Foreclosures of Real Estate – Anti-Money Laundering Law with a Gap in a High-Risk Area

For over a year, a specially established anti-money laundering task force has been scrutinising Berlin notaries. This has revealed issues in money laundering prevention that are either not addressed at all or are seriously mishandled. The most recent example: foreclosures in the real estate sector.

Foreclosure as a Method of Money Laundering

Foreclosure proceedings are particularly well suited for money laundering. Germany’s National Risk Assessment on the Fight Against Money Laundering and Terrorist Financing has identified that criminal groups are increasingly using foreclosures to acquire real estate with illicit funds. Recently, Der Tagesspiegel reported on the unusual auction of a 22,000 square metre plot of land in Zossen, Brandenburg, which sold for a suspiciously high price of €283,000.

Legal Loopholes in the Area of Foreclosures

Foreclosure proceedings still contain significant legal loopholes. Lawyers, chamber legal advisers, patent attorneys, and notaries are only obliged to comply with the requirements of the Money Laundering Act (AMLA) for certain types of transactions. These include real estate transactions—but only when a property is actually bought or sold. In a foreclosure, the transfer of ownership is executed by sovereign act, and not through a conventional purchase or sale.

The regional bar associations, which are the supervisory authorities for lawyers, have acknowledged this issue. They admit that foreclosures are not explicitly covered by the current legal wording. However, they advise lawyers to voluntarily comply with the AMLA’s due diligence obligations—justifying this with the risk-based approach underlying the legislation.

Conflict Between Money Laundering Law and Data Protection

This situation is highly problematic. In order to comply with the AMLA’s due diligence requirements, lawyers must collect a large amount of sensitive client data. In addition to name, date and place of birth, nationality, and residential address, lawyers must determine the origin of funds in high-risk cases. They are also required to make copies of identity documents. Whether the risk-based approach of the AMLA offers sufficient legal justification for such intrusive data collection is highly questionable. Lawyers and notaries are caught in a legal grey area — trapped between the AMLA’s demands and data protection requirements — with no clear guidance.

No legal basis So Far

A clear legal mandate from the legislator would therefore be highly desirable — especially since the Federal Ministry of Finance is well aware of the problem. The first National Risk Assessment from 2018/2019 already identified it. While there have been initial legislative adjustments since then — for instance, courts and authorities conducting public auctions are now subject to the AMLA — there is still no statutory basis for lawyers advising in these matters. This legal uncertainty continues to leave professionals without the clarity or protection they need.