Reliability Screening of Employees

Reliability Screening of Employees

Reliability screening is a pivotal element of AML/ CTF compliance. It’s not just a regulatory requirement but a best practice that enhances the integrity and security of your business operations. By understanding and applying these principles, your company can effectively mitigate risks associated with money laundering and terrorist financing.

A reliable employee is one who diligently adheres to AML/ CTF obligations, reports necessary facts to their supervisor or AML officer, and refrains from participating in suspicious transactions.

Obliged entities are required to establish robust internal controls and safeguards, including the reliability screening of employees. This involves assessing the trustworthiness and integrity of employees, particularly in roles susceptible to money laundering or terrorist financing risks.

The screening process encompasses various methods like background checks, regular performance evaluations, and compliance monitoring with AML/ CTF policies.

Obliged entities must also consider EU-Anti-Terror-Regulations, which necessitate screening employees. This ensures that no direct or indirect economic resources are provided to individuals named in these lists.

A risk-oriented approach is recommended, with intensity and frequency of screening tailored to the role and access level of employees. Companies should use discretion in selecting screening tools and maintain compliance with labor and data protection laws.

Reliability acc. to Section 1 (20) of the German GwG

The German Anti-Money Laundering Act (GwG) provides a clear definition of what constitutes a „reliable“ employee within the context of anti-money laundering (AML) and counter-terrorist financing (CTF) efforts. According to this section, an employee is deemed reliable if they meet the following criteria:

Compliance with Obligations

The employee must carefully comply with:

  • The obligations set out in the GwG.
  • Other obligations under AML and CTF law.
  • Policies, controls, and procedures introduced at the obliged entity to prevent money laundering and terrorist financing. This means the employee should be knowledgeable and conscientious about following all relevant laws, regulations, and internal guidelines related to AML and CTF.

Reporting of Facts

The employee is required to:

  • Report facts as specified in section 43 (1) of the GwG.
  • Make these reports to their supervisor or to the money laundering officer, if one has been appointed. This aspect emphasizes the importance of communication and transparency, especially in situations where potential money laundering or terrorist financing activities are detected.

Non-participation in Suspicious Transactions

The employee must not participate, either actively or passively, in suspicious transactions or business relationships. This includes avoiding involvement in any activities that appear dubious or inconsistent with normal business practices, thereby ensuring that they are not aiding or abetting money laundering or terrorist financing in any way.

This definition underscores the critical role employees play in an organization’s efforts to prevent money laundering and terrorist financing. It sets a high standard for employee conduct and responsibility, ensuring that staff at all levels are actively engaged in AML and CTF measures.

Reliability Screening of Employees acc. to Section 6 (2) No. 5 of the German GwG

The German Anti-Money Laundering Act (GwG) specifically addresses the aspect of internal controls and safeguards that organizations must implement as part of their compliance measures.

The primary objective of this requirement is to ensure that employees working within an organization are trustworthy and do not pose a risk to the integrity of the organization’s anti-money laundering (AML) and counter-terrorist financing (CTF) efforts.

The German GwG specifies that the reliability of employees should be screened by appropriate means. This typically involves various methods to evaluate and monitor the suitability and conduct of the staff. Such means could include:

  • Background checks
  • Regular performance evaluations
  • Monitoring of compliance with AML and CTF policies and procedures

The Act particularly emphasizes the use of systems by the obliged entity for controlling and appraising staff. These systems are integral for managing and assessing the performance, behavior, and compliance of employees with respect to AML and CTF regulations. The nature of these systems can vary depending on the size and nature of the entity but they are essential for identifying potential risks posed by employees.

The inclusion of employee reliability screening in the German Anti-Money Laundering Act highlights the importance placed on human resources in preventing financial crimes. By ensuring that employees are continuously evaluated for their reliability and adherence to AML and CTF policies, organizations can significantly mitigate internal risks that might contribute to illicit activities.

BaFin-Interpretation and Application Guidance of the GwG

The BaFin Interpretation and Application Guidance pursuant to section 51 (8) of the German Anti-Money Laundering Act (GwG) provides detailed instructions on implementing internal safeguards, particularly regarding the review of employee reliability as specified in section 6 (2) no. 5 of the GwG. Key points include:

Definition of Reliability

Employees are considered reliable under anti-money laundering provisions if they:

  • Comply carefully with obligations set out in the GwG and other anti-money laundering strategies, controls, and procedures.
  • Report relevant facts as specified in section 43 (1) of the GwG to their manager or the AML officer.
  • Refrain from participating in dubious transactions or business relationships.

Applicability to All Employees

The reliability review applies to all employees, regardless of their role in executing transactions or managing internal tasks, as all positions could potentially influence money laundering and terrorist financing.

Risk-Oriented Review

The intensity and frequency of the reliability review should be risk-oriented, covering employees in areas relevant to money laundering and terrorist financing, and those with direct access to business premises, like security personnel.

Discretion in Implementation

Obliged entities have discretion in choosing tools for the reliability review, considering proportionality and a risk-based approach. This could include existing personnel assessment systems or specific monitoring systems. Obliged entities may require documents like a “negative certificate” but are not required to conduct causeless investigations.

Compliance with Labor and Data Protection Laws

Measures considered inappropriate under labor or data protection laws are not suitable for reliability reviews.

Initial and Ongoing Review

The reliability of employees must be reviewed at the start of their employment and monitored based on the risk associated with their position and field of activity. This can include checks like

  • verifying the plausibility of applicant information,
  • police certificates of good conduct, or
  • reviewing financial situations.

Notification of AML Officer

If any indications arise during employment that may question an employee’s reliability, the AML officer must be notified. Indications can include criminal offenses, persistent violations of anti-money laundering obligations, failure to report relevant facts, involvement in dubious transactions, and unusual work behaviors like avoiding holidays or frequently working alone after hours.

Indications that may question an employee’s reliability:

  • An employee commits relevant criminal offences.
  • An employee persistently violates anti-money laundering obligations or internal instructions/guidelines.
  • An employee fails to report facts within the meaning of section 43 (1) of the GwG.
  • An employee participates in doubtful transactions or business.
  • Compulsory enforcement measures are known to have been initiated versus an employee (e.g. seizure by a bailiff).
  • An employee ensures that no deputy is available to fill in for him in relation to certain customers.
  • An employee seeks to avoid taking holiday and to avoid periods of absence.
  • An employee administers business documents in a quasi-private capacity.
  • An employee frequently works on his own in the office outside normal work hours.
  • An employee frequently takes documents home, without a clear reason for doing so.

The guidelines emphasize a comprehensive, risk-based approach to employee reliability, ensuring that all staff, regardless of their role, are regularly assessed and monitored to uphold anti-money laundering standards.

EU-Anti-Terror-Regulations Screening

Two Key Questions

  1. Do companies in Europe have to subject their employees to a name-based comparison with EU-Anti-Terror-Regulations?
  2. What happens if employees in the company are found on these EU-Anti-Terror-Regulations?

Status Quo: No consensus

There is currently no consensus on how to handle the EU-Anti-Terror-Regulations. More and more companies are checking whether their employees, as well as applicants, are listed on the EU-Anti-Terror-Regulations.

The motives for this are varied but can essentially be narrowed down to three main areas:

  • „Supposed“ legal obligation through the EU-Anti-Terror-Regulations
  • Requirements of the Authorized Economic Operator (AEO) trade agreement
  • Policies and procedures of the US parent company or US subsidiaries

Notice: Most companies consider the data matching process to be subject to co-determination of the works council and have concluded works agreements on this matter.

Current Argumentation

Internationally active companies see themselfs obliged for various reasons to match the personal data of their applicants and employees with the EU Anti-Terror Regulations.

A person who is named in the annexes to these regulations must not be provided with or benefit from funds or economic resources, either directly or indirectly. Violations of these regulations can constitute criminal offenses.