- Video Identification
- German GwG
- German Bundestag Printed Matter 18/11555
- BaFin-Circular 01/2014 (GW)
- BaFin-Circular 3/2017 (GW)
- Results of the Evaluation of BaFin-Circular 3/2017 (GW)
- Performance of due diligence by third parties
- Contractual Outsourcing
In today’s digital age, the financial sector is evolving rapidly, and with it, the methods of customer identification are also advancing. Germany, in its commitment to both technological innovation and rigorous compliance, has embraced „Video Identification“ as a significant tool within the framework of the German Money Laundering Act (GwG). This modern approach, particularly detailed in the German Bundestag Printed Matter 18/11555 and the BaFin-Circulars 01/2014 (GW) and 3/2017 (GW), highlights the adaptability of the traditional “face-to-face” principle in a digital environment.
Understanding Video Identification: Video Identification allows the verification of a client’s identity via video transmission, facilitating an effective alternative to physical presence. This process is particularly relevant under the GwG for combating money laundering and terrorist financing. German regulations, especially the BaFin Circulars, have laid out comprehensive guidelines to ensure that video identification methods meet the high standards of security and reliability equivalent to in-person verifications.
The “Face-to-Face” Principle in a Digital Format: A pivotal aspect of these guidelines is the recognition that sensory perception, a crucial element in traditional face-to-face interactions, can be effectively achieved through video transmission. This concept is eloquently captured in the sentence, „In this case, regardless of this physical separation, sensory perception of the persons participating in the identification process is possible, since the person who is to be identified and the employee sit opposite one another “face to face” through this video transmission and communicate with one another.“ This interpretation underscores the importance of a direct and interactive visual and auditory connection, enabling the identifier to effectively engage with and verify the identity of the client, just as they would in a physical setting.
Compliance and Implementation: For compliance, video identification requires specific procedural steps and trained personnel. BaFin’s Circulars detail the requirements for such procedures, emphasizing the need for real-time interaction, high-quality video and sound, and thorough documentation, including capturing images of the client and their identification documents. Moreover, it necessitates explicit consent from the client for this digital process, ensuring transparency and respect for privacy.
Future of Digital Identification: The integration of video identification aligns with Germany’s forward-thinking approach to digital transformation in the financial sector. It not only provides a secure and compliant method to verify identity remotely but also offers a customer-friendly alternative to traditional methods, reflecting the increasing importance of digital channels in financial services.
The German GwG (Geldwäschegesetz or Money Laundering Act) in Section 13 focuses on identity verification procedures, crucial for anti-money laundering and counter-terrorist financing efforts. Here’s a summary of this section with an emphasis on these procedures:
Verification Methods for Natural Persons
- Physical Document Examination: Obliged entities are required to verify the identity of natural persons by appropriately examining documents presented physically.
- Alternative Procedures: They can also use other procedures that are equally suitable for verifying identity under anti-money laundering and counter-terrorist financing law. These alternative methods must have a security level equivalent to physical document examination.
Focus on Identity Verification
- Physical Verification: The traditional method of identity verification involves the direct examination of identity documents like passports or ID cards, ensuring they are valid and belong to the person presenting them.
- Equivalent Security Level for Alternatives: Any alternative methods used must match the security level of physical document checks. This equivalence ensures that the robustness of anti-money laundering and counter-terrorist financing measures is maintained, regardless of the method used.
- Adaptability and Evolution: The provision for the Federal Ministry of Finance to add details or define appropriate procedures highlights the GwG’s adaptability. It allows for the incorporation of technological advancements and evolving methods in identity verification, ensuring that the law stays relevant and effective in a changing environment.
German Bundestag Printed Matter 18/11555
The German Bundestag Printed Matter (BT-Drs.) 18/11555 discusses the draft legislation of the Federal Government for implementing the Fourth EU Money Laundering Directive, with a specific focus on identity verification procedures in Section 13.
Verification in Person
- Physical Examination: Identity verification through the physical presence of the individual, involving visual and tactile examination of the document presented.
- Technological Consideration: Recognizes the role of technological progress in identity verification.
- Equivalent Level of Security: Allows for other suitable procedures that offer a security level equivalent to physical examination.
- Inclusion of Video Identification: Includes video identification procedures as permissible under a BaFin circular, provided they meet the pre-existing legal standards.
- Future Evaluation: Plans to evaluate the effectiveness of the video identification procedure, especially in terms of compliance with anti-money laundering requirements.
BaFin-Circular 01/2014 (GW)
The BaFin-Circular 01/2014 (GW) provides guidelines on the interpretation and application of “non-face-to-face” identification under the German GwG, with a specific focus on „face to face“ aspects in the context of video identification. Here’s a summary while keeping the structure of the original text:
Interpretation of „not personally present“ or „non-face-to-face“
- Enhanced Due Diligence: The German Federal Ministry of Finance’s (BMFs) interpretation pertains to the enhanced due diligence required in cases of non-face-to-face identification.
- Requirement for Enhanced Risk Assumption: If the counterparty is not physically present for identity verification, an enhanced risk must be assumed, necessitating enhanced due diligence.
- Perception through Video Transmission: “Personal presence” can be considered fulfilled if parties are visually perceivable through video transmission, enabling verbal contact and identity verification using an identification document.
Implementation of Video Identification
- Requirements for Employees: Identification must be conducted by appropriately trained employees, either directly from the obligated party or a third party.
- Location for Employees: Employees should be situated in separate, restricted-access premises during identification.
- Documentation during Video Transmission: The process involves creating photos/screenshots showing both the counterparty and the front and back of the identification document, along with recording the full serial number of the identity document and acoustic recording of the conversation.
- Consent for Recording: The counterparty must expressly agree to this recording at the start of the identification process.
- Verification of Identity Documents: Use of identity documents with optical safety features equivalent to holographic images, with employees required to verify these features visually.
- Consistency Checks: Verification that the photo and description on the identity document match the counterparty, including consistency in photograph, issue date, and date of birth.
- Matching Details with Existing Records: Verification of the details on the identity document against existing customer details.
- Conditions for Cancellation of Process: The process must be cancelled if visual checks are not possible or if verbal communication fails, or in case of any discrepancies or uncertainties.
- Completion of Identification with TAN: The identification procedure concludes with the counterparty entering a valid Transaction Authentication Number (TAN) online, which must be confirmed successfully in the system.
BaFin-Circular 3/2017 (GW)
The BaFin-Circular 3/2017 (GW) establishes detailed guidelines for video identification procedures for natural persons, specifically designed to meet anti-money laundering laws. This circular is aimed at various financial entities in Germany. Here’s a structured summary:
Identification of natural persons via Video Identification procedures
- Applicability: Limited to natural persons; not suitable for legal persons or partnerships.
- Legitimacy: Aligned with the Fourth European Money Laundering Directive, acknowledging the feasibility of video identification.
- Updation: Replaces Circular 1/2014, enhancing security and practicality aspects.
- Evaluation: Calls for periodic assessment of the procedure’s adequacy.
Requirements for the execution of Video Identification
- Identification by Trained Employees
- Only trained employees or authorized third parties can conduct identifications.
- Training covers document features, anti-money laundering, data protection, and the Circular’s specifics.
- The identification process must occur in separate, secure areas with restricted access.
- Explicit consent for the identification process and documentation must be obtained and recorded.
- Technical and Organisational Requirements
- Real-time, uninterrupted, and end-to-end encrypted video chats are mandatory.
- High image and sound quality are essential for unequivocal identification.
- Identity Documents Permitted
- Only highly secure, visually and machine-verifiable documents with a machine-readable zone are allowed.
- Verification of the Identity Document
- Verification of optical security features, including holograms, microlettering, and more.
- Checks against damage, manipulation, and authenticity.
- Verification of the Person to be Identified
- Matching the person’s appearance with the photograph and description on the document.
- Assessment of the plausibility of provided information.
- Termination of the Video Identification Process
- The process must be stopped if verification is not feasible or discrepancies arise.
- Transmission of a TAN
- A Transaction Authentication Number (TAN) is used to complete the identification process.
- Retention and Recording
- The entire process must be recorded and retained for audit purposes.
- Data Protection
- Compliance with data protection laws is emphasized alongside these guidelines.
Implementation and Oversight
- Effective from June 15, 2017.
- Targets a range of financial and insurance institutions in Germany.
This Circular sets strict standards for video identification, focusing on trained personnel, secure and encrypted processes, meticulous verification of identity documents and individuals, comprehensive recording, and data protection measures. These guidelines aim to enhance the security and integrity of the identification process in a digital environment.
Results of the Evaluation of BaFin-Circular 3/2017 (GW)
BaFin reviewed the effectiveness and adequacy of the video identification procedure outlined in Circular 3/2017 (GW), considering technological advancements and operational experiences.
- Identification Requirements: Entities under the Money Laundering Act (GwG) must identify contracting parties, their representatives, and beneficial owners before establishing business relationships or executing transactions, as mandated by § 11 Paragraph 1 GwG.
- Verification Basis: § 12 GwG forms the basis for this verification.
- Methods of Verification: As per § 13 Paragraph 1 GwG, identity verification can be done either by examining documents on-site or through other procedures offering an equivalent level of security.
- Circular 3/2017: BaFin detailed the requirements for using a video identification procedure in this circular. It was set for review to assess if it meets anti-money laundering requirements in light of technological progress and practical experiences.
- Focus of Evaluation: The scope of video identification within anti-money laundering law, with a specific interest in continuous monitoring and fraud detection.
Results of the Evaluation
- Continued Use as Bridging Technology: The video identification procedure is recognized as a viable interim technology and will continue to be used.
- Ongoing Review: There will be continuous assessments to determine if the procedure aligns with anti-money laundering requirements, considering technological advancements and further insights.
- Artificial Intelligence Exploration: The use of AI in the process is being explored. Key considerations in this context are protection against fraud, transparency, traceability, and explainability.
- Regulatory Considerations: The possibility of issuing a regulation according to § 13 Paragraph 2 GwG is being examined. This will determine whether to maintain the current procedural framework or introduce new regulations.
Performance of due diligence by third parties
- 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
- Regulation (EU) No. 910/2014 https://eur-lex.europa.eu/legal-content/EN/TXT/?uri=uriserv%3AOJ.L_.2014.257.01.0073.01.ENG
- German Anti-Money Laundering Act (Geldwäschegesetz – GwG) https://www.bafin.de/SharedDocs/Downloads/EN/Aufsichtsrecht/dl_gwg_en.html
- German Bundestag Printed Matter 18/11555 https://dip.bundestag.de/vorgang/gesetz-zur-umsetzung-der-vierten-eu-geldwäscherichtlinie-zur-ausführung-der-eu-geldtransferverordnung/80085
- BaFin-Circular 01/2014 (GW) – suspicious transaction report https://www.bafin.de/SharedDocs/Veroeffentlichungen/EN/Rundschreiben/rs_1401_gw_verwaltungspraxis_vm_en.html
- BaFin-Circular 3/2017 (GW) – video identification procedures www.bafin.de/SharedDocs/Veroeffentlichungen/EN/Rundschreiben/2017/rs_1703_gw_videoident_en.html
- Results of the Evaluation of the Video Identification Procedure as per Circular 3/2017 (GW) https://www.bafin.de/SharedDocs/Veroeffentlichungen/DE/Auslegungsentscheidung/A/ae_videoident_rs_3_2017.html