Carrying out of Transactions

Carrying out of Transactions

Navigating the regulatory landscape of financial transactions requires a nuanced understanding of compliance protocols. From seeking explicit regulatory approval to adhering to the urgent case rule, each aspect plays a vital role in ensuring that transactions are carried out legally and ethically. By prioritizing regulatory compliance and operational integrity, individuals and organizations can contribute to a more secure and trustworthy financial environment.

Receiving Explicit Approval from Regulatory Bodies

One of the most secure pathways to carrying out a financial transaction involves obtaining explicit approval from the Financial Intelligence Unit (FIU) or the public prosecutor’s office. This approach ensures that the transaction is scrutinized and deemed compliant with AML and CTF regulations. It not only reinforces the legitimacy of the transaction but also instills confidence among the parties involved, ensuring that the financial activity is not entangled in any unlawful proceedings.

The Three Working Day Window

In scenarios where explicit approval is not immediately forthcoming, the regulatory framework often provides a provision where transactions can proceed after a waiting period of three working days, provided there is no prohibition from the FIU or the public prosecutor’s office. This waiting period serves as a critical buffer, allowing regulatory bodies to conduct necessary checks without unduly hindering the flow of legitimate business activities. It’s a balance between due diligence and operational efficiency, ensuring that transactions are not unnecessarily delayed while still upholding the highest standards of regulatory compliance.

Urgent Case Rule: Navigating the Risk of Obstructing Criminal Proceedings

The „urgent case rule“ comes into play when there’s a risk that delaying a transaction could obstruct criminal proceedings. This provision allows for the immediate execution of transactions under pressing circumstances, with the stipulation that a report must be filed with the FIU promptly thereafter. It’s a pragmatic acknowledgment of the dynamic nature of financial operations, where certain transactions cannot be postponed without potentially compromising legal investigations or enforcement actions.

Halting Transactions on Strong Suspicion

A critical aspect of regulatory compliance involves not proceeding with transactions that raise a strong suspicion of money laundering or terrorist financing, especially if the transaction involves individuals or entities listed in relation to terrorist financing. This preventive measure is integral to the global fight against financial crimes, ensuring that the financial system is not exploited for unlawful purposes. It underscores the importance of vigilance and due diligence in financial operations, prioritizing the integrity of the financial system over the expediency of individual transactions.

4th AMLD

The 4th AMLD (Directive (EU) 2015/849) focus on reporting obligations related to the prevention of money laundering and terrorist financing. Here’s a summary with a focus on „carrying out transactions“:

Obligation to Report Suspicious Transactions

  • Obliged Entities‘ Responsibility: Entities that fall under the scope of this directive are required to actively monitor and report any transactions that they believe could be related to criminal activities or terrorist financing. This includes funds of any amount.
  • Proactive Reporting: These entities must inform their national Financial Intelligence Unit (FIU) without delay if they have knowledge, suspicion, or reasonable grounds to believe that funds are associated with criminal activity or terrorism financing.
  • Cooperation with FIU: Beyond initial reporting, obliged entities must also quickly respond to any additional information requests from the FIU to aid in their investigations.

Prohibition on Executing Suspicious Transactions

  • Holding Transactions: Obliged entities are instructed not to proceed with transactions that are suspected of being linked to criminal activities or terrorist financing until they have taken the necessary steps as outlined in Article 33(1)(a) and received further instructions from the FIU or competent authorities.
  • Exceptions and Immediate Reporting: In situations where it is not feasible to delay a transaction without potentially compromising the investigation (for instance, tipping off the suspects or losing track of the funds), entities must go ahead with the transaction but must immediately inform the FIU.

5th AMLD

The specified articles from the 5th AMLD (Directive (EU) 2018/843) introduce amendments to the 4th AMLD (Directive (EU) 2015/849) with implications for „carrying out transactions“:

Amendment to Article 33(1) of the 4th AMLD

  • Direct Provision of Information to FIU: This amendment simplifies and clarifies the obligation of obliged entities by stating that they must provide the Financial Intelligence Unit (FIU) directly with all necessary information upon request. This ensures that the FIU has immediate access to relevant information to assist in its investigations into money laundering or terrorist financing, potentially impacting the decision-making process related to carrying out transactions.

Addition to Article 34 of the 4th AMLD

  • Annual Reporting by Self-regulatory Bodies: This amendment mandates self-regulatory bodies designated by Member States to publish an annual report detailing their anti-money laundering and counter-terrorist financing activities. The report should include:
    • Actions taken in compliance with the directive’s provisions on due diligence and internal controls.
    • The number of breach reports received and forwarded to the FIU.
    • Measures executed to monitor obliged entities‘ adherence to customer due diligence, suspicious transaction reporting, record-keeping, and internal control requirements.

German GwG

The German GwG outline obligations related to the reporting of transactions and the conditions under which transactions may be carried out:

Reporting Obligation of Obliged Entities

  • Mandatory Reporting: Obliged entities must report to the German Financial Intelligence Unit (FIU) without delay if there are indications that assets involved in any business relationship or transaction may be tied to a criminal offense related to money laundering or terrorist financing, or if the contracting party fails to disclose whether they are acting on behalf of a beneficial owner.
  • No Minimum Threshold: This reporting obligation applies regardless of the asset’s value or the transaction’s amount, emphasizing the importance of vigilance across all transaction levels.

Carrying Out of Transactions

  • Execution Post-Reporting: After reporting a transaction under Section 43(1), the obliged entity may only proceed with the transaction after receiving explicit consent from the German FIU or the public prosecution office, or if three working days pass without any objection from these authorities. This waiting period provides a window for the authorities to review the transaction and intervene if necessary.
  • Immediate Execution in Exceptional Cases: In cases where delaying a transaction is not possible or could jeopardize criminal proceedings (for example, if waiting might alert the suspects or disrupt the investigation), the transaction can proceed. However, the obliged entity must then immediately file a report with the FIU, ensuring that potential criminal activities are still flagged for investigation.

BaFin-Interpretation and Application Guidance on the German GwG

The BaFin Interpretation and Application Guidance on the German Anti-Money Laundering Act (GwG) provides detailed instructions on the suspicious transaction report procedure under Section 43 of the GwG, with particular emphasis on the implications for carrying out transactions:

Implementation of Reported Transactions

  • Approval Requirement: A transaction reported under Section 43(1) of the GwG can only be executed after receiving explicit approval from the FIU or the public prosecutor’s office, or if three working days pass without any prohibition from these authorities. Saturdays and public holidays do not count towards this three-day period.
  • Urgent Case Rule: If a transaction cannot be delayed due to the risk of obstructing criminal proceedings, it may proceed. However, the obliged entity must then promptly submit the required report to the FIU.

Prohibition in Certain Cases

  • Strong Suspicion: If there’s a strong suspicion of money laundering or terrorist financing, particularly if it involves a person listed in relation to terrorist financing, the transaction should not proceed under the urgent case rule.

Protection for Reporting Individuals

  • No Retaliation: Individuals reporting suspicious activities, including internal reports, are protected from any negative or discriminatory consequences in their employment.
  • Legal Immunity: Reporters are also shielded from civil, criminal, or disciplinary actions due to their reporting, provided the report was not made intentionally or grossly negligently false.

Reporting Mechanics

  • Internal Reporting: Employees who make internal reports are not obligated to file a separate suspicious transaction report if the responsible body within the entity decides not to report. They may, however, notify through a whistleblowing system if they believe their report was mishandled.
  • No Automatic Criminal Notification: Filing a report under Section 43(1) of the GwG does not equate to a requirement to notify authorities of a criminal act under specific sections of the German Criminal Code (StGB), unless specific conditions are met.

Implications for Perpetrators

  • Exemption from Punishment: Individuals who submit a criminal complaint voluntarily can be exempt from punishment for money laundering under certain conditions outlined in the StGB. However, forwarding a suspicious transaction report as required under the GwG can mitigate the risk of being deemed to have „recklessly failed to recognize“ that an asset resulted from an unlawful act.