28. July 2020

Is my holding a ‘financial company’ or ‘service provider’ within the meaning of the German Anti Money Laundering Act?

Mainz, July 28, 2020 – The supervisory authorities responsible for the ‘non-financial sector’ at the state level for the Anti Money Laundering Act are increasingly questioning the business activities of holding companies. The rule is to clarify whether the respective company may be classified as a financial company (Section 1 (24) AMLA) or a service provider (Section 2 (1) No. 13 AMLA). This may result in extensive obligations under the Anti Money Laundering Act, the violation of which may be subject to substantial fines in the future. In the following, we will give you clues for classification in practice.

The Anti Money Laundering Act (updated since the beginning of 2020) implemented the latest changes to effect the current EU Money Laundering Directive.

In addition to public access to the transparency register , the circle of those obliged under the Money Laundering Act and their list of duties has been expanded again. In addition, a mandatory registration for obligated persons at the central office for financial transaction investigations was introduced. For details of the applicable changes in the law, we refer to the statements of the supervisory authorities responsible at the state level, such as on the website of t supervisory and service directorate in Trier, which supervises parts of the so-called ‘non-financial’ sector in Rhineland-Palatinate.

Why do the supervisory authorities contact my company?

In the ‘non-financial sector‘, i.e. outside of BaFin’s area of ​​responsibility, e.g. credit institutions and payment service providers, the city administrations are generally responsible for real estate and art dealers. Outside of these special branches of industry, the responsible supervisory authorities are now increasingly devoting to the classification of associated companies as financial companies (Section 1 (24AMLA)) or service providers (Section 2 (1) No. 13 AMLA). In practice, for the supervisory authorities this status is not always recognizable from the outside. For this reason, the supervisory authority uses standardized queries to directly contact companies whose register information suggests possible activities in the area of ​​financial companies or service providers. 

The supervisory authorities therefore also contact parent companies of industrial groups or, for example, private asset management companies. These companies are then with reference to the general obligation to cooperate pursuant to Section 52 of the Anti Money Laundering Act asked to provide information about the business activities they are engaged in. If the requested information is not received a fine of up to 150,000 euros can potentially be imposed in accordance with Section 56 (1) No. 73 of the Anti Money Laundering Act

What is a ‘financial company’ under section 1 (24) of the Anti Money Laundering Act?

The financial company is now independently defined in section 1 (24) of the Anti Money Laundering Act. The definition of the Banking Act does not apply here (anymore).

For investment companies, it should be noted that basically every company whose main activity is to acquire, hold or sell investments is initially a financial company (Section 1 (24) sentence 1 no. 1 AMLA). For this reason, the supervisory authorities also contact parent companies of (purely industrial) corporate groups, investment, management or other associated companies for clarification. 

However, the “pure industrial holding” is again exempted from the definition of the financial company by the regulation pursuant to Section 1 Paragraph 24 Sentence 2 of the Anti Money Laundering Act. According to this, no financial companies in the money laundering sense are so-called ‘holding companies’, insofar as they 

  • only hold shares in companies outside the credit institution, financial institution and insurance sector and 
  • do not do business beyond the tasks associated with managing the shareholding.

In addition, it is usually not a problem if the holding company holds small investments in securities or investment funds. In its justification for the law (BT DS 19/13827, p. 69), the legislator made it clear that investments in companies in the banking, financial institutions and insurance sectors without any significant scope (max. 5 percent) and operational activities of completely minor importance are harmless in this respect .

What is a ‘service provider’ according to Section 2 Paragraph 1 No. 13 Money Laundering Act?

The definition of the service provider in Section 2 (1) No. 13 AMLA has not changed since the last change in the law. Service providers for companies and for trust assets and trustees are obliged here if they provide certain services for third parties. These services are  the following (abbreviated):

  • formation of a legal person or partnership,
  • exercising the management or executive function, exercising the function of a partner of a partnership or performing a comparable function,
  • providing a seat, a business, administrative or postal address, 
  • Acting as a trustee,
  • acting as a nominal shareholder for another person.

Such ‘Trust and Company Service Providers’ (TCSPs) establish an important link between financial institutions and many of their customers. According to aTCSPs areactivitiesrequired under study by the FATF, often used knowingly or unknowingly when carrying out money launderingand are therefore alsothe Money Laundering Act. 

Germany’s Anti Money Laundering Measures will be audited from November 2020

The Financial Action Task Force (FATF) is the most important international body to combat and prevent money laundering. It checks its member states for compliance with these standards as part of a mutual evaluation. After the FATF’s audit report from 2010 particular points of criticism in the non-financial sector, the next FATF Germany audit is due in November 2020. The existence and effectiveness of money laundering prevention and supervision in the non-financial sector will also be audited. According to the Federal Ministry of Justice and for consumer protection, this examination is of enormous relevance, since the results of the examination will influence the economic and political reputation of the Federal Republic of Germany.

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