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German regulator ups 2019 anti-money laundering efforts after busy 2018

German financial supervisory authority BaFin plans to focus its 2019 money laundering reviews on the correspondent banking relationships of domestic lenders, after doubling the number of financial crime inspections in 2018, the authority said in its annual report.

In the context of money laundering prevention, BaFin conducted or shadowed a total of 90 money laundering prevention inspections in 2018, compared to 44 inspections in the previous year.

The accelerated crime prevention efforts come after a Europe-wide money laundering scheme was uncovered in 2018.


A number of large European banks were drawn into the scandal that was initially centered around the Estonian subsidiary of Danske Bank A/S, which itself was linked to more than €200 billion of dubious transactions.

"BaFin is investigating to what extent transactions were in fact executed via German banks and whether these point to shortcomings in money laundering prevention, especially with regard to the general requirements for correspondent banking relationships," the authority said.

A review of money laundering and terrorist financing prevention measures is ongoing as part of a national risk analysis led by the German finance ministry and results are expected to be released sometime this summer, BaFin said.

In 2018, Germany's largest private lender Deutsche Bank AG was also probed in connection to the Danske scandal, triggering an unprecedented move by BaFin. To prevent money laundering and terrorist financing, the regulator ordered Deutsche to enhance internal money laundering controls and due diligence procedures, and auditing firm KPMG was appointed as special representative to monitor compliance with the order.

"Never before has a special representative been appointed in the context of money laundering prevention," the authority noted.

Special representatives

BaFin has also expanded the powers of such special representatives.

"The special representative can now also draft restructuring plans, address specific weaknesses in an institution's business organization and monitor compliance with BaFin's orders," it said.

"Depending on the particular case, the mandate may range from simply observing and reporting to fully replacing a governing body or one of its members. Their permanent presence in the institution and their comprehensive rights to giving and receiving information make special representatives effective agents of supervision."

The increased number of inspections in 2018 was possible thanks to the establishment of a dedicated group of auditors in 2017, BaFin said.

"The inspections provide direct insight into the prevention systems of the obliged entities and facilitate closer and more direct exchanges of information within the undertakings," it said.

The inspections take into account current events or abnormalities. Focus areas in 2018 included implementing groupwide due diligence obligations, account monitoring and the video identification process, according to the authority.

The focus in 2019 will be correspondent banking relationships and compliance with the requirements under anti-money laundering legislation for the correspondent banking business in banks with international operations, BaFin said.