Germany’s anti-money laundering authority plans to crack down on suspicious investments in the booming real-estate sector and has warned brokers that they face penalties if they don’t flag transfers from dodgy-looking sources.
In an interview with Handelsblatt, Christof Schulte, who took over as head of the troubled Financial Intelligence Unit (FIU) in August, said property purchases enabled criminals to launder large amounts of money in one go, and that brokers and notaries weren’t doing enough to help tackle the problem.
“We know from the many reports we’re getting from the financial sector that we must take a close look in the real-estate area in particular,” he said, adding that criminals are using complex methods. “And then they can funnel large sums into circulation with one single transaction.”
Schulte said the banks’ reports on suspicious real-estate purchases, while useful, weren’t enough, and that brokers could help to pinpoint deals at an earlier stage. He said it would also be useful to get information on deals that are attempted but don’t come to fruition.
“If, for example, a suspicious organization from abroad gets in touch with a broker, we would like to know about it because the financial institute only gets involved once the deal is arranged and settled via the bank. We have a big area here where we need a lot more transparency.”
All stick and no carrot
Brokers have an interest in cooperating, Schulte said, because they are obliged to and face a fine if they don’t. “That’s why I can only advise everyone to report suspicious cases! It’s our task to make those involved more aware of this in future.”
He said he was confident that the sector would cooperate. “And perhaps high fines have to be imposed first so that brokers take this really seriously. Incidentally, the brokers are under the supervision of regional authorities, so they too must take a close look.”
Schulte, a lawyer who previously worked for the Central Customs Authority and the Finance Ministry, was brought in to revamp the FIU just a year after its launch. The organization has proved ineffective due to understaffing and poor equipment that led to a massive backlog of pending cases.
The FIU’s staff will be almost trebled to 475 from 165 and it’s being furnished with more powers, meaning that in future it will get access to the data it needs from law enforcement, financial and administrative authorities. It will also have the right to immediately stop all suspicious transactions.
That’s the theory, at least. Finding qualified people takes time, however. Schulte said the FIU had hired 50 in the current recruitment drive and would start 2019 with a staff of 200.
He also admitted that the FIU still didn’t have access to certain crime data held by regional authorities. “In these cases, we have to rely on being informed by the investigating authorities in the regional states and on them making the relevant data available to us. I think we still need to work on that.”
AI to the rescue
He said the office could avoid a repeat of the backlog of thousands of unchecked reports that has dogged it over the past year by prioritizing and using artificial intelligence to help filter cases.
“Artificial intelligence can achieve a lot,” he said. “There are clever solutions for filtering mass data. That’s not pie in the sky, we already use the technology in the customs authority. We have extensive experience in assessing mass data, for example in the processing of international goods flows.”
Germany set up the FIU last year to filter cases of suspicious money transfers reported by banks, insurers and brokers and to pass the genuine ones on to law-enforcement authorities. But it got off to a chaotic start due to woeful understaffing and trouble accessing police files.
By May 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.
With its strong economy and relatively lax laws, Germany has been described as a paradise for money launderers. Berlin tightened laws last year to staunch the tide of dirty money invested by gangs from Russia, Italy, and the Middle East. Some experts put the scale of money laundering in Germany at around €50 billion ($58.4 billion) but estimates vary.
The chaos has dented confidence in the FIU, but Schulte put it down to teething troubles. “Typically for a launch period there were startup problems at the FIU in the first months – be it with the IT system, staff recruitment, coordination with law enforcement authorities,” he said.
“It’s decisive now that we make progress in getting accepted, especially among our partners meaning the regional criminal police offices and state prosecutors. That is why I have set up a management plan with clear goals for effectively combating money laundering in Germany which we’re now implementing.”
He said that included improving operational cooperation with law enforcement by sending one liaison officer to each regional police force.
Jan Keuchel is an investigative reporter for Handelsblatt, based in Düsseldorf. David Crossland adapted this story into English for Handelsblatt Global. To contact the author: firstname.lastname@example.org