In the intricate world of Anti-Money Laundering (AML) compliance, understanding the concept of ‚beneficiary‘ is crucial. The EU’s 4th and 5th AML Directives, along with the German Money Laundering Act (GwG) and Section 54 of the German Insurance Supervision Act, provide a comprehensive framework for the identification and verification of beneficiaries. These regulations are particularly pivotal for insurance companies, as outlined in the BaFin-Interpretation and Application Guidance for the German GwG – Special Part for Insurance Companies (January 2020).
1. EU Directives on Beneficiary Identification: The 4th and 5th AML Directives emphasize the need for clear identification of beneficiaries in financial transactions to prevent money laundering and terrorist financing. They mandate enhanced due diligence for life insurance and other investment-related policies, ensuring beneficiaries are accurately identified.
2. German GwG and Beneficiary Identification: The German GwG aligns with EU directives, detailing specific obligations for identifying beneficial owners and beneficiaries, especially in insurance-related scenarios.
3. Section 54 of the German Insurance Supervision Act: This section mandates insurance companies to establish the identity of beneficiaries, distinct from policyholders, and their beneficial owners when entering into business relationships.
4. BaFin Guidance for Insurance Companies: The BaFin guidance elaborates on the due diligence processes for identifying different beneficiaries, including the collection of necessary information and verification procedures. It highlights the simplified due diligence obligations, particularly for beneficiaries who are employees.
For insurance companies, adhering to these regulations is not only a legal requirement but also a critical step in safeguarding the financial system. Accurate identification of beneficiaries plays a key role in preventing money laundering and terrorist financing, ensuring the legitimacy of financial transactions and relationships. Stay informed and compliant with our expert insights and practical advice on Beneficiary Identification.
Under Article 13 (5) of the 4th AMLD (Directive (EU) 2015/849), specific customer due diligence (CDD) measures are outlined for life or other investment-related insurance businesses. This provision mandates that, in addition to standard CDD measures for customers and their beneficial owners, financial institutions must undertake additional measures for the beneficiaries of life insurance and other investment-related policies. These measures include:
- Taking the names of beneficiaries who are specifically named persons or legal arrangements.
- Gathering sufficient information about beneficiaries designated by characteristics or class to ensure their identity can be established at the time of payout.
Verification of the identity of beneficiaries is required at the time of the policy payout. This measure aims to prevent the misuse of insurance products for money laundering or terrorist financing.
Article 13 (6) of the 4th AMLD extends similar due diligence requirements to beneficiaries of trusts or similar legal arrangements. Obliged entities are required to obtain sufficient information about the beneficiary, defined by particular characteristics or class, to establish their identity at the time of payout or when they exercise their vested rights. This provision ensures transparency in the distribution of trust assets, a common area of concern in AML efforts.
Article 21 of the 5th AMLD (Directive (EU) 2018/843) enhances the due diligence requirements for beneficiaries in life or other investment-related insurance policies. Here, member states are required to ensure that financial institutions, in addition to applying standard CDD measures, inform senior management before payout of policy proceeds and conduct enhanced scrutiny of the entire business relationship with the policyholder. This step is crucial for high-risk scenarios, ensuring that financial institutions are aware of and actively managing potential AML risks in their operations.
The German GwG provides specific definitions and requirements for identifying beneficial owners:
- No 3: Refers to natural persons acting as a settlor, trustee, or protector in the case of foundations with legal capacity and similar legal arrangements.
- No 4: Covers natural persons who are designated as beneficiaries or, if the beneficiaries are not yet determined, the class of persons in whose main interest the legal arrangement or entity operates.
- No 6: Extends to any natural person who exercises ultimate control over the trust by direct or indirect ownership or other means.
These provisions underscore the need for clear identification and verification of individuals who ultimately own, control, or benefit from legal entities and arrangements. It is crucial for obliged entities to maintain an understanding of the ownership and control structures to effectively implement AML measures.
BaFin-Interpretation and Application Guidance on the German GwG
The BaFin Guidance offers comprehensive insight into the practical application of the GwG’s provisions. It emphasizes the importance of understanding the nuances of beneficial ownership, including the identification of beneficiaries in various legal structures. This guidance is particularly valuable for entities obligated to perform AML duties, as it offers clear directions on compliance, risk assessment, and the implementation of due diligence processes.
German Insurance Supervision Act (VAG)
Section 54 of the German Insurance Supervision Act (Versicherungsaufsichtsgesetz – VAG) outlines due diligence requirements for insurance companies in relation to beneficiaries. It mandates that insurance companies must identify the beneficiaries who are different from the policyholder. This includes cases where beneficiaries are defined by characteristics, categories, or other means. If the policyholder or a different beneficiary is a legal entity, their beneficial owners must also be identified. The identity verification can be completed at any point but must be done no later than when the payment is made or the beneficiary asserts their rights under the insurance contract. The collected data and information must be recorded and stored in compliance with the Money Laundering Act.
BaFin-Interpretation and Application Guidance on the German GwG – Special Part for Insurance Companies
The section on „Identification of Different Beneficiaries“ in the BaFin-Interpretation and Application Guidance outlines the obligations of insurance companies under the German GwG and VAG. It mandates the identification and verification of beneficiaries‘ identities, usually at the time of payout or when they exercise their rights under the insurance contract. For beneficiaries defined by characteristics or categories, sufficient information must be collected to ascertain their identities at payout. Typically, beneficiaries are employees. Identification involves collecting names and, based on risk, other details like birth date and address. Verification requires appropriate measures to ensure the accuracy of the collected information. Simplified due diligence is often sufficient, especially when beneficiaries are employees, and verification can be done using employer-provided information.
- Directive (EU) 2015/849 https://eur-lex.europa.eu/legal-content/EN/TXT/?uri=celex%3A32015L0849
- Directive (EU) 2018/843 https://eur-lex.europa.eu/legal-content/EN/TXT/?uri=celex%3A32018L0843
- German Anti-Money Laundering Act (Geldwäschegesetz – GwG) https://www.bafin.de/SharedDocs/Downloads/EN/Aufsichtsrecht/dl_gwg_en.html
- BaFin-Interpretation and Application Guidance on the German Money Laundering Act (October 2021) https://www.bafin.de/SharedDocs/Downloads/EN/Auslegungsentscheidung/dl_ae_auas_gw2021_en.html
- Act on the Supervision of Insurance Undertakings (German Insurance Supervision Act, Versicherungsaufsichtsgesetz – VAG) https://www.bafin.de/SharedDocs/Downloads/EN/Aufsichtsrecht/dl_vag_en_va.html
- BaFin-Interpretation and Application Guidance on the German GwG – Special Part for Insurance Companies (As of January 2020) https://www.bafin.de/SharedDocs/Downloads/DE/Auslegungsentscheidung/dl_ae_auas_bt_vu_gw_2020.html