Money doesn’t stink… or does it?

The process of laundering money dates back to legendary crime boss Alphonse “Al” Capone, ruler of Chicago’s underworld in the 1920s. To date, Al Capone has only been convicted once for illegal gun possession before being convicted of $200,000 in tax evasion to eleven years in prison was convicted. Then it became clear to organized crime that the traces of illegally earned money from alcohol smuggling, drug dealing, extortion and other robberies had to be covered. It required plausible explanations for the immense sums of money that were being handled – a quasi-legal appearance was needed for the illegal activities. Et voilà: the money laundering process was born. Incidentally, in his 1931 court case, when asked about his occupation, Al Capone replied: “I work in the laundry business.” In fact, this was true, for he owned a number of laundromats.

The laundromats were perfect for money laundering, because the amount of cash taken was very confusing, so that the immense amounts of illegally earned money could be elegantly “smuggled” into the legal economic cycle. They were “washed”.

Heute: Same, same but different…!?

Compared to the Chicago underworld of the 1920s, organized crime operates much more silently today. Despite this, estimates of the annual money laundered illegally amount to around 100 billion euros – alone in Germany! The OECD acknowledged Germany’s progress, but the responsibilities of the authorities – especially at federal and state level – are heavily criticized. As anti-money laundering expert Andreas Frank and financial correspondent Markus Zydra have explained in their book “Dreckiges Geld”, the mechanisms of the authorities in Germany – especially the Financial Intelligence Unit (FIU) – are anything but efficient. So “big fish” are rarely caught, but the authority is drowning in a sea of ​​(self-chosen) odds and ends. A confidential report from the Federal Audit Office, which was handed over to the Budget Committee of the German Bundestag on September 11, 2020, also comes to a harrowing verdict: “The FIU cannot electronically access the regional police data in the case processing systems of the state police forces. The data stocks of the state police contain information on organized crime and state security. The FIU also cannot electronically access a large part of important tax data from the federal and state tax authorities , in particular on the various tax assessment data. The FIU can therefore only insufficiently meet the expectations placed in it. Above all, there is a risk that the FIU does not or cannot recognize facts relating to money laundering and terrorist financing and consequently does not pass them on to the law enforcement authorities […]”. In this context, the police union speaks of a serious problem in the fight against money laundering – “A tragedy from the BMF”.

Federal Minister of Finance Lindner was involved Plans to create a Federal Financial Criminal Police Office reacted. Also will im OECD report criticizes that there is (still) no upper cash limit in Germany.

However, the problem lies not only in the lack of responsibility of the authorities, but also in central regulatory gaps. As long as politicians like the Greek European politician Eva Kaili Cash amounting to 1.5 million euros hoard without plausible reasons, the fish seems to stink from the head. The focus of the investigation is said to be former MEP Pier Antonio Panzeri. It is rumored that Kaili received the funds from Qatar and Morocco to influence parliamentary decisions.

When the official mold whinnies…

CumEx and the handling of sanctions against Russian oligarchs are two current examples that show how big the discrepancy between political will and actual implementation is. In the CumEx case, there are first judgments – especially against “Mr. CumEx” Hanno Berger. At the same time, there are also numerous backers who will probably never be prosecuted. Also the Gaps in memory of Chancellor Olaf Scholz do not necessarily help with clarification and do not testify to the unconditional political will to declare war on money laundering. And in particular, blatant lies by a political official do not provide a solid foundation for honest and upright ethics in a society. But it remains to be seen whether one or the other memory will return after the Finance Committee of the Bundestag decided shortly before Christmas to no longer classify the minutes of a meeting in 2020 as “classified matter confidential”. So there are discrepancies and a”no longer believable loss of memory“, which is now to be clarified.

Dealing with Russian oligarchs and the mafia is anything but consistent in Germany. As a result, Germany is a shopping paradise for oligarchs and mafia bosses. For example, while Great Britain publicized the Russian oligarch Roman Abramovich to sell his shares in Chelsea Football Club urged, Germany is finding it difficult to implement the EU financial sanctions. This is also shown by the response of the federal government to a written request from the Left MP Christian Görke in the Bundestag, according to which five billion euros in oligarch funds have now been frozen. However, these are only 500 million euros more than in July 2022. This suggests that the current legal situation is not having the desired effect.

According to Görke, this is not going to change anytime soon, because it is extremely difficult for the investigators: “Who owns what in Germany is a black box.” The lack of digitization of the land registers is just as inhibiting as the incomplete transparency register. 27 percent of the registered persons are currently fictional names. In addition, a ECJ judgment At the beginning of December, some EU countries had to close their transparency registers. Staff shortages in authorities and the unclear responsibilities outlined above make matters worse.

One only has to consider which authorities are involved in ensuring that Germany is no longer involved in money laundering “Gangsta’s Paradise” remains: In addition to the Ministry of Economics and Finance, there are also the departments of interior, foreign affairs, transport and justice as well as the intelligence services, the Federal Criminal Police Office, the Bundesbank, the Federal Financial Supervisory Authority, the Customs Criminal Police Office, the Central Office for Financial Transaction Investigations, the Main Customs Office, the Federal Office of Economics and Export Control and the relevant authorities at state level.
And on the other hand, dictators, autocrats, terrorists, oligarchs, mafiosi and corrupt politicians act efficiently and with the support of “crime enablers”, ie law firms and auditing firms specializing in this. In the book “Dreckiges Geld” one can read about this: “These gentlemen support financial criminals for princely fees, which reveals the double standards of western societies. Politicians condemn the corrupt autocrats in their speeches, but at the same time they offer them the legal possibilities in the democratic world to build a safe haven for stolen assets, for example in the US state of Delaware or on the British Virgin Islands.” Or even worse: The political actors are also actors in the money laundering deal or directly or indirectly involved in other criminal activities (see, for example, Wirecard, FTX, CumEx).

Example: luxury yacht Dilbar

The luxury yacht Dilbar spells out the whole dilemma related to money laundering prevention and sanctions. The luxury ship belongs to the sanctioned Russian oligarch Alisher Usmanov, who probably also owns villas on Lake Tegernsee and is being investigated for tax evasion in the millions.

For this reason, the authorities had already withdrawn the yacht from Usmanov’s power of disposal in spring 2022. However, the question of who paid for the transfer and maintenance to/by the Blohm + Voss shipping company could neither the Federal Criminal Police Office nor the Attorney General’s Office respond. The Ministry of Finance only explained that the owner himself would have to pay for the costs. However, as is well known, this is not possible because Usmanov is no longer allowed to do business in Germany. So it may be puzzling who will ultimately bear the costs…

interaction with risk management

Especially in financial service providers and other regulated industries, there is a close, causal connection between the efforts to prevent money laundering, the risk management and business development, as the example of N26 shows. At the end of 2021, the banking supervisory authority BaFin two special officers for the institution and limited customer growth maximum 50,000 per month. For a company that is (was) fully committed to digitization and scaling, this was a heavy blow. Likewise, of course, the imposed fine of 4.25 million euros.

The background to the action was a belated reaction by the institute to the report of allegedly fraudulently used accounts. The accounts were used in particular for fake online shops to either cheat or launder money.
Both in money laundering prevention and a non-functional one risk management there are numerous parallels:

• The preventive measures used – here, for example: lobby register – must be critically examined on a regular basis. If it is clear that these are not reliable, for example because states like Qatar or Morocco did not maintain any entriesthe risk situation must be reassessed.
• The “tone from the top” (and also the “tone from the middle”) is very important – regardless of whether it is with top management or politicians. Only if it is clear to every individual citizen/employee that “those up there” are If you also follow the rules and set a good example, the requirements can be met. In this regard, Chancellor Scholz’s memory loss in the CumEx scandal must also be viewed extremely critically.Fraud Triangle” the inner justification with “that’s what everyone does” is a central factor in large-scale fraud.
• Responsibility cannot be delegated. In the area of ​​money laundering prevention, companies, especially in the financial sector, cannot be expected to take on the central tasks of criminal prosecution or even the public prosecutor. Rather, it is important that the incoming reports are processed as quickly as possible and not as with the Financial Intelligence Unit (FIU) more than 100,000 times been gathering dust unprocessed for more than three years – while the port of destination Germany for “dirty money” continues to be approached outside.
• The legislator – as well as the company leaders – have to constantly adapt to changing framework conditions. In the context of money laundering prevention, this instrument is being used more and more to attack democracy – as well as with disinformation campaigns. This form of hybrid warfare is attributed in particular to autocratic states such as Russia. The new risk situation must be recorded via the risk analysis and a well-founded and fact-based risk analysis and included in the subsequent risk management steps.