Germany’s Financial Regulator BaFin Warns of Money Laundering Risks from Virtual IBANs and Cryptocurrency

Germany’s financial regulator, BaFin, has raised concerns that virtual IBANs (vIBANs) and cryptocurrency are exacerbating money laundering risks. Unlike standard IBANs, a single bank account can be linked to multiple vIBANs, making it harder to trace transactions and determine the identities and locations of payment senders and recipients.

“Depending on the business model, the use of vIBANs entails significant risk,” BaFin stated. It further warned that vIBANs could obstruct financial institutions’ ability to perform customer due diligence and monitor transactions effectively.

BaFin also pointed out that vIBANs could feature misleading country codes, potentially creating the false impression that an account falls under specific national regulations. “This would wrongly give the impression that the account is managed domestically and is therefore subject to the respective national regulation and control,” BaFin cautioned, emphasizing the potential for misleading customers.

To address these concerns, BaFin intends to conduct a field analysis to assess how vIBANs are being used within Germany and to identify high-risk business models. “BaFin will develop targeted supervisory measures based on the results,” the regulator stated.

Cryptocurrency poses similar challenges, according to BaFin, due to its diverse structures and lack of transparency. The regulator reminded financial institutions that, as of December 30, 2024, they “must meet specific obligations for cryptoasset transfers.”

The warning from BaFin underscores the growing regulatory scrutiny surrounding financial technologies and their implications for financial crime prevention. As Germany moves toward tightening oversight, businesses and financial institutions may face new compliance obligations to mitigate these risks.

By fLEXI tEAM