What Must Lawyers Observe Under the Money Laundering Act?

The legal professions play a particularly important role in the prevention of money laundering. According to the German Federal Ministry of Finance, the risk of money laundering in the legal sector is considered “high.”

The purpose of the Money Laundering Act (GwG) is to prevent and combat money laundering and terrorist financing. It is based on international standards set by the Financial Action Task Force (FATF) as well as European directives. At the beginning of 2020, the law implementing the 5th EU Anti-Money Laundering Directive came into force, amending the German Money Laundering Act. These amendments also affected lawyers.

When Do Lawyers Fall Under the Scope of the Money Laundering Act?

Lawyers are only subject to obligations under the Money Laundering Act (GwG) if they perform certain catalogue transactions. These include, among others, advisory services in corporate law (e.g. the formation, operation or management of trusts, companies, or similar structures), advisory services in financial law (e.g. procurement of funds for the formation, operation or management of companies), as well as legal advice during the purchase or sale of real estate.

Every lawyer should therefore check before accepting a mandate whether a relevant catalogue transaction under the Money Laundering Act is being carried out.

Expansion of Catalogue Transactions through the 2020 Amendment

Since January 1, 2020, the implementation of the 5th EU Anti-Money Laundering Directive has introduced additional catalogue transactions. These include legal activities where the lawyer:

- Advises clients on their capital structure, industrial strategy, or related matters, or

- Provides advice or services related to mergers or acquisitions.

According to the legislator, this aims specifically at covering activities in the field of mergers & acquisitions (M&A). Additionally, the provision of tax advisory services on a commercial basis was added as a new catalogue transaction for lawyers.

Requirements Under the Money Laundering Act

The Money Laundering Act requires lawyers to maintain a risk management system, carry out comprehensive identification of their clients, assess risk factors, and—if necessary—submit a suspicious activity report. The extent of these obligations can vary depending on the structure of the law firm. One key factor is the number of professionals in the firm, which may determine whether the appointment of a Money Laundering Reporting Officer is required.

Very Few Suspicious Activity Reports from Lawyers

The legal profession is under increasing scrutiny due to the low number of suspicious activity reports submitted. According to the 2019 annual report of the Financial Intelligence Unit (FIU), only 21 reports were submitted by lawyers. In contrast, 112,439 reports were submitted from the financial sector. Suspicious activity reports related to real estate transactions are particularly rare — even though lawyers are regularly and heavily involved in such transactions.