Forced sales of properties - money laundering law with a loophole in the high-risk area

For over a year now, a specially established task force against money laundering has been scrutinising Berlin notaries. This has revealed problems that have either not yet been addressed at all or have gone badly wrong in the prevention of money laundering. The most recent example: forced sales in the property sector.

Foreclosure as a means of money laundering

Foreclosures are particularly suitable for money laundering. This is how the National risk analysis The German Federal Office for Combating Money Laundering and Terrorist Financing has established that criminal groups are increasingly using forced sales to acquire properties with incriminated funds. The Daily Mirror recently reported on the unusual auction of a 22,000 square metre plot of land in Zossen, Brandenburg, at the strikingly high price of 283,000 euros.

Legal loopholes in the area of forced sale

There are still gaps in the law, particularly in the area of forced sales. Lawyers, legal advisors, patent attorneys and notaries are only obliged to fulfil the requirements of the Money Laundering Act for certain transactions. These include transactions involving real estate, but only if the property is actually bought or sold. In the case of a forced sale, the property is transferred by virtue of a sovereign act - and therefore not through a purchase or sale.

This has also been recognised by the bar associations as the competent supervisory authorities for lawyers. They concede that forced sales are not covered by the wording. However, they give lawyers the "practical" advice to nevertheless comply with the due diligence obligations under the Money Laundering Act. Justification: The risk-orientated approach of the Money Laundering Act.

Conflict between money laundering law and data protection

This is highly problematic. As part of these due diligence obligations under the Money Laundering Act, lawyers have to collect a lot of sometimes very sensitive data from their clients. In addition to name, date and place of birth, nationality and residential address, the origin of assets must be determined for high-risk clients, for example. Furthermore, identity documents must be copied. Whether the "risk-oriented approach" of the Money Laundering Act is sufficient as a legal basis for this seems questionable. Lawyers and notaries are in conflict between the requirements of the Money Laundering Act and data protection requirements and are left alone in this situation.

No legal basis to date

Clear guidance from the legislator would therefore be highly desirable at this point - especially as the Federal Ministry of Finance is well aware of the problem. It already identified it in the first national risk analysis from 2018/2019. The first legislative changes were subsequently made. For example, courts and authorities that organise public auctions are now obliged to comply with the Money Laundering Act. However, there is still no clear legal basis for lawyers as advisors in this area.