Germany overhauls chaotic anti-money-laundering unit

Germany’s new anti-money-laundering agency is being revamped just a year after its launch, after under-staffing and poor equipment led to a massive backlog of untackled cases.

Finance Minister Olaf Scholz has promised a “fresh start in the fight against money laundering and terrorism finance” at the so-far ineffective Financial Intelligence Unit (FIU), government sources said.

It’s about time. Money laundering has been a problem in Europe’s largest economy for years. Some experts put the scale at around €50 billion ($58.4 billion), though estimates vary. What’s worse, state authorities have warned that massive backlogs at the FIU pose a threat to domestic security because they have struggled to uncover potential terrorist financing activities.

To combat the problem, the FIU, which was set up in 2017 by Mr. Scholz’s predecessor Wolfgang Schäuble, is getting a new boss. Christof Schulte, a lawyer who previously worked for the Central Customs Authority and the Finance Ministry, will replace Andreas Bardong.

More importantly, the FIU’s staff will be almost trebled to 475 from 165. It’s also being furnished with more powers, meaning that in future it will get access to all the data it needs from law enforcement, financial and administrative authorities. It will also have the right to immediately stop all suspicious transactions.

Overwhelmed and understaffed

Though experts had misgivings from the start, the initial concept behind the FIU was laudable enough. Last summer, the unit was transferred from the Federal Criminal Police Office (Germany’s version of the FBI) to the customs authority. The idea was to lessen the burden on law enforcement by having the FIU sift through tip-offs from banks about possible money-laundering transactions and then pass on the really suspicious cases to the police.

But the FIU was quickly overwhelmed by the volume of tip-offs and far too slow in reviewing them. The shortage of staff and the lack of up-to-date IT meant that by May this year it had only processed 31,000 of the 58,000 cases that had been reported to it since June 2017 — even though urgent money-laundering cases should be handled in a matter of days. It also had trouble accessing police files.

State criminal authorities told Handelsblatt that tips about possible terrorist activity took months to reach their desks. In a secret report to the parliamentary finance committee, the state criminal authority in Thuringia labeled the FIU “a significant danger to domestic security.”

The agency described one incident where a report from the Islamic KT Bank in Frankfurt in early February 2018 showed an account that received €18,000 from several different people in a short space of time. Then the funds were transferred to the Netherlands. But the report didn’t reach the police until April.

The government admitted there had been “startup troubles” and insisted all old cases have now been processed. It added that there were no indications so far that the delays had led to big cases slipping through the net. Germans will hope the new staff increases ensure that remains the case.

Handelsblatt Global | July 18, 2018