Person acting on behalf of the Contracting Party
In the landscape of anti-money laundering (AML) regulations, understanding the role and obligations of a person acting on behalf of the contracting party is crucial for businesses and financial institutions. This understanding is particularly important in the context of the 4th AMLD (Directive (EU) 2015/849), the German Money Laundering Act (GwG), and the BaFin Interpretation and Application Guidance on the German GwG.
Identifying the Representative: According to the 4th AMLD, obliged entities must undertake due diligence measures, which include verifying the identity of the contracting party and any person acting on their behalf. The German GwG further elaborates this by requiring the collection of specific information such as name, birth details, nationality, and residential address for natural persons. The BaFin guidelines provide additional clarity by defining such representatives as those who claim to be acting in the name of the contracting party, including in online business activities.
Role of Representatives: These individuals can be legal representatives, statutory representatives, or messengers. They play a pivotal role in establishing and managing business relationships, particularly in transactions or interactions with obliged entities. This role can range from initiating payment orders to representing legal persons in various capacities.
Due Diligence Requirements: Due diligence is triggered not only when establishing a business relationship but also when there is doubt about the veracity of the provided information. The BaFin guidelines specify that identification is mandatory for legally appointed representatives and legal representatives when establishing a business relationship for the principal. This also applies to messengers and legal representatives acting outside existing business relationships for transactions exceeding certain thresholds.
Exemptions and Specific Cases: It is important to note that, as per BaFin guidance, no identification obligation under the GwG applies to representatives and messengers depositing or transferring money on a customer’s account within an existing business relationship. However, the authorization or mandate in these cases must still be reviewed.
Compliance and Risk Management: For financial institutions and obliged entities, recognizing and verifying the identity of persons acting on behalf of the contracting party is a critical component of AML compliance. It aids in mitigating risks associated with money laundering and terrorist financing, ensuring that the entities are not inadvertently facilitating illegal activities.
The accurate identification and verification of persons acting on behalf of the contracting party are essential under the 4th AMLD, German GwG, and BaFin guidelines. By adhering to these regulations, obliged entities can effectively manage risks and contribute to the broader effort of preventing financial crimes.
The phrase „any person purporting to act on behalf of the customer“ in Article 13 of Directive (EU) 2015/849 addresses an important aspect of customer due diligence. This part specifically focuses on individuals who claim to represent or act for a customer in dealings with the obliged entity. Here’s a detailed breakdown:
- Verification of Authorization: Obliged entities must verify that any person claiming to represent the customer is actually authorized to do so. This is a critical step to prevent fraud and unauthorized transactions. It involves confirming that the individual has the legal right or has been given the authority by the customer to act on their behalf.
- Identification and Verification: After establishing that the person is authorized, the next step is to identify and verify their identity. This process is similar to the verification of the customer’s identity. It ensures that the entity knows exactly who they are dealing with and that the representative is who they claim to be. This step often involves checking official documents or other reliable sources of information.
- Risk Management: This measure helps in managing risks associated with impersonation or unauthorized representation. By ensuring that representatives are properly identified and authorized, entities can mitigate risks related to fraudulent activities.
- Legal Compliance: Verifying representatives is not just a best practice but a legal requirement under this directive. It helps in complying with laws aimed at preventing money laundering and terrorist financing.
- Enhanced Due Diligence: In some cases, depending on the risk profile of the customer or the nature of the transactions, additional due diligence may be required for the person acting on behalf of the customer.
Identification & Verification of Authorization
If there is a person acting on behalf of the contracting party, the entity is also required to identify this individual. This step is crucial to ensure that the entity knows not only with whom they are directly dealing but also who is involved in the transactions or business relationships on behalf of the main client.
- First name and surname.
- Place of birth.
- Date of birth.
- Residential address, or if there is no fixed abode within the European Union and identity is verified for opening a basic payment account, a postal address where the person can be reached.
- Verification must be based on a valid official identity document that includes a photograph (e.g., passport, identity card).
- Electronic proof of identity as specified under various German acts.
- A qualified electronic signature as per EU Regulation.
- A notified electronic identification scheme under EU Regulation.
- Documents specified under the German Regulation for opening a payment account.
- When using a qualified electronic signature, it must be validated as per EU Regulation, and transactions must be executed directly from a payment account held in the name of the contracting party.
Verification of Authorization
Alongside identification, the obliged entity must check whether the person acting on behalf of the contracting party is authorized to do so. This involves verifying the legal authority or the granted permission that allows the person to act on behalf of the contracting party. This step is important to prevent unauthorized or fraudulent activities.
Scope of Doubt
When such doubts arise, obliged entities are required to take additional or enhanced due diligence measures. This might involve gathering more information, using alternative sources to verify identities, or conducting more detailed investigations to resolve the doubts.
Doubts about identities can be a red flag for illicit activities, and addressing these doubts is crucial for maintaining the integrity of financial transactions.
BaFin-Interpretation and Application Guidance on the German GwG
The BaFin Interpretation and Application Guidance on the German Money Laundering Act (GwG) provides detailed instructions on the customer-related due diligence obligations, particularly focusing on the identification of the contracting party and the person acting on their behalf, as outlined in section 10 (1) no. 1 of the GwG. Key aspects of this guidance are:
- Definition: A person acting on behalf of the contracting party is one who claims to be acting in the name of the contracting party. This includes online business activities and does not necessarily require physical presence.
- Types of Representatives:
- Legal Representatives: Individuals who are legally appointed to represent the principal in establishing a business relationship. This category includes board members acting on behalf of legal persons and also parents, guardians, or caseworkers.
- Messengers: Individuals who carry out transactions outside the scope of existing business relationships.
- Identification Obligation:
- Obligation to identify applies to legally appointed representatives and legal representatives when establishing a business relationship for the principal.
- Identification is also required for messengers and legal representatives acting outside the scope of existing business relationships. This is particularly relevant for:
- Non-account-related payment orders of €1,000 or more initiated by someone on behalf of a third party.
- Other threshold-related individual transactions, like the purchase of precious metals.
- However, no identification obligation under the GwG applies to representatives and messengers who deposit or transfer money on a customer’s account as part of an existing business relationship. In such cases, the relevant authorization or mandate must be reviewed, but the proof of authority is not subject to more stringent requirements than a deposit made by the customer at an automated machine.
- 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