Tipping-off Prohibition

Tipping-off Prohibition

The concept of „Tipping-off Prohibition,“ also known as the „Prohibition of Disclosure,“ is a critical component of anti-money laundering (AML) regulations, particularly evident in the European Union’s 4th and 5th Anti-Money Laundering Directives (AMLDs) and the German Anti-Money Laundering Act (Geldwäschegesetz – GwG). This prohibition plays a vital role in preventing the subjects of financial investigations from being alerted to these inquiries, thereby safeguarding the integrity of the investigative processes.

4th AMLD

Under the 4th AMLD, the Tipping-off Prohibition is stringently outlined in Article 39. This directive mandates that obliged entities, their directors, and employees must not disclose to the customer or other third parties about the transmission of information concerning money laundering or terrorist financing activities. This includes the status of ongoing or potential analyses. However, the directive also delineates exceptions, allowing disclosure to competent authorities for law enforcement purposes and within certain financial groups, provided they comply with the directive’s requirements.

5th AMLD

The 5th AMLD, which amends the 4th AMLD, introduces modifications to the Tipping-off Prohibition, particularly in the context of group-wide policies and procedures. The amendment, specifically in Article 1, clarifies the scope of permissible disclosures within corporate groups, stating that such disclosures are permissible within member state credit and financial institutions that are part of the same group, as well as with their branches and subsidiaries in third countries, subject to compliance with the Directive’s standards.

German GwG and BaFin-Guidance

In Germany, the GwG integrates these EU directives into national law, emphasizing the importance of the Tipping-off Prohibition in Section 47. It prohibits obliged entities from informing relevant parties about the filing or investigation of suspicious activities. Like the EU directives, the GwG outlines exceptions for disclosures to government agencies and between entities belonging to the same group or professional category, subject to certain conditions.

The BaFin-Interpretation and Application Guidance further elucidates this prohibition, emphasizing its purpose to prevent individuals involved in suspicious activities from evading legal action. It also clarifies scenarios where information can be forwarded legitimately, including to government bodies, within the same group, and in cases involving the same contracting parties and transactions.

4th AMLD

The 4th AMLD (Anti-Money Laundering Directive), specifically under Chapter IV („Reporting Obligations“), Section 2 („Prohibition of Disclosure“), Article 39, deals with the „Tipping-off Prohibition.“ Here’s a summary of its key points:

  1. General Prohibition of Disclosure: Obliged entities, including their directors and employees, are prohibited from informing the customer or other third persons about the transmission of information regarding money laundering or terrorist financing activities as per Articles 33 and 34. This includes any ongoing or potential analysis in these matters.
  2. Exceptions to Prohibition: The prohibition does not extend to disclosures made to competent authorities, including self-regulatory bodies, or for law enforcement purposes.
  3. Disclosure within Financial Groups: The prohibition does not prevent sharing of information between credit and financial institutions, including their branches and majority-owned subsidiaries in third countries, as long as these branches and subsidiaries adhere to group-wide policies and procedures consistent with the Directive, particularly Article 45.
  4. Disclosure within Legal or Organizational Structures: The prohibition does not prevent disclosure between obliged entities (as defined in Article 2(1), points (3)(a) and (b)) or equivalent entities in third countries, especially those operating within the same legal person or a larger structure with common ownership, management, or compliance control.
  5. Disclosure in Cases Involving the Same Client and Transaction: For certain obliged entities (as per Article 2(1) points (1), (2), (3)(a) and (b)), the prohibition does not prevent disclosures relating to the same customer and transaction involving two or more obliged entities, provided these entities are in the EU or in a third country with equivalent standards, and belong to the same professional category with adherence to professional secrecy and data protection laws.
  6. Dissuasion of Illegal Activity: If the obliged entities (defined in Article 2(1), points (3)(a) and (b)) attempt to dissuade a client from engaging in illegal activity, this does not count as a disclosure under the prohibition.

In essence, Article 39 of the 4th AMLD outlines the restrictions on disclosing information about potential or ongoing investigations into money laundering or terrorist financing to the subjects of such investigations. However, it also details several exceptions where such disclosure is permissible, especially in cases involving legal obligations, law enforcement, and within certain organizational structures or financial groups, provided that all involved parties adhere to the required secrecy and data protection standards.

5th AMLD

The 5th AMLD (Anti-Money Laundering Directive), specifically in Article 1 which amends Directive (EU) 2015/849, includes a revision to Article 39, paragraph 3, focusing on the „Tipping-off Prohibition.“ Here’s a summary of the amendment:

Revised Paragraph 3 of Article 39 in the 5th AMLD:

  • The amendment specifies that the prohibition of disclosure, as stated in paragraph 1 of Article 39, does not prevent the sharing of information between credit institutions and financial institutions from the Member States, provided they belong to the same group.
  • This provision also extends to disclosures between these entities and their branches and majority-owned subsidiaries established in third countries.
  • However, there are conditions for such disclosures: these branches and majority-owned subsidiaries must fully comply with the group-wide policies and procedures.
  • Additionally, these policies and procedures, which include the procedures for sharing information within the group, must be in accordance with Article 45 of the Directive.
  • It is crucial that the group-wide policies and procedures are compliant with the requirements set out in the Directive.

In essence, the 5th AMLD amendment to Article 39, paragraph 3, refines the scope of permissible disclosures within the same corporate group. It clarifies that such disclosures are allowed within member state credit and financial institutions that are part of the same group, as well as with their branches and subsidiaries in third countries, provided they adhere to the Directive’s requirements. This amendment ensures that while maintaining the integrity of investigations into money laundering or terrorist financing, certain necessary intra-group communications are allowed, given they follow the established group-wide protocols that align with the Directive’s standards.

German GwG

The German Anti-Money Laundering Act (Geldwäschegesetz – GwG) includes specific provisions related to the „Tipping-off Prohibition“ in Section 47. Here’s a summary of the key points from this section:

  1. General Prohibition of Disclosure: Obliged entities are prohibited from informing the contracting party, the instructing party of the transaction, or other third parties about:
    • The intended filing or actual filing of a report under section 43(1),
    • An investigation initiated based on a report under section 43(1),
    • A demand for information under section 30(3), sentence 1.
  2. Exceptions to the Prohibition: The prohibition does not apply to disclosure:
    • To government agencies,
    • Between obliged entities within the same group as defined in section 2(1),
    • Between obliged entities that are parent companies and their branches and group companies in third countries, subject to certain conditions,
    • Between obliged entities in the EU or third countries with equivalent anti-money laundering and counter-terrorist financing requirements, under certain professional settings,
    • In cases involving the same contracting party and transaction across multiple obliged entities, subject to certain conditions.
    • The information disclosed under these exceptions can only be used for preventing money laundering or terrorist financing.
  3. Restrictions for Government Agencies: Government agencies, other than the German Financial Intelligence Unit, are restricted from disclosing information related to a report filed under section 43(1) to certain parties unless the German Financial Intelligence Unit gives prior consent and the original purpose of the suspicious transaction report is not altered.
  4. Dissuasion of Illegal Activity: If obliged entities try to dissuade a client from engaging in illegal activity, it does not count as disclosure under the prohibition.
  5. Exchange of Information for Risk Assessment: Obliged entities can share information about specific matters indicating money laundering, its predicate offences, or terrorist financing for the purpose of risk assessment or determining whether to file a report under section 43(1) or a criminal complaint. This information can be shared through databases and must be used solely for preventing these crimes.
  6. Regulatory Powers: The Federal Ministry of Finance may enact further provisions prohibiting the disclosure of information concerning obliged entities from high-risk third countries, in consultation with other federal ministries.

In summary, Section 47 of the German GwG outlines the prohibition of tipping off individuals about anti-money laundering investigations or reports, while providing specific exceptions under which information can be shared between certain entities. It also emphasizes the use of shared information solely for the purpose of preventing money laundering or terrorist financing and outlines the regulatory powers for additional disclosure prohibitions.

BaFin-Interpretation and Application Guidance on the German GwG

The BaFin-Interpretation and Application Guidance on the German GwG, specifically focusing on Section 47 regarding the „Tipping-off Prohibition“, provides insights into how this regulation should be understood and applied. Here’s a summary of the key points:

  1. Purpose of Tipping-off Prohibition:
    • The main intent is to prevent individuals who are the subject of a report under section 43(1) of the GwG (suspected of money laundering or related crimes) from being alerted about the report or any resulting investigation. This aims to prevent them from evading government authorities or safeguarding the proceeds of their crimes.
  2. General Prohibition:
    • Principally, entities are prohibited from notifying the contracting partner, the customer, or other third parties about any reports or investigations related to suspicions of criminal activities, as laid out under section 43(1) of the GwG.
  3. Exceptions to the Prohibition:
    • The prohibition can be disregarded under specific conditions, allowing the legitimate forwarding of information in several scenarios:
      • To government bodies and supervisory authorities,
      • Between obliged entities within the same group,
      • Between obliged entities and their subordinate group undertakings in third countries, subject to group compliance programs,
      • Between obliged entities in cases involving the same contracting party and transaction, provided these entities are in the EU or in a third country with equivalent anti-money laundering standards, belong to the same professional category, and have similar obligations regarding professional secrecy and data protection.
  4. Restrictions on Government Bodies:
    • Government bodies are also restricted from sharing knowledge of a report filed under section 43(1) of the GwG. Such information can only be passed on with the approval of the Financial Intelligence Unit (FIU).
  5. Suspension of Transactions by the FIU:
    • In cases where the FIU suspends a transaction following a suspicious transaction report, obliged entities might face a dilemma on whether notifying the counterparty of this suspension constitutes „tipping off.“ According to the guidance:
      • Any information that could enable the affected person to protect themselves or their assets should be kept secret.
      • Even notifying that the FIU has suspended a transaction could indirectly reveal that a suspicious transaction report was filed about the matter.
      • Currently, the FIU is advised to provide the relevant information itself, extending the consent reservation for forwarding information (prescribed in section 47(3) of the GwG) from government bodies to obliged entities in such circumstances.
  6. FIU’s Role and Guidance:
    • The FIU provides specific notices and guidelines on its website regarding how these provisions should be interpreted and applied, especially in complex situations like transaction suspensions.

In summary, the BaFin Guidance emphasizes the importance of maintaining secrecy about suspicious transaction reports and related investigations to prevent subjects from evading law enforcement or safeguarding illicit proceeds. It outlines specific exceptions where information can be legitimately shared and underscores the role of the FIU in managing sensitive information disclosures.

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