GERMAN NEW LAW TARGETS MONEY LAUNDERING IN REAL ESTATE – Staff at auction houses, precious metals dealers + real estate agents will now be covered by the law
Germany’s government is unveiling a new law aimed at combating money laundering in the real estate sector. It’s estimated that billions in illegal earnings are funneled into the German property market each year.
German Finance Minister Olaf Scholz said the draft bill will bring Germany in line with “the highest international standards in the fight against money laundering.”
The law is expected to be approved by Chancellor Angela Merkel’s Cabinet on Wednesday. Among other changes, it will give the government’s Financial Intelligence Unit (FIU) greater powers and access to the data of other investigative authorities.
“Money laundering is a serious problem in our country. We have to eliminate it,” Scholz told the Funke Media Group in an interview. “In particular, we have to take a closer look at the real estate market.”
The legislation will expand the number of professional groups required to report suspicious deals and take precautions to prevent laundering. Staff at auction houses, precious metals dealers, and real estate agents will now be covered by the law.
Germany a ‘gangster’s paradise’
Scholz acknowledged that Germany had “some catching up to do” to tackle money laundering but said the FIU was becoming “more powerful.”
The opposition Green Party’s Lisa Paus accused the government of being too slow to act: “The minister of finance has finally admitted errors in the fight against money laundering,” she said, adding, however, that “a functioning money laundering defense is still a long way off.”
She said tenants were ultimately losing out because dirty money was making prices in the property market rise.
Fabio De Masi of the Left Party called for a comprehensive real estate register to improve transparency. He said the government’s plan was a start but didn’t go nearly far enough.
“Germany is a gangster’s paradise and needs a real money laundering master plan,” he said.
In its 2018 annual report, the FIU noted an “extreme vulnerability” in Germany’s real estate market when it came to dubious business deals and the investigation of criminal activities. The FIU found that of the 77,252 cases of money laundering in Germany last year, about 3,800 involved the real estate sector.
According to anti-corruption group Transparency International, 15-30% of all proceeds from criminal activities are invested in real estate, either through building and renovating, or buying, selling and renting.
In a report last year, the organization called on Germany to implement reforms after finding that about €30 billion ($34 billion) of illicit funds were funneled into German real estate in 2017. It said criminal networks, particularly the Italian Mafia, had managed to exploit legal loopholes to launder money through properties in Germany.
BACKGROUND: German real estate market a hotbed of money laundering, Transparency reports
About €30 billion of dubiously-sourced money was funneled into German real estate in 2017. Transparency International is calling for a series of reforms to combat the problem.
Billions of euros of illicit funds are being funneled into German real estate, anti-corruption group Transparency International said in a report on Friday.
Germany recently introduced measures to combat money laundering in the real estate sector but the group argues these reforms have been wholly ineffective.
What the report found:
- About €30 billion ($34 billion) of international money with unclear background was funneled into German real estate in 2017.
- Criminal networks, particularly the Italian Mafia, exploit legal loopholes to launder money through German real estate.
- 15 to 30 percent of criminal proceeds are invested in real estate, through building and renovating, buying, selling and renting.
- Such transactions are frequently run through frontmen, whose names do not appear in legal databases.
- Of the 60,000 suspicious transactions raised to authorities in 2017, just 20 came from real estate agents.
‘Safe haven for dirty money’
Transparency Germany boss Edda Müller said: “The existing laws and the resources of the investigating authorities are disproportionate, particularly in view of the unlimited nature of international financial flows”.
The Green Party’s Lisa Paus called on the federal government to give top priority to this issue, as it was also causes rising rents and purchase prices. “Germany must no longer serve as a safe haven for dirty money from all over the world.”
Transparency register failing: Germany’s money laundering laws obligate real estate agents, notaries and lawyers to “know your customer” and report suspicions. In 2017 Germany introduced a transparency register that required nested corporate structures to reveal their true beneficiaries. All parties involved in companies, cooperatives and foundations holding more than 25 percent of the capital or voting shares must be listed. Failure to do so should result in fines of up to €1 million. Information is accessible to authorities and people with a legitimate interest, including real estate agents and notaries. However the database has enjoyed little use by anyone so far, and has been plagued with issues, with loopholes still allowing parties to obscure the true beneficiaries of transactions.
Notaries bound by confidentiality: Notaries, who update land title records for real estate transactions, could serve as a final buffer in the laundering of money, but are hamstrung by a commitment to client confidentiality. Transparency argues such obligations must be dropped in cases of criminal suspicion.
Make land registers public: Land title records are not publicly accessible in notoriously privacy-sensitive Germany. The registers are currently being digitized and centralized, however, Transparency called for this process to be expedited and the registers to be opened up to the public to help combat the issue.
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