As we have frequently reported in REFIRE, the current coalition is determined to stamp out the loopholes and lax controls over the beneficial ownership of real estate that have led Germany to gaining a reputation as a "paradise" for money launderers.
As the government clamps down, its revised Sanctions Enforcement Act is designed to prevent any purchase of property with banknotes, and has enlisted the co-operation of the country's notaries to enforce the new regulations. It will come into effect at the end of this month - December 2022. The ban also extends to the payment of property purchases with cryptocurrency and commodities, including diamonds.
The main goal is to abolish the notion of anonymous transactions, where it can be impossible to determine who the ultimate beneficial owner of a property is. This can often be the case where the ultimate owner is a Russian oligarch, for example, who are subject to their own punitive sanctions from European and German lawmakers.
A new central body to pursue the sanctions is being established to co-ordinate activities across all Germany's sixteen federal states. It will initially be housed within Germany's Customs & Excise Authority, before moving to a new special authority solely focussed on combatting financial criminality and money laundering, areas where Germany has been traditionally weak.
The German lobby to preserve the facility of cash payment throughout the economy has meant that Germany has traditionally never imposed an upper limit on the amount of cash used for purchases. By contrast, Spain imposes a limit of €2,500 and Italy €1,000. As a general rule, the EU imposes a limit of €10,000 on cash purchases before extensive ID from the purchaser is required. Germany has consistently resisted international regulations imposing even a €5,000 limit on cash business transactions.
Germany's Federal Chamber of Notaries said it welcomed a cash ban on real estate purchases, and fully supported the reform of the Sanctions Enforcement Act, despite the additional workload it will mean for its members. But the notaries were critical of the plan to impose obligations on them even after the property transaction has been completed and notarised. This would lead to a lot of practical problems and extra expenses without any real benefit, the Chamber said.
In August, Germany came in for further criticism from the Financial Action Task Force (FATF), a global watchdog that tackles financial crime. It singled out Europe’s biggest economy for failing to do enough to tackle money laundering, despite being one of the biggest cash centres globally.
The FATF highlighted a series of failings, including the lack of control of those who handle large sums of money, such as estate agents, adding that while Germany understood the risks, it had not done enough to tackle them. The FATF also flagged money laundering risks from hawala payments, which means ‘transfer’ in Arabic. The system is widely used in the Middle East, moving payments through a trusted network of agents who operate outside banks.
In addition, the FATF criticized the disjointed nature of supervision, with more than 300 regional authorities responsible for monitoring such players, as well as a shortage of personnel. As such, Germany’s score lags far behind France, which the FATF also recently assessed. The poor ranking means Germany will now have to report annually to the FATF about its progress in tackling shortcomings. Germany's Finance Minister Christian Lindner responded by acknowledging the problem and pledged to centralize control, employ additional staff and modernize existing technology. Hence the revised Sanctions Enforcement Act, and probably a tougher regime from next year for those trying to take advantage of Germany's loopholes.
