Germany suffers many shortcomings that attract illicit and questionable financial flows from abroad. For instance:
Even tax evasion in particularly serious cases (“Steuerhinterziehung in besonders schweren Fällen”) is not a predicate crime for money laundering purposes in Germany. This implies that banks may easily accept money stemming from tax evasion, especially if committed abroad.
There are no comprehensive public statistics about the number of money laundering and tax evasion convictions in Germany. And the financial regulator BaFin overwhelmingly outsources supervision of the implementation of money laundering rules to private auditing firms, which raises serious questions about conflicts of interest. Similarly, Germany is more secretive about the outcome of its freezing and related anti-money laundering audits than Switzerland and the United Kingdom.
The relatively low fines and low number of convictions relating to failures to prevent money laundering by banks and other institutions point to weaknesses in the policing of anti-money laundering rules.
Germany played a key role in 2013-2014 in weakening EU rules to require the public naming of offenders against anti-money laundering rules, resulting in many loopholes from the obligation to publish the offenders. Despite criticism by the FATF, supervision remained highly fragmented among more than 100 different agencies, which often lacked the required capabilities to enforce AML rules effectively.
The German tax authorities have also been criticised for their fragmented, low-tech and under-resourced approach to collecting tax, especially from wealthy people, and for having inadequate means to deal with large taxpayers. In 2015, new data showed how the two wealthy southern Bundesländer of Bavaria and Baden-Württemberg have understaffed their corporate audit departments, relative to the German average.
Furthermore, Germany signed a widely criticised tax deal with Switzerland to allow tax evaders and other criminals to preserve their anonymity – though at least the deal was eventually overturned in the Bundesrat (upper house) in late 2012.
The German strategy of purchasing data from whistleblowers (especially from Swiss Banks) has allegedly led to substantial additional tax revenue. However, robust data on the results of those purchases have never been published by the German authorities (p.14-16). More importantly, the results of these data purchases, in terms of criminal prosecutions, are largely unknown. In the first and largest “whistleblown” dataset on the Liechtenstein LGT bank, it was revealed that in Northrhine-Westfalia, the largest German state, there has not been a single prison term without probation, and in the Swiss-Leaks cases, there has not even been a single public indictment. The data for the rest of Germany is not available, but it is very unlikely that prison terms (or public indictments, respectively) have been served in other German states. By contrast, there is evidence that German prosecutors are refusing to open investigations even if confronted with fully documented undeclared foreign accounts. This contrasts with much-criticised Greece, where there has been at least a prosecution of a Minister who manipulated the data (chapter 6).
- The amount of tax exempt interest bearing assets by non-residents in the German financial system ranged between €2.5 trillion to over €3 trillion in August 2013.
- Germany played a key role in 2013-2014 in weakening EU rules to require the public naming of offenders against anti-money laundering rules, resulting in many loopholes from the obligation to publish the offenders.
- In 2013-2014, Germany played a decisive blocking role in European efforts to require transparency of beneficial ownership of companies across Europe.
- The OECD has repeatedly criticized German courts and judicial practices for regularly entering into intransparent deals (p.220).
- The relatively low fines and low number of convictions relating to failures to prevent money laundering by banks and other institutions point to weaknesses in the policing of anti-money laundering rules.
- Require central registration of beneficial owners of bearer shares for all active companies (including those formed before 2016)
- Centralise tax audit functions in federal agencies at least for large taxpayers and high net worth individuals and publish detailed statistics on tax audits.
- Publish country by country reports filed by German multinationals and by foreign multinationals with German operations.
- Redesign the financial regulator Bafin and publish detailed statistics on and details of all failures in implementing anti-money laundering prevention of obliged entities.
- Implement a public online register of beneficial and legal ownership of real estate and redesign and enforce the transparency register on ownership of legal entities.