The widespread use of cash in Germany exposes the country to a higher risk of money laundering, its finance ministry said in its first financial crime risk assessment report.
Germany's risk is elevated due to its economy being attractive for foreign investment, meaning the ministry rates its money laundering risk as medium-high, or the second-highest in a five-scale rating, the Oct. 19 report said.
With gross domestic product of €3.34 billion at current prices, Germany is Europe's biggest economy and has been relatively slow to adopt digital payments. As of 2017, 47.6% of all payments were in cash compared with 53.2% in 2014, according to the German central bank's payment behavior studies. Around 74% of smaller transactions were paid in cash and 88% of the citizens polled for the study said they intended to continue using cash in the future.
In the shadows
Cash payments are simple, safe, efficient and anonymous but cash is also seen as the driver of the shadow economy, the German central bank said in a study published July 26. The Bundesbank estimates that the shadow economy accounts for between 2.4% and 16.6% of German GDP, while illegal cash payments in the country stand at around €75 billion a year.
The anonymity factor is attractive to money launderers and it is hard to estimate the exact amount of money laundered in Germany because there is not enough reliable data about unreported suspicious payments, the ministry said. However, a recent study on hidden crime in the system conducted on the ministry's behalf in 2016 puts the amount laundered in Germany annually at €100 billion, it said.
The analysis shows that most of the predicate offenses to money laundering in the system originated in Germany, but in cases where foreign jurisdictions were involved, the authorities were not able to confirm with certainty the exact location where the offenses took place or the origin of the illegal sums, the ministry said.
Unlike other EU member states, Germany does not have a cap on cash payments, which has led to the suggestion that more illegal sums may be steered to the country from member states that have imposed such cap, the ministry said. However, there is no evidence to support that claim yet, it said.
To address money laundering and terror financing in the EU single market, the responsible authorities have to determine whether new EU-wide regulations should be imposed, the ministry said. If so, how they can be most effective and proportional for countries across the bloc. The European Commission should also compile better data on the actual amounts of cash being used for money laundering and terror financing, the ministry said.