For a long time, it was unclear to what extent in-house lawyers are ‘obligated parties’ within the meaning of the German Money Laundering Act (Geldwäschegesetz - GwG). On 1 January 2020, the legislator introduced the new Sec. 10 (8a) GwG, which explicitly names in-house lawyers as obligated parties for the first time, thus clarifying that in-house lawyers are also addressees of the obligations under money laundering law. However, there is still a lack of clarity on many points as far as the exact scope of the obligations of in-house lawyers are concerned. Companies and in-house lawyers affected by this need to review their specific obligations under the GwG as soon as possible if they are to avoid fines for violations of its obligations.
Obligated in-house lawyers
Pursuant to Sec. 2 (1) No. 10 GwG, lawyers are among the persons bound by special obligations under money laundering law if they provide advice within the scope of the types of mandates specified in the provision (so-called catalogue transactions). This also includes in-house counsel admitted as (in-house) lawyers. Also in their case, the prerequisite is the existence of a catalogue transaction within the meaning of the provision. This includes, in particular, assistance in the purchase or sale of real estate (real estate law), in the management of money, securities or other assets (financial and capital market law), in the formation of companies, in the purchase and sale of commercial enterprises (corporate/M&A) as well as assistance in tax matters (tax law). According to the understanding of the bar associations as the competent supervisory authorities, all participation in such catalogue transactions, even indirect participation, establishes the obligations under the GwG, even if the actual service itself does not meet the criterion for the catalogue, for example a trademark-related examination in the context of an M&A transaction. This considerably extends the duties of in-house lawyers.
Duties of in-house lawyers under the German Money Laundering Act
Persons obligated under the GwG fundamentally have to establish a risk management system (Secs. 4 et seqq. GwG) and implement security measures (Sec. 6 GwG), observe identification obligations and general due diligence obligations (Secs. 10 - 15 GwG) and, if necessary, submit suspicious activity reports (Sec. 43 (1) GwG). For the in-house lawyer, however, these duties are to a large extent actually limited by the fact that he only works for a single client - his employer. These duties are also partially transferred to the employer. This is to be viewed separately from the obligations under money laundering law which affect the in-house lawyer if he also provides advisory services for third parties within the framework of his own legal practice.
When preparing one’s own risk analysis within the meaning of Sec. 5 GwG one should note that, for an in-house lawyer, this can and must essentially relate to his employer as his only client and only to the catalogue transactions handled by him. Indications of a potentially higher or lower risk can be found in Annexes 1 and 2 to the GwG. In case of an employer from Germany or the EU, one can generally assume that the risk is low. Risks in relation to the employer's contractual partners can at best play an indirect role, if they also influence the specific risk of the in-house lawyer in relation to his employer. The bar associations generally expect an annual update of the risk analysis. Here, it is sufficient if one documents that the circumstances have not changed and that the analysis still applies.
In the case of an in-house lawyer, the security measures according to Sec. 6 et seqq. GwG are transferred to his employees, Sec. 6 (3) GwG. Whether or not the employer itself is an obligated person under the GwG is irrelevant insofar. Employers are usually able to meet their obligations in respect of their in-house lawyers by informing or training them accordingly about their duties and supporting them in complying with them.
General due diligence obligations
The general due diligence obligations pursuant to Sec. 10 (1) GwG include the identification of the contracting party and any beneficial owners, the determination of the specific business purpose and the intended type of business relationship, the identification of politically exposed persons (PEP) and the monitoring of the business relationship. In the case of in-house lawyers, however, these obligations are only in relation to their employer as their sole contractual partner or client. Unless there is an increased risk of money laundering in an exceptional case, special measures on the part of the in-house lawyer can be dispensed with concerning his employer, who is known to him.
If the employer itself is an obliged party under money laundering law, the general due diligence obligations of the in-house lawyer pursuant to Sec. 10 (8a) GwG are also transferred to it. However, in this case the employer would have to fulfil the due diligence obligations with regard to itself, e.g. identify itself. How this is supposed to work is still unclear. What is probably meant by the law is that the employer fulfils its general due diligence obligations vis-à-vis its own contractual partners, whereas the in-house lawyer is exempt from these duties under Sec. 10 (8a) GwG.
It is also unclear whether the transfer of general due diligence duties from the in-house lawyer to the employer as an obliged party under money laundering law pursuant to Sec. 10 (8a) GwG ensures that privileges of the employer no longer apply if they do not apply to the in-house lawyer, e.g. if the employer, as a dealer in goods pursuant to Sec. 10 (6a) No. 1 GwG, is actually only obliged in respect of certain transactions.
Suspicious activity reports
Pursuant to Sec. 43 (1) GwG, the in-house lawyer is obliged to report suspicions of money laundering or terrorist financing to the Financial Intelligence Unit (FIU) (Zentralstelle für Finanztransaktionsuntersuchungen). However, Sec. 43 (2) sentence 1 GwG provides for an exception for (in-house) lawyers if the circumstances that should (actually) be reported concern information that they have received in the course of a legal representative or advisory capacity. Since in-house lawyers are always likely to be acting in a legal advisory capacity, the obligation to submit SARs largely comes to nothing. In the opinion of the bar associations, however, a reporting obligation may exist with regard to obvious information or third parties, i.e. in particular contractual partners of the employer; the latter under the condition that no effects on the mandate are to be feared.
The in-house lawyer also has a duty to report under Sec. 43 (2) sentence 2 GwG in cases where he has positive knowledge that his activities are being used for money laundering or terrorist financing purposes or that this is planned. However, such occurrences will be extremely rare.
Particular caution must be exercised in the case of real estate transactions, for which the in-house lawyer is subject to very far-reaching reporting obligations under the German Ordinance on Reporting Duties under the Money Laundering Act - Real Estate (Geldwäschegesetzmeldepflichtverordnung-Immobilien - GwGMeldV-Immobilien).
The in-house lawyer is also an obligated person in the sense of the Money Laundering Act. How he has to fulfil his obligations and how these relate to any money laundering obligations of his employer can only be examined on a case-by-case basis. Companies that employ in-house lawyers would be well advised to closely examine the money laundering obligations, not only of their company, but also and especially of their in-house lawyers.