The Whistleblower Protection Act and its impact on money laundering prevention
The Whistleblower Protection Act (HinSchG) came into force on July 2, 2023. This law regulates the protection of natural persons who have obtained information about violations in the course of their professional activities and report or disclose these to the relevant reporting bodies (so-called whistleblowers). The material scope of application covers many industries and topics. In addition to reports on data protection and environmental protection violations, it also includes the topics of money laundering and terrorist financing that are relevant to the AFC sector.
Law for better protection of whistleblowers(Whistleblower Protection Act - HinSchG)
Entry into force:July 2, 2023
ulterior motive:Violations of laws are to be uncovered and sanctioned. Reports are to be facilitated and contribute to the fight against corruption.
Content:Protecting whistleblowers from reprisals. Protection against reprisals applies to all employees in the company - regardless of position. Reprisals are, for example, dismissal, warning, transfer, mobbing, discrimination or damage to reputation. In addition, whistleblowers have a right to confidentiality and legal advice.
Consequences of non-compliance: In the event of a violation of the reprisals, the HinSchG provides that claims for damages may be asserted against the company.
Consequences for companies: All companies with more than 50 employees must set up their own internal reporting office. For the financial industry, this applies regardless of the number of employees.
Reporting points: There are both internal and external reporting points. In the case of external reporting bodies, a distinction must be made between reporting bodies of the public sector (supervisory authorities) and reporting bodies of private organizations (trade unions). Employees may contact a reporting agency of choice if they wish to make a report. It is important that all hotlines offer the possibility to make a report anonymously. |
Effects on the prevention of money laundering
What impact will the law have on money laundering prevention?
- At the corporate level
Ideally, thanks to the new HinSchG, employees of a company (who are the first to notice irregularities) should report their suspicions of money laundering in their own company directly to the external offices provided for this purpose.
Thus, other money laundering obligated parties (e.g. lawyers, notaries, ...) can also be reported by their own employees in case of missed money laundering suspicious activity reports.
- At bank level
What changes for banks?
Whistleblower protection in the area of money laundering prevention is nothing new. Reporting offices already exist here, but their content must be expanded and supplemented, since, for example, reporting of data protection misconduct must also be made possible. In addition, special deadlines apply to the processing of cases, for which employees must be trained.
Suspected cases of money laundering and terrorist financing must still be reported to the FIU. These cases cannot be reported to internal or external reporting offices. Suspected cases subject to reporting requirements are therefore unaffected by the new law.
The Whistleblower Protection Act thus extends more to internal control measures and processes and not to the customer and prevention itself.
From there, bank employees can report poor money laundering case processing, errors or negligence to the appropriate internal and external parties.
Some examples from the various money laundering prevention approaches to this are:
- Know Your Customer (KYC): Non-identification of new contracting parties
- Transaction Monitoring: Poorly tuned systems
- Reporting suspicious transactions: Late filing of reports or failure to file reports altogether.
- Risk-based approach: inappropriate risk appetite
- Screening: working with non-updated sanctions lists
It is not always clear which violation has to be reported where. In the financial sector, BaFin and the Federal Office of Justice may be considered for this.
Recommendations for action
- Set up an attractive and well-functioning internal reporting office so that your employees can turn to this office first. In this way, you can rectify the grievances directly. Reporting to external bodies (e.g. BaFin) may entail far-reaching consequences.
- Inform your employees about the exact contents of the HinSchG, so that they know for which topics, where a report has to be filed.
- Encourage your employees to file reports by letting them know that they are protected from reprisals by the law.
- Process internal reports: Investigate reports carefully and take action against violations. Remember to document the actions as well.
