That's why you (might) need a KYC process.
Money laundering prevention: Not just relevant for banks
Money laundering – everyone has surely heard the word before. In Germany, according to an analysis by the Federal Ministry of Finance, the annual volume of money laundering amounts to 100 billion euros. Too much: that much is clear.
But how can we recognize and prevent illegal funds from entering the normal financial system? The key is: PräventionAnd banks are not solely responsible for this. According to the Money Laundering Act, there is a large group of obligated entities that must take preventative measures to combat money laundering.
Whether you are also included, what obligations you have to fulfill and whether KYC is relevant for you, You can find out more in this article.
The Veragreed to the moneylaundry law
In principle, entities obligated under the Money Laundering Act (GwG) can be divided into two groups: the financial sector and the non-financial sector. This is regulated in Section 2, Paragraph 1 of the Money Laundering Act. A prerequisite is that the activity is commercial and not private.
Obligated parties in the financial sector
The entities obligated to comply with anti-money laundering regulations in this sector are certainly the most obvious when considering the prevention of money laundering. The financial sector includes:
- Credit institutions
- Financial services institutions
- Payment institutions and e-money institutions
- Agents for payment services and e-money
- Self-employed business owners in the field of payment services / e-money
- Financial companies
Obligated entities in the non-financial sector
The following companies, institutions or partnerships are also obliged to actively participate in reducing money laundering:
- insurance companies
- Insurance broker
- Asset management companies
- Lawyers, legal advisors, patent attorneys and notaries
- Legal counsel
- Auditors, certified public accountants, tax advisors and tax agents
- Service provider for companies and trustees
- Real Estate Agents:within
- Organizers and intermediaries of gambling
- Goods dealers, art brokers and art warehouse keepers
You should be aware of these obligations: risk management, due diligence and compulsory registration
Whether bank, insurance company, or jeweler: the obligations under the Money Laundering Act apply equally to all the aforementioned groups. Three key areas must be distinguished: risk management, due diligence, and reporting obligations.
Those who disregard these obligations can face fines of up to €150.000, and up to €1 million for repeated or systematic violations. For companies regulated by BaFin, this amount increases to up to €5 million.
Risk management: Employees have a responsibility
As an obligated entity, you must implement an in-house risk management system. This includes:
- The creation of an internal risk analysis
- The implementation of internal security measures
- The appointment of a money laundering officer
The risk analysis aims to identify and assess the specific risks related to money laundering and terrorist financing in your business operations. Based on this assessment, appropriate preventative measures – internal safeguards – should then be implemented within the company.
Such measures range from employee training to the implementation of comprehensive KYC processes. In many cases, a money laundering officer must also be appointed to ensure compliance with the measures, provide regular training, and handle suspicious activity cases.
Special feature: Goods trader
Not all goods traders are required to appoint a money laundering officer. Nevertheless, they should at least familiarize themselves with the Money Laundering Act (GwG) and the resulting obligations.
The appointment of a money laundering officer is mandatory, among other things, when dealing in luxury goods. This includes, for example, jewelry, watches, precious stones, art, antiques, cars, boats, aircraft, and the like. It is also mandatory when individual transactions exceeding €10.000 in cash are conducted.
Due Diligence: Know Your Customer (KYC)
As a party obligated to provide information, you must, in certain cases, obtain information about your contractual partner before concluding a business transaction. This process is known as KYC, short for "Know Your Customer," and must be observed in the following cases:
- When establishing a new customer relationship
- For transactions exceeding €10.000 (even in installments) outside of existing customer relationships.
- In case of reasonable suspicion of a criminal offense under Section 261 of the Criminal Code
- In case of doubt about the identity of the business partner
The key points of this extensive process are:
-
- Identifying business partners requires documenting and verifying data such as name, place and date of birth, nationality, and address for natural persons. For legal entities, this includes their name or designation, company address, and authorized representatives.
- Gathering information about the background of the business or business relationship.
- Identifying the beneficial owners.
- Continuous monitoring of the customer relationship and regular updates of the information.
KYC under the shadow of sanctions
Within the context of the Ukraine war and the Sanctions Enforcement Act (SDGII), the Name and sanctions list screening KYC (Know Your Customer) is gaining increasing relevance. This affects all obligated companies equally, but is particularly interesting for goods traders.
Many states have various Sanctions packages Regulations have been issued prohibiting business relationships with sanctioned individuals and companies from Russia and other countries. Therefore, every company is advised to review its supply and service chains to avoid fines.
Our preview of KYCnow Can you identify individuals and beneficial owners? – also from intermediary companies – on all international name, watch, black and sanctions lists and check the PeP status. All with just one click.
Reporting obligations: In case of suspected money laundering
If there is a concrete suspicion of money laundering, obligated companies, institutions, and groups of people must submit a suspicious activity report. This obligation applies regardless of the size of the transaction or the assets involved.
The notification is sent electronically directly to the FIU (Financial Intelligence Unit), which provided the application “goAML” for this purpose.
The rule is: It's better to report too often than not often enough. Failure to report can result in penalties – but false reports are not punishable.
In addition to the suspicious activity report, there is also a so-called "discrepancy report." This must be submitted if the requested customer or company data differs from the data in the transparency register. Failure to submit this report may result in fines. The discrepancy report can be submitted directly from KYCnow to be handed out.
Comply with all obligations under the Money Laundering Act (GwG) and SDG II – with KYCnow
Anyone obligated under the Money Laundering Act (GwG) who wants to reliably comply with all their obligations cannot avoid using a digital solution. With KYCnow, we offer you a tool that, thanks to its modular design, can be flexibly configured to meet your specific needs.
Whether as a large bank or a small used car dealer: With KYCnow, you can identify beneficial owners and sanctioned companies in seconds, thus avoiding hefty fines.
We would be happy to introduce KYCnow to you in a personal meeting. Schedule an appointment now. here Your free introductory meeting.
Sources
Photo credit: Picture by Gianluca D'Intino on Unsplash and photo of Markus winkler on Unsplash
Roczniewski