Changes ahead: Money laundering prevention in commodity trading

The Money Laundering Act obliges certain economic operators to take precautions to prevent money laundering and terrorist financing.

In addition to financial service providers, companies from the non-financial sector are also affected by these regulations. Commodity traders are now facing far-reaching changes as a result of a European legislative initiative.

According to a study by the Deutsche Bundesbank, Cash remains the most commonly used means of payment in Germany, accounting for 58 per cent of all payments.

The Financial Action Task Force (FATF) describes cash as the "raw material of the criminal machine" and dedicated a comprehensive report to money laundering using cash back in 2015. According to the report, money launderers regularly use cash to disguise their activities even if the origin of the incriminated funds is purely digital, for example if they were generated through transaction fraud.

The use of cash therefore poses an increased risk, which has not been adequately addressed in the non-financial sector to date.

This is where the European Union comes in. The Money Laundering Regulation was adopted by the Council of the European Union on 30 May 2024 as part of a comprehensive legislative package. It introduces a uniform EU-wide upper limit of 10,000 euros for cash payments in the commercial trade of goods. Member states may set more restrictive upper limits in deviation from this. Upper limits already exist in 18 member states - for example 500 euros in Greece, 1,000 euros in Spain and 5,000 euros in Italy. These continue to apply as long as they do not exceed the new EU upper limit.

As a consequence of the cash limit, commodity dealers will generally be largely excluded from the scope of application of money laundering law from 10 July 2027. According to the ordinance, only the following commodity dealers are still subject to money laundering law:

• Dealers in precious stones and precious metals,
• Retailers of luxury goods (watches worth over €10,000, motor vehicles worth over €250,000, and aircraft and watercraft worth over €7.5 million each)),
• Dealers and brokers of cultural goods (e.g. archaeological objects, paintings and antiques) with a value of at least €10,000 and
• Dealers, brokers and warehouse keepers of luxury goods located in free trade zones or customs warehouses, and cultural goods with a value of at least €10,000.

The regulation stipulates that obligated commodity traders must in future subject not only their customers but also their suppliers to customer due diligence obligations. When establishing a new business relationship with a supplier and in the case of certain transactions outside a business relationship, the supplier and its beneficial owner must be identified and the business relationship, including the transactions, must be continuously monitored. This is based on a supplier-specific risk assessment. The due diligence obligations must also be repeated at risk-appropriate intervals, both on an ad hoc basis and independently of specific events.

The expansion of regulatory obligations thus brings money laundering prevention a step closer to a comprehensive Third Party Risk Management come closer.

The Regulation will enter into force on 10 July 2027 and will apply directly in all EU Member States. Obligated entities should familiarise themselves with the new rules at an early stage. A money laundering assessment of suppliers should consequently also lead to them being taken into account in the context of company-wide risk analysis and when establishing (group-wide) internal security measures.

In doing so, it may be useful to take a broader view and promote the integration of money laundering prevention with other risk areas, such as the Supply Chain Due Diligence Act. This can reduce process redundancies, lower costs and free up resources for value-adding activities.

The experts at KPMG are happy to assist you with any questions you may have about money laundering prevention.