Tracking Down Money Laundering

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Money laundering is a top talking point in Germany.
  • Why it matters

    Why it matters

    The widely reported study provoked a major reaction in Germany, with calls for drastic changes to how the country deals with cash. Handelsblatt’s findings suggest that facts may have been overstated.

  • Facts


    • The source of recent news reports was a study commissioned by the German finance ministry and led by criminal law professor Kai Bussmann of Halle-Wittenberg University.
    • A look at the methadology finds the study authors calculated the number of suspicious cases and then extrapolated an overall volume of illegal money for all of Germany.
    • Other experts suggests the real volume of money laundering in Germany may be as low as €10-15 billion, though there are no truly reliable figures.
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Last February, German newspapers, radio and television reported a sensational claim by the federal finance ministry — that up to €100 billion was being laundered each year in Germany.

It was a stunning number for a country that prides itself on law and order. But Germans also love to use cash more than most, with just around 20 percent of all transactions done by credit card. The money-laundering figure left many crying for action, boosting calls for everything from ending the €500 note to abolishing cash altogether.

The source of the vocal complaints was a study led by criminal law professor Kai Bussmann of Halle-Wittenberg University. The ministry had commissioned it and used the results to buttress its call for a uniform, European-wide maximum limit for cash payments, among other things.

But what if the study that sparked the furore was flawed?

Handelsblatt research has found that the professor’s team didn’t investigate the volume of actual laundered money – just suspicions of it. There’s a big difference.

“You can’t equate suspicious cases with money laundering. That’s only an absolute top limit.”

Friedrich Schneider, Linz University, shadow economy expert

In its monthly report for April, the finance ministry included a more detailed presentation of the study. The timing of that detailed report was also carefully chosen – coming after the “Panama Papers” revelations about widespread tax evasion by companies from around the world in Panama and further strengthening calls for tough action.

Yet up to now, the report had been publicly available only as a brief summary. Handelsblatt requested a longer version – and has some serious questions about its methodology.

Most importantly, the study surveyed the number of suspicious activities that should have been reported to officials. In industries where there is a danger of money laundering, there is a requirement to report all suspicious transactions. With an estimated volume of some half-million euros per suspicious case, the study team calculated the number of suspicious cases and extrapolated the overall volume of illegal money for the whole of Germany.

Experts say that methodology is misleading and greatly exaggerates the amount of actual laundered money.

“You can’t equate suspicious cases with money laundering. That’s only an absolute top limit,” said Friedrich Schneider of Linz University, a leading expert for estimating the extent of the shadow economy in German-speaking countries.

Walter Krämer, a professor for statistics at Dortmund University, pointed out that study’s authors neglected “to gather a random sample in order to determine what percentage of all suspicious cases are in fact criminal actions.”

Mr. Bussmann, the study’s lead author, conceded that he assumed that money laundering actually occurred in all cases of suspicion. But he countered that the number of cases has generally been underestimated in the past. If the study’s assumptions counterbalance that shortcoming, then it is justified, he said.

He argued further that the relatively small number of convictions cannot be used to determine the actual extent of money laundering. That too would greatly underestimate the problem, he said.

Yet the €100-billion number is actually on even shakier ground. That’s because the study authors didn’t actually reach that figure themselves. The study reported only a suspected volume of “at least €20 billion” in the shadowy sectors of the economy outside of the financial industry.

The leap from at least €20 billion to more than €100 billion is made in a few lines at the end of the presentation of estimated findings.

The report noted that data doesn’t exist for all relevant industries. Cases from the financial industry must be added, it reasoned, and the industry’s own estimates are probably too low. And so the study concludes: “For this reason, the overall annual volume of money laundering in Germany certainly lies significantly above €50 billion and probably more than €100 billion.”

Mr. Schneider, the shadow economy expert from Linz University, considers this sort of escalation of sums, with no scientific substantiation, to be implausible — especially when the much higher sum is then given special emphasis.

“I’m quite astounded at the manner in which this data is presented,” he said.

Mr. Bussmann replied that the established figure of €20 billion to €30 billion is actually a drastic underestimate. He cited strong indications that in the real estate sector, for instance, money laundering occurs to a wide extent.

So where did that €100 billion really come from? That amount is on a par with findings of a 2013 study backed by the European Commission, the authors said. The trouble is that this study, too, doesn’t really estimate actual money laundering in Germany.

That E.U.-commissioned study was made for a project called “The Economic and Legal Effectiveness of Anti-Money Laundering and Combating Terrorist Financing Policy,” or Project ECOLEF for short. It was headed by the Austrian professor of finance at Utrecht University, Brigitte Unger, and released in 2013.

The ECOLEF study actually includes a volume of €109 billion for Germany. But this is not the estimated volume of money laundering, as Mr. Bussmann claimed, but the “threat of money laundering.” In response to an inquiry, Mr. Bussmann conceded that point.

The ECOLEF authors came up with this figure for potential money laundering by going well beyond Germany’s borders. To the money illegally earned in Germany, they added the money illegally earned in all countries with a common border to Germany. Then they went even further, estimating that a percentage of money illegally earned worldwide could be traced back to Germany.

That again is a giant leap, according to Mr. Schneider, the shadow economy expert. “The figure can’t be interpreted as the volume of money laundering, and the authors specifically issue this caveat,” he said.

Statistics expert Mr. Kramer considered it likely that the sample for Mr. Bussmann’s study doesn’t correspond to reality. Regarding the €100 billion figure, he said: “This volume is an extrapolation based on a probably distorted control sample and burdened by a huge uncertainty factor.”

So where might the real number be for Germany? It’s hard to say, but Mr. Schneider estimates the actual volume of illegal money in Germany at between €10 billion and €15 billion.

“Since so little data is available, I can’t exclude the possibility that there is somewhat more,” he said, but added that €100 billion would be far too high.

Moreover, he cautioned against the belief that cash is the fundamental instrument for money laundering. Professional gangs work much more with falsified invoices and freight papers – to create imaginary ship cargo for example. That makes it possible to channel large cashless sums into legal circulation with scant risk of discovery, he said.

“People watch too many criminal investigation shows on TV,” he said.


Norbert Häring has a doctorate in economics. He covers monetary policy and the economy for Handelsblatt out of Frankfurt. To contact the author:

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