Balancing Anti-Money Laundering/Counter-Terrorist Financing Requirements and Financial Inclusion for Migrants: A Case Study of Germany

12 Pages Posted: 3 Jan 2016 Last revised: 22 Mar 2016

See all articles by Ehi Esoimeme

Ehi Esoimeme

University of Wales System - Cardiff Law School

Date Written: January 2, 2016

Abstract

Purpose - Given the sudden rise in the numbers of refugees who should be integrated into society and the labour market as quickly as possible, Germany’s Federal Financial Supervisory Authority, Bafin, created transitional provisions, to enable refugees to have comprehensive access to a bank account. These provisions will apply until an identity verification regulation in accordance with section 4 (4) sentence 2 of the Money Laundering Act (Geldwäschegesetz – GwG) comes into force, this year. This paper seeks to determine whether or not the measures adopted by BaFin can effectively combat money laundering and terrorist financing while promoting financial inclusion?

Design/Methodology/Approach - This paper critically analyses the anti-money laundering/counter-terrorist financing measures adopted by Germany’s BaFin for refugees. This paper relies mainly on primary and secondary data drawn from the public domain. It also relies on documentary research.

Findings - This paper determined that the anti-money laundering/counter-terrorist financing measures adopted by Germany for refugees does not strike a fair balance between combating money laundering and promoting financial inclusion. This paper therefore made the following recommendations: I. The German Immigration Authority should apply a risk-based approach to its screening procedures. Standard due diligence should be applied to persons between the ages of 1-17, while enhanced due diligence measures should be applied to persons who are 18 and above. II. Banks are advised not to use the Employee Profiling methodology, to assess the risk posed by potential employees. Employee profiling, being a one-size-fits-all assessment methodology, may not be the best option. This paper recommends a flexible approach that can adapt as risks evolve. Since the approach used to combat money laundering is more like a flexible approach, the methodology used to assess employee risk should also be flexible. Banks should label employees in sensitive positions as high risk, just as how they label customers. Banks would need to apply enhanced scrutiny to such employees. Money Laundering Reporting Officers, for example, should be labeled high-risk. Measures would have to be put in place to mitigate the risk (s) associated with high-risk employees. III. Banks must ensure that all bank accounts of migrants are effectively monitored. This would enable them to detect when a migrant begins to utilize products designated as high-risk. IV. Banks must request for additional information from customers who wish to make international fund transfers. This would enable them to determine the purpose and nature of the transfer. Financial institutions are required to verify the information provided.

Research Limitations - This paper focuses on undocumented migrants. It does not address other vulnerable groups like low income households, handicapped persons and individuals in rural communities.

Originality/Value - Although the Financial Action Task Force has issued several guidelines on financial inclusion, none of those guidelines addressed the issue of the migrant crisis.

Keywords: Money Laundering, Terrorism Financing, Financial Inclusion, Migrants

Suggested Citation

Esoimeme, Ehi, Balancing Anti-Money Laundering/Counter-Terrorist Financing Requirements and Financial Inclusion for Migrants: A Case Study of Germany (January 2, 2016). Available at SSRN: https://ssrn.com/abstract=2710097 or http://dx.doi.org/10.2139/ssrn.2710097

Ehi Esoimeme (Contact Author)

University of Wales System - Cardiff Law School ( email )

PO Box 427
Cardiff, Wales CF10 3AX
United Kingdom

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