Money laundering and Hawala banking

A particularly relevant topic in white-collar criminal law is money laundering. Money laundering (ML) is defined as the introduction of illegally acquired assets into the legitimate economic system while concealing their true origin. The criminal liability of money laundering is regulated in Section 261 of the German Criminal Code.

As part of the effective fight against money laundering and terrorist financing, the Money Laundering Act (GwG) imposes various anti-money laundering obligations on certain companies and groups of individuals. These obligations are complex and extensive, and compliance with them is of utmost importance.

Criminal liability under the German Criminal Code

According to Section 261 Paragraph 1 of the German Criminal Code (StGB), anyone who conceals the origin of illegally acquired assets is guilty of money laundering. In many cases, this involves funds from crimes such as receiving stolen goods (Section 259 StGB), robbery (Section 250 StGB), tax evasion (Section 370 Fiscal Code), corruption offenses, or drug and arms trafficking.

The prerequisites for fulfilling the offense are as follows:

1. The asset in question must be from a unlawful predicate offense come from.
2. A suitable Act must be present:
   
   
   1. Section 261 paragraph 1 sentence 1 no. 1 StGB: Hide of the object
   2. Section 261 paragraph 1 sentence 1 no. 2 StGB: Exchange, transfer or transfer of the object in the Intention to thwart its discovery, confiscation or determination of its origin
   3. Section 261 paragraph 1 sentence 1 no. 3 StGB: Provide of the object (to yourself or to a third party)
   4. Section 261 paragraph 1 sentence 1 no. 4 StGB: Keep or use of the object if its origin was known at the time of acquisition
   5. Section 261 paragraph 3 of the Criminal Code: Concealing or concealing factswhich could be relevant for the location, confiscation or determination of the origin of the object
3. The origin of the assets must be known or at least grossly negligent (reckless) be misunderstood.

The law generally provides for a prison sentence of up to 5 years or a fine for the fulfillment of the elements of the offense. Obligated within the meaning of Section 2 of the GwG are liable to a prison sentence of 3 months to 5 years. particularly serious cases, i.e. if there is commercial activity or connection to the continued commission of money laundering as a member of a gang, the prison sentence is between 6 months and 10 years. careless misjudgments The illegal origin of funds is already punishable by imprisonment of up to 2 years or a fine.

However, anyone who voluntarily reports the crime to the competent authority or secures the object of the crime can avoid punishment if the crime has not already been discovered in part or in whole and this was known or could have been expected. 

Money Laundering Act (GwG)

The basis for national legislation is the current EU Money Laundering Directive, which has been revised regularly, most recently in 2024. The 6th EU Money Laundering Directive must now be implemented into national law by the EU member states by July 10, 2027. It essentially builds on the previous Money Laundering Directives, but also expands their requirements and stipulates even stricter measures against criminal activities to effectively combat money laundering and terrorist financing. This is due, among other things, to the fact that the number of money laundering offenses recorded by the police in Germany alone more than tripled between 2020 and 2023. The global money laundering volume is estimated at up to 2 trillion US dollars. 

The GwG regulates in particular the responsibilities for combating money laundering and the associated precautionary measures. These include, in particular, Reporting, monitoring, documentation and due diligence obligationsTo verify the origin of assets, Section 2 of the GwG requires various groups of individuals and companies to submit a suspicious transaction report for certain transactions. This applies regardless of the payment method and the amount of the transaction.

Obligated within the meaning of the GwG are in particular

• Banks, credit institutions, financial companies and asset managers
• Legal advisors, tax advisors and notaries
• Insurance
• auditor
• Gambling providers
• Businesses with high cash transactions
• customs officers
• Real estate agent
• art mediator

At violations Failure to comply with the obligations stipulated in the GwG may result in a fine of up to one million euros or up to twice the economic benefit derived from the violation.

Hawala banking

The term "Hawala" comes from Arabic and translates as "transfer." The Hawala banking system enables informal financial transfers worldwide and has been in use for decades. It allows for the circumvention of direct transactions of money or assets. The basis of this system is trust and confidentiality, as it operates without any government licensing or supervision. This makes it paperless, accountless, and bankless.

Hawala banking eludes government control, making it particularly difficult to uncover such systems. Its international networks serve many purposes – it is particularly widespread in the precious metals and real estate sectors, but organizations such as Welthungerhilfe and refugees also use it to transfer funds to other countries. The global volume is difficult to determine, but it is estimated that around 200 billion euros are transferred annually through these systems. 

The system Hawala banking works via middlemen, so-called hawaladars. The payer who wishes to transfer money hands over cash to their local hawaladar. These are often found in inconspicuous locations, such as restaurants or small shops. The first hawaladar to receive the money then contacts another hawaladar at the payout location. The amount of money and a payout code are transmitted. The payer must also communicate this code to the recipient so that the recipient can then verify their identity with their hawaladar and receive the money in cash. 

There is usually no direct flow of cash or book money between hawaladars. It is also irrelevant how the asset is transferred from one hawaladar to the next, or whether a cash flow or settlement takes place. Instead, the focus is solely on the economic outcome of the financial transfer. In some cases, for example, purchase agreements are created for show.

This banking system is not licensed in Germany or the EU because it violates all anti-money laundering regulations. In recent years, law enforcement agencies have increasingly monitored it. Whenever suspicious activity is detected, they look for links to criminal activities such as money laundering, terrorist financing, human trafficking, drug trafficking, tax evasion, smuggling, and corruption. 

The Criminal liability The reason given is that Hawala banking evades the official, state-supervised banking and financial system. Depending on the act, several criminal offenses may be considered:

Anyone who works in such a system as middleman Anyone who collects funds and forwards them within the network is guilty of membership in a criminal organization and the unauthorized provision of payment services. 

The criminal liability of criminal organizations, even abroad, is governed by Sections 129 and 129b of the German Criminal Code (StGB). Establishing such associations and participating as a member is punishable by imprisonment of up to five years or a fine. Supporting and promoting such associations is also punishable by imprisonment of up to three years or a fine. 

The criminal liability of unauthorised provision of payment services is governed by Section 63 (1) of the Payment Services Supervision Act (ZAG) and provides for a prison sentence of up to five years or a fine. The wording of the provision already presupposes multiple acts, so that the repeated provision of such transactions within a single business constitutes only one act in the legal sense according to the Federal Court of Justice. According to the Federal Court of Justice, a license for the provision of such payment services is only required if the activity is conducted commercially. Therefore, isolated payment services outside of such a framework do not require a license and do not constitute a criminal offense.