+++ (k)A guide to money laundering+++ or: Don't be afraid of the AMLA when trading precious metals +++
(from the series: Your question about precious metals; Knowledge makes Ah!)
No topic divides and excites minds more than the purchase of precious metals and the possible identification of buyers.
(Unfortunately, I too was too easily disturbed last weekend by one of the misconceptions on the subject that I constantly encountered in my everyday life as a precious metals dealer, sorry about that!
)
From reporting obligations to authorities, from registrations with Papa State to obligations to provide proof I and my colleagues in the industry encounter these and other hair-raising horror stories based on Orwell's 1984 model on a daily basis.
However, this article is about the fact that things are a little different and that everything is only half as hot as it is often made out to be.
TL;DR:
The Money Laundering Act is the "Act on the Tracing of Profits from Serious Crimes". It contains various instruments of surveillance, but in the case of precious metal purchases it is less focused on individual persons and their investments, but serves as a means of monitoring "dirty money".
Warning: long reading time. Get yourself a glass of water. The topic is dry, but I'll try to spice it up as usual and write in a digestible way.
What is the Money Laundering Act?
The national Money Laundering Act (GwG for short) of the Federal Republic of Germany has the unwieldy name: "Law on the Tracing of Profits from Serious Crimes". Money laundering within the meaning of this law is a criminal offense according to §261 StGB [Source 1].
The Act also explains the concept of terrorist financing and the effect of bowing in accordance with the Criminal Code and the European Framework Decisions on the Prevention of Terrorist Financing.
Brief outline of the history of the Money Laundering Act:
The history of the AMLA goes back some 40 years. The first legal steps were taken in the USA in 1986 with the "Money Laundering Control Act", which included the criminal offense of money laundering for the first time.
In Europe, the same was done with the first EC Money Laundering Directive in 1991 (91/308/EEC). This is also where the history of German case law on the prevention of money laundering begins. Because it is on this, and here it will be decisive for later, that every other national strategy for the prevention of money laundering in the Federal Republic of Germany is based.
In 1997, the European Council launched the second directive on the prevention of money laundering, which created common measures and investigation levels on a supranational basis.
In 2019 and subsequently, the existing directives were tightened up, specifically targeting the issue of terrorist financing. This was the fifth revision of the current money laundering guidelines to date and, since 2020, has given the administrative supervisory authority at EU level far-reaching direct supervisory powers as well as coordination and support measures.
How to launder money...
It depends very much on the nature of the bills and coins. Plastic is easier to wash by hand than cotton bills... but only at 60 degrees. A quick joke on the side... of course, this is only partly about the washing itself. But in fact, "washing money" comes very close to cleaning, the removal of dirt from money. The dirt is a corresponding criminal offense, whether predatory or extortionate, through illegal activities such as human trafficking, smuggling, illegal prostitution, illegal gambling, tax evasion, illegal employment or funds acquired in other illegal ways, which are obtained by introducing them into the financial system (cashless or cash is irrelevant here) is not identifiable and is therefore apparently laundered. Once in circulation, this money can no longer be clearly traced to its origin. If the associated documents, such as receipts or other evidence (in the form of witnesses or evidence of previous crimes) then disappear, the goal of "laundering money" has been achieved. It is estimated that over 100 billion euros are laundered every year in Germany alone. [Source 2]
White laundry can turn black...
And before you know it, you're suddenly washing money yourself. How is that possible?
The offenses mentioned in excerpts above are undisputed. They are obvious and understandable for people. Nevertheless, it can also happen to you as a person to be quickly drawn into the cycle of money laundering.
All companies and private individuals are interesting targets for money launderers. Eating out in a restaurant while CrystalMeth is being cooked in the back room (but even a cook who is not registered for social security is enough)? Taking part in legal sports betting while Mr. X bets on Darmstadt becoming German champions at the next counter and goes all-in with the proceeds from the burglary at the weekend? Have a company where the latest customer pays twice the price for your product, as long as the deal goes through quickly and quietly? The lawyer from Fantasialand transfers €10,000 to your account, you get to keep €1,000, but the rest should go to a Swiss numbered account?
All these somewhat exaggerated cases show: You too can become part of money laundering with your money and probably already have.
Many of us are likely to come into contact with the topic of money laundering and its prevention at work, whether knowingly or unknowingly. Who knows that even the cashiers at the supermarket checkout have to be sensitive to this issue? Try paying cash for €15,000.01 at REWE...
Whether it's the car trade, buying and selling in retail or wholesale, banks, buying real estate, consulting or investment advice - there is no area that is not affected or endangered by money laundering. And it is often not the usual suspects, but also the inconspicuous, almost everyday transactions. This is where the money-laundering dark figures are often able to operate unhindered and away from any government scrutiny.
The economic damage and other effects of money laundering...
...is documented with a wide variety of figures. At European level, it is estimated that money laundering causes damage amounting to 1% of the EU's economic output (equivalent to approx. 140 billion euros) each year. The German treasury loses around 14 billion euros every year in connection with money laundering and sales tax evasion. [Source 3]
It is therefore quite possible to speak of a risk and loss for states and their populations. These funds are missing for investments and healthcare systems or simply for ordinary citizens.
Corruption is a major issue when it comes to money laundering. Whether in politics, civil servants or employees or decision-makers in financial companies and in the awarding of contracts - all of these people are targets and results of money laundering.
The stability of the financial sector is also at risk due to the rampant money laundering activity. Banks or listed companies quickly find themselves in uncertain waters as soon as money laundering takes root in the respective institution.
Loss of reputation, legal risk and operational risk are all associated with money laundering for companies.
The penalties for money laundering...
... can be described as severe in view of the damage to the state, companies and not least the general public that has just been briefly highlighted.
Personal prison sentences of 3 to 5 years, in serious cases even up to 10 years in prison, can be imposed. In addition, there are fines of up to €150,000 plus compensation for the damage caused or confiscation of other (also legal) assets. [Source 4]
Attention: Even as an employee in a company, a violation of the AMLA or even active involvement in money laundering does not protect against personal liability. In such cases, e.g. the banker, the salesperson, the cashier is personally liable to a judge (up to 2 years imprisonment for recklessly assisted money laundering). In addition to the consequences under labor law and their compensation. This is also the reason why salaried professionals have a vested interest in observing all legal requirements (training and intellectual aptitude provided).
Companies are therefore constantly required, and even obliged in the financial sector, to carry out and provide evidence of regular training on the updated AMLA and its regulations.
But how does this affect me?
Each and every one of us has already been screened at least once in our lives in connection with money laundering. Simply opening an account or custody account triggers the internal process of verification in accordance with the applicable AMLA guidelines at your bank or broker.
Special feature: This all happens before you have even paid a single euro cent into your account or custody account. Banks are subject to the strictest guidelines regarding the control and prevention of illegal activities.
Time and again you read of astonished reactions, also on Getquin, when TradeRepublic suddenly wants to know the origin of the funds. This is also an important part of the money laundering prevention process. This procedure is part of a step-by-step plan. When the account is opened, the personal data is checked against public registers and possible overlaps in databases. This comparison analyzes the likelihood of a MLA case.
As soon as certain thresholds are reached in the course of the business relationship (for brokers, for example, these are around €10,000) are exceeded, your broker must then collect and store additional information. Among other things, this includes the obligation to provide evidence of the source of funds (e.g. salary, inheritance, profit etc.).).
Basically, the inquiry has nothing to do with yourself, the suspicion of criminal acts or the excessive interest of the state. It is simply another mechanism to protect against money laundering and its consequences.
The state monitors your gold purchases and the tax office knows about your gold purchases...
Yes, exactly! And I, as a precious metal dealer, am an undercover employee of the tax office and have to report all transactions to the tax office.
That is, of course, absolute nonsense and complete madness.
There's no denying that the Money Laundering Act can be a pain in the neck and seems like a bureaucratic monster.
As a precious metals dealer, I would gladly do without it, but I have to recognize that the rules of the game should apply to all of us. Why should I support tax evaders, human traffickers and terrorists in their work? Where is my benefit? Since it is not there, I am sticking to the given rules of the game. I would like to go into these in more detail after all the preamble.
Basically, when buying precious metals and the MLA, a distinction must be made between buying from your trusted precious metal dealer and from a banking institution.
For reasons of clarity, I will focus on buying or trading from a precious metal dealer, but I will also mention the differences between banks here and there.
Please note:
The following text will be even duller than the previous lines. "But please don't kill the messenger..." - I can't help the dry and bleak reality...
The table business
If you want to buy precious metals in Germany up to €1,999.99 in cash, you can do so from your trusted dealer completely anonymously and without proof. It makes no difference whether you buy 30x 1g of gold or 1 ounce of Krugerrand or 64 ounces of silver (as of today, these sales are below the threshold value). These purchases are anonymous. [Source 5]
If you buy this value from one dealer and show up at another dealer tomorrow, it will be hard to blame you, but the moment you read these lines, you know that this is actually not what the legislator intended. What you do with this information is up to you and your conscience.
As a dealer, however, I generally don't find it funny if you turn up a few hours later, tomorrow or in the next few days and claim to have seen me for the first time. As a rule, all precious metal dealers have at least 2 eyes and a memory. We also recognize people, even if they are wearing a hat or have a fake moustache stuck to their face... always remember: the consequences and penalties are described above.
Colleagues like doing their job and certainly want to have their loved ones around them in the years to come. The few euros we earn on the margin certainly don't justify questioning my integrity and responsibility.
The purchase of precious metals (whether gold, silver, platinum, palladium...) is therefore possible up to this threshold value without recording personal data (table transaction). The exception here is trading via the bank. As already learned above: Identification takes place here before the first euro, so all transactions that you regulate via the bank are also recorded.
However, the law does not regulate at any point how many times or in which time periods anonymous purchases are possible. A different principle applies here....
The know-your-customer principle:
The KYC principle requires merchants to "get to know their customers". This knowledge includes the full name, place of residence and address, dates of birth and, above certain thresholds, the financial background, i.e. the origin of the assets and possibly proof of their origin.
The KYC is an elementary component of the Money Laundering Act. Transparency in the sense of the exclusion of suspicion is the motto.
The KYC must always be applied if either the threshold value for transactions (i.e. when buying precious metals from €2,000) is exceeded with a transaction or the "relationship between the business partners is designed to be permanent", i.e. you become a regular customer.
The KYC is also accompanied by threshold values. The first step only involves recording personal data (name, address, date of birth). This is followed by loose information about the purpose of the transaction (i.e. investment in the case of EM purchases); proof of the origin of the assets (e.g. via bank statement) and finally even proof of the origin of the assets (e.g. sales contract, notary contract which declares the credit balance to be your bank statement). Once recorded and plausibly justified for the dealer, you are free to trade for at least one year (Dealers are required to keep their data up to date - so you will be asked again at some point...).
So the state and the tax office do find out about my purchases...
One thing is quite clear and without any other "ifs and buts": No!
Under no circumstances will this recorded data be sent to the tax office, nor will a report be made on how much Mr. Goldheinz has just acquired. Up to this point in time NO comparison with any databases or documents takes place.
To put it briefly: The state and the tax office are not interested in you at all (at least in this matter). How important do you think you are and how underemployed do you think the people at the tax office are? How paranoid do you want to be?
The precious metal dealer is also not an auxiliary policeman or a spy from the BKA. The dealer is first and foremost a businessman or businesswoman.
We want to earn money. Not at any price, but within the law. And one thing is clear here (as of 29.02.2024): There is no law that requires the retailer to report the purchase data to any authority, nor is there any authority or link to any database or branch office of the tax office. On the contrary: If I were to do this, I would be violating my commercial duty and data protection.
In terms of the Money Laundering Act, we are talking here about a "recording obligation", but not a "reporting obligation" - as long as you and I follow the rules of the KYC and AMLA.
If you don't give me as a trader the vibes and the impression of a criminal, I'll do my utmost to get you or myself into any complications.
If necessary, I will record the necessary data, save it and destroy it after the statutory retention period. Nobody has to know anything. Nobody finds out anything without justification or as part of criminal proceedings.
The myth of the omniscient state may be partly true for certain countries and also in Germany in some situations. Germany is a developing country when it comes to money laundering laws and "curiosity" in precious metal trading. More on this below...
But what if "we" have a suspicious case?
As soon as we have a reasonable suspicion that someone is smurfing (i.e. splitting gold transactions into many small transactions in order to conceal the true extent of the total amount) or, in the case of large purchases, suddenly no information about the origin ("Eh buddy, you live in Germany - if you had large sums in your bank account and had them paid out, at least the bank knows about the money") of your assets or become entangled in contradictions here - a "recording obligation" will soon become a "reporting obligation" in the sense of a suspicious activity report.
Suspicious activity report equals criminal proceedings?
No. A suspicious transaction report is first and foremost just a process that traders initiate to inform a suitable monitoring body in the company (compliance department) or the authorities (FIU) of a suspicious transaction. The first step is not about the person themselves, but about the transaction. In the course of the review, however, the connection with the person is of course also checked.
However, the report is never sent directly to the tax office. Instead, a report is submitted to the central office for financial transactions, the Financial Intelligence Unit (FIU for short): FIU) and thus reported. [Source 6]
The FIU is a functional authority and is located in the General Customs Directorate. The suspicious activity reports received there are analyzed and forwarded to the competent law enforcement, tax and administrative authorities by means of an analysis report, provided that the FIU has previously determined that the reported suspicious transaction could actually be connected to a case of money laundering, terrorist financing or other serious crime. However, the FIU does not act as a criminal authority, but only as an aid.
Here too... the purchases of the average citizen are absolutely irrelevant. Come to terms with the fact that as long as you are not the chairman or chairwoman of the Panzerknacker, a black marketeer or other creep, you appear to be absolutely irrelevant and unimportant to the authorities.
Important: Just because "I" as a trader report a transaction does not make it relevant to criminal law or tantamount to money laundering proceedings. However, the legislator encourages those obliged to report (in the context of suspicious transactions) to submit one report too many and does not penalize them for a misjudgement. If this turns out to be "unfounded", not everything is just as clean, but there is nothing to directly prevent a further business relationship. In principle, there is a blocking period of a few days after the suspicious activity report has been submitted. If there is no indication from the FIU during this period, it can be assumed that the business is "clean". This procedure also has its critics, as the FIU is generally considered to be overburdened. [Source 7]
Of course, the decision to carry out the transaction ultimately rests with the trader. In the worst case, he is ultimately liable with his freedom and assets.
Selling precious metals anonymously to dealers in a spot transaction...
...has not existed for several years. The reason for this is §143 of the German Fiscal Code, according to which commercial traders must declare the incoming goods (i.e. the precious metal that you sell to the dealer) must be recorded separately. The process itself has nothing to do with the Money Laundering Act, but has something to do with tax law, i.e. with the taxation of the entrepreneur himself.
There is an obligation to cooperate, which is regulated by this and other individual standards. In this context, the entrepreneur records the date of receipt of the goods, the name and address of the supplier (customer), the description of the goods and the price. Here too: Absolute disinterest on the part of the state in your person. This process serves the taxation procedure and also the prevention of stolen goods and property offenses. [Source 8]
NoteThe limit for the anonymous sale of precious metals to dealers under €2,000 does not actually exist and does not serve to control gold holders, but is, among other things, a requirement for the dealer to prove his business activities.
However, when you sell gold to a dealer, no data is passed on to any intermediaries or third parties, as is the case with the purchase itself. It is only stored on site and as proof of your own trading activities.
However, when selling gold above certain thresholds, it makes sense to have proof of the origin of the gold ready. This is merely a matter of the obligation to provide evidence of legal ownership and traceability of the origin of assets. As there is no taxation of gold over the holding period of one year, the tax office has no interest in tracing it.
Furthermore, the customer is already identified when the account or bank details are presented and the payment is made to the account at the bank. In this case, the bank carries out the identification in advance. As the sale of the precious metal is cashless and traceable for the authorities (namely by retrieval via the bank transaction), the risk of money laundering can be considered reduced.
And what else?
Anyone who thinks that the Money Laundering Act is particularly strict in Germany must be mistaken. In fact, Germany is the leader in delays and delaying tactics. It is not for nothing that we have been popular with various foreign money launderers for years: whether Italian or Dutch mafia, whether oligarchs or family members of dictators in distant countries... all these people have had an easy time of it in recent years. Real estate, precious metals, cash, cars - nothing was and is safe from them. [Source 9]
It was not for nothing that "we" hesitated in the past to reduce the cash limit from €10,000 or to lower the anonymous table transaction to €1,999.99. Other countries were much further ahead and more restrictive in this respect.
Although the number of suspicious activity reports to the FIU has risen in recent years, these are rather small in relation to the number of transactions carried out.
In 2021, around 4.9 billion transactions were carried out in Germany via POS systems (payment terminals) and around 6.3 million bank transfers were carried out. If we also assume that we still process a large proportion of payments in cash, the number of suspicious activity reports amounting to 337,186 is rather ridiculous. [Source 10]. And what's more... here too, the FIU is simply overwhelmed in some cases, which is reflected in the late responses from those obliged to report.
Incidentally, 97% of reports come directly from the financial sector. However, the reporting volume in the real estate sector in particular has risen sharply since 2020, as regulatory intervention was made here with the AMLO Real Estate. This area of financial transactions was previously a paradise for money laundering.
In France and Italy, the purchase of precious metals is subject to even stricter regulations. For example, purchase contracts must be recorded in writing, cash payments are completely prohibited and customer details are entered in a register, the so-called "livre de police", in France and elsewhere. Furthermore, due to the strict buying and selling regulations, only gold and silver bars with serial numbers can be bought and sold. In Italy, there are even different local rules, as special attention is paid to the local mafia.
Conclusion and moral of the story:
Money laundering is a serious problem in every country in the world. There are countries where money laundering causes great economic damage and has direct consequences for the population. In the EU, various measures have been introduced in recent years to prevent money laundering. The guidelines and instructions are not intended to control the possession of gold or precious metals, but serve the higher purpose of preventing terrorist financing and money laundering in the traditional sense.
Of course, the measures can be described as excessive and overzealous for the majority of the population (after all, very few of them really have anything to do with illegal practices). However, one should have a sense of proportion and awareness of the deep-seated problem and develop a certain understanding for this approach.
As things stand, the state does not do these things in preparation for the banning of gold, nor for the individual observation of an individual. Of course, any kind of state interference (be it a possible ban on cash) must first of all be critically and above all strictly questioned, but very few of us are really the "victims" of any law enforcement authorities in the end, but rather victims and victims of money laundering.
Ultimately, it is the task of everyone involved to prevent this: to avert damage to the state and thus to each and every one of us, because the economic damage is pre-programmed and incalculable when it comes to money laundering.
Sources:
Source 1: https://www.gesetze-im-internet.de/gwg_2017/
Source 4: https://www.strafrechtsiegen.de/geldwaesche-im-strafrecht-welche-strafen-drohen/
Source 5: https://de.wikipedia.org/wiki/Tafelgesch%C3%A4ft
Source 6: https://www.zoll.de/DE/FIU/fiu_node.html
Source 7: https://www.bfdi.bund.de/DE/Buerger/Inhalte/Polizei-Strafjustiz/National/FIU.html
Source 8: https://www.gesetze-im-internet.de/ao_1977/__143.html
Source 10: FIU Jahresbericht 2020, S. 24
This text was written during my daily commute to the office, after work and, last but not least, with great attention to detail. I dedicate this post to all the donkeys, mechanics, financial jugglers, raccoons and every other creature in the Getquin universe. Total words: 3,753 ❤️
