What to do in case of suspected money laundering

Many businesses are legally required to help prevent money laundering. This obligation is often referred to as "Know Your Customer" (KYC). If a company suspects that a business partner is involved in money laundering, they usually cannot remain inactive. Courts have reinforced this duty in recent rulings.

The: Submission of a money laundering suspicion report

The case decided by the Higher Regional Court of Frankfurt (Ref. 3 U 192/23) involved claims for damages against a bank for submitting a money laundering suspicion report (Verdachtsmeldung).

The bank's employees had noticed that a customer had sold shares under circumstances suggesting possible insider trading. The bank therefore filed a money laundering suspicion report with the Financial Intelligence Unit (FIU). As a result, investigations were initiated against the customer for money laundering and insider trading. The media also picked up the story.

The suspicions against the customer turned out to be unfounded later. Nevertheless, he filed a lawsuit against the bank and asserted claims for damages. He took the view that the bank was not entitled or obliged to file a money laundering suspicion report. He argued that the false accusation harmed his reputation and finances, and he sought damages.

The court’s decision: No liability for money laundering suspicion report

The customer's lawsuit was unsuccessful. The Higher Regional Court of Frankfurt held that the money laundering suspicion report was admissible as there had been sufficient evidence for unlawful insider trading. Because of this, the bank was not required to compensate the customer for any damages.

Practical tip: Understanding and implementing obligations under money laundering law

This case highlights the importance of money laundering prevention. New money laundering regulations are constantly being passed at national and European level. As a result, businesses often face extensive KYC requirements, including verifying their customers' identities, disclosing beneficial owners, and complying with transparency register rules.

If an obliged entity suspects that funds from a business transaction may originate from criminal activity, it may be required to submit a money laundering suspicion report – and that even if they have no hard evidence for a crime: a reasonable suspicion is enough to justify a report.

The law protects those who report suspicions in good faith: Anyone who reports a suspicious case may not be held liable for it under civil or criminal law or, if they are an employee, suffer disadvantages in their employment relationship. Only those who deliberately or through gross negligence make a false report cannot invoke this protection.

While businesses should not report suspicions carelessly, they must understand their legal responsibilities and act appropriately in each case. Compliance with money laundering laws requires a proactive approach, from verifying customer identities to reporting suspicious activities when necessary.