting and intensive cooperation shows that our coalition government can really get things moving together.
We have big plans in the fight against money laundering and organised financial crime: much has been achieved with SDG II, but far from everything that would be necessary. That is why we, as the Federal Government, are currently forging further measures to effectively combat money laundering and organised crime. We are committed to these in the course of sending the law to the Bundestag and the federal states. These include, in particular, measures to better identify beneficial owners who have so far been able to use a web of opacity and loopholes to conceal their identity:
- Link registers and close loopholes.
By further linking existing registers and closing loopholes, data relating to assets should be better structured and thus made effectively usable and searchable. Only in this way can assets located in Germany be clearly assigned to the beneficial owners – with all the consequences if these assets were not acquired legally.
- Creation of a fully digitalised real estate transaction database
Information from notarial certifications of real estate transactions is to be stored in a new database to be set up. This database is to provide fully digital access to up-to-date data for the competent authorities in the area of sanction enforcement as well as for the agencies responsible for combating crime and, in particular, money laundering. This is an important key to successful investigative procedures.
- Further measures against asset concealment
Currently, there are considerable loopholes that make the identification and transparency of beneficial owners partially impossible. These loopholes are to be consistently closed and an investigation possibility for the clarification of non-determinable beneficial owners is to be created for a federal authority. In plain language, this means that the state will no longer accept that companies owning real estate, for example, do not provide information on their actual owners and instead only disclose their managing directors. Those who do business (and make profits) in sensitive areas must disclose their identity.
The basic rule is that investigating authorities must be able to intervene if there is imminent danger – i.e. in particular if there are special risks with regard to money laundering or sanctions and it is unclear who exercises de facto control over the assets. If in these cases the beneficial owner of assets cannot be proven by the holder, a far-reaching restriction of disposal or confiscation will take place within the limits of constitutional law. We will jointly create the legal basis for this.
Furthermore, in dialogue with the Länder, we will push for the registers for real estate and companies to contain up-to-date and correct information about the beneficial owners or link to them. Only in this way can these important databases be used effectively and develop their full effect.
- Anti-Money Laundering Package of Measures:
In August, the Financial Action Task Force once again certified Germany as having considerable deficits in the fight against money laundering and terrorist financing (report here). In response, the Federal Ministry of Finance presented a concept to effectively combat financial crime, which contains many good proposals. We in the Federal Government will continue to work together on the design of this concept and further improvements of the legal framework. This involves both the establishment of a new higher federal authority and the strengthening of investigative capacities in complex and international money laundering cases. Supervision in the non-financial sector must also be further improved.
So there is still a lot of room for improvement in the fight against money laundering and organised crime. With the Sanctions Enforcement Act II, we have achieved a lot, but by no means everything that was needed. Today’s cabinet decision is therefore also the starting signal for further work against money laundering and organised crime in the Federal Government.
Personally, I am particularly pleased with this legislative package. For years, I fought in the European Parliament with many allies, also within other parliamentary groups, for these measures to come about. The fact that this has now finally borne fruit after less than a year in the Federal Government is really good news.
Special thanks therefore also go to all those in civil society and law enforcement agencies who have campaigned publicly and behind the scenes for a change of course in the fight against financial crime. Today we can say: we succeeded!
With pleased greetings,
Yours, Sven Giegold
Joint press release of the Federal Ministry of Finance and the Federal Ministry of Economics and Climate Protection of 26.10.2022 (Unofficial translation from German)
The Federal Cabinet today adopted the draft of a Second Sanctions Enforcement Act (SDG II). This will now be forwarded to the Bundesrat for its opinion. At the same time, the coalition parties in the German Bundestag can pass an identical bill on the basis of the draft in order to speed up the legislative process.
While the first package of laws (Sanctions Enforcement Act I), which entered into force at the end of May 2022, contained measures that could be implemented in the short term, SDG II now also proposes structural improvements for sanctions enforcement in Germany.
The Federal Government is thus fulfilling its promise to the Länder to transfer the asset investigation and freezing powers introduced by the Sanctions Enforcement Act I, which were to be exercised by the Länder, to a central agency of the Federal Government. For this purpose, the Federal Ministry of Finance establishes a “Central Office for Sanction Enforcement” in its portfolio. The central office will initially be located at the General Directorate of Customs.
With the creation of the Central Office for Sanction Enforcement, the relevant powers for sanction-related asset identification and the creation of a register for assets of sanctioned persons and partnerships are also regulated in the Sanction Enforcement Act II, including the possibility of recording certain assets that cannot be clearly allocated in a sanction-related asset identification procedure.
In addition, more transparency is to be achieved, particularly in the real estate sector. In order to bridge the time until a nationwide electronic query facility for land registers (database land register) will be completed, the draft law provides for real estate data exchanged between land registry offices and cadastral offices in the Länder to be made available for the transparency register as well.
The draft law also includes regulations to combat money laundering. In particular, cash payments for the purchase of real estate are to be excluded in the future. The ban also extends to consideration by means of crypto assets and commodities. This measure will effectively address money laundering risks in the real estate sector.
The draft law contains many other regulations that will contribute to making the enforcement of sanctions even more effective and at the same time achieve important improvements in the further fight against money laundering. This concerns, for example, the establishment of a whistleblowing unit, the possibility of appointing a special representative to monitor compliance with sanctions in companies and making ownership and control structure overviews of the transparency register usable for authorities and obligated parties.
In the course of the concept presented by the Federal Ministry of Finance for a powerful fight against financial crime, measures to eliminate the deficits identified by the review of Germany by the Financial Action Task Force and to further improve the legal framework are being worked on with the early and comprehensive involvement of the ministries. This includes organisational changes through the establishment of a new higher federal authority as well as the strengthening of investigations in complex and international money laundering cases and improvements in supervision in the non-financial sector. You can find more information here.
You can access the report of the Financial Action Task Force here.