Draft Law Getting Tough On Money Launderers

Germany plans to shake off its reputation as a safe haven for money launderers with a new law that will, controversially, reverse the burden of proof. In future, suspects will have to explain where they obtained their assets. Up to now, it has been up to authorities to prove that gains were ill-gotten.
Donnie Brasco's mafia gang probably would have had an easy job laundering money in Germany.

The German government is stepping its fight against money laundering with a series of measures that include making it easier to confiscate assets whose origin is unclear.

A draft law drawn up by the justice ministry aims to force people under investigation to prove they acquired assets legally. That’s a reversal of the burden of proof. Previously, the authorities had to prove that the assets were obtained unlawfully.

The draft, which has been seen by Handelsblatt, states that "a sustainable fight against crime requires effective asset recovery."

The justice ministry has not yet consulted with other ministries on the proposal, which could meet with resistance. Plans recently announced by the finance ministry to limit cash payments to €5,000 ($5,657) were harshly criticized, with the liberal Free Democratic Party (FDP) and right-wing Alternative for Germany party (AfD) complaining that this would constitute too big a restriction on personal freedom.

This is urgently needed to resolve the current difficulties in combating money laundering. Steffen Barreto da Rosa, Head of Money Laundering Division, Bavarian Police Force

The coalition of center-right Christian Democrats and center-left Social Democrats came to power in 2013 promising to combat the flow of illegally acquired assets into the economy. Experts estimate that around €100 billion, or $113 billion, is laundered in Germany every year, mainly by organized criminals.

Less than 0.5 percent of this - around €300 million - is said to be confiscated each year. The current money laundering laws are "extremely complex and confusing," according to the new draft law. The government now wants to change this.

The draft would enable authorities to seize cash, cars or real estate even where there is no evidence of an illegal act if a court assumes that they have been obtained illegally. This could represent a milestone in combating of mafia activities.

In a hearing of the German parliament’s finance committee four years ago, Italian state prosecutor Roberto Scarpinato pointed out serious flaws in the German legal system, saying that Germany was one of the countries that the Mafia had sought out in order to invest money. He emphasized that Germany did not have the instruments that are available in Italy for recognizing money laundering and seizing goods. Billions of euros worth of assets are confiscated in Italy every year.

Italian state prosecutor Roberto Scarpinato said Germany is one of the countries the Mafia seeks out to invest money.

According to the draft law, the new rules would allow assets to be seized if there is a large discrepancy between the value of the assets and the legal income of the person concerned and if the person is unable to prove that the assets have come from legal sources.

Detectives and customs investigators have welcomed the initiative. "This is urgently needed, to resolve the current difficulties in combating money laundering," said Steffen Barreto da Rosa, who is responsible for money laundering and asset recovery at the criminal police office of the state of Bavaria. Sebastian Fiedler, deputy head of the federation of German detectives, said the new powers will be "nothing less than a mini-revolution" in the fight against crime.

While the plans may make investigators' work easier and lead to more effective combating of money laundering, they remain controversial among criminal lawyers. "The reversal of the burden of proof means that the distrust of citizens will become established in law and that all financial transactions will have to be documented," said Professor Jürgen Wessing from the Düsseldorf-based criminal law firm Wessing & Partner, summing up his concerns.

However, Mr. Fiedler disputed this view, saying that the new law would not be aimed at "citizens," but at the assets of criminals who earn a living through serious crime. He points out that the Federal Constitutional Court has made it clear that these assets are not protected by the German constitution.

Mr. Wessing's criticism echoes complaints about the planned maximum limit on cash transactions. The German finance ministry has justified its plans by saying they will allow money laundering to be combated more effectively in future. At present it is possible to pay six-figure sums in cash for real estate in Germany without being subject to effective control mechanisms. Professor Kai-D. Bussmann from the Economic Crime Research Center at the University of Halle-Wittenberg said cash payments are "one of the biggest risks for money laundering."

The European Central Bank appears to take a similar view, as it is considering getting rid of the 500-euro bill. These bills account for about 30 percent of euros in circulation as cash, even though very few people have ever held one of them.


Frank Drost is a Handelsblatt Editor in Berlin, covering financial supervision and banks. To contact the author: [email protected]