The €600,000 Wake-Up Call: What This Firm's Failures Teach Every Compliance Team

In the rapidly evolving landscape of financial regulation, every enforcement action serves as a critical, often financially burdensome, lesson. The recent substantial fines imposed on a German-licensed deposit-taking credit institution by the country's financial watchdog offer a stark reminder of the non-negotiable importance of robust anti-money laundering (AML) and broader banking compliance. For compliance teams across the financial sector, looking into this case isn't just a matter of curiosity; it's a blueprint for strengthening your own defenses.

Background

The institution in question is a deposit-taking credit institution based in a major German financial hub, which has been licensed since March 16, 2015. It operates as a subsidiary of an Istanbul-based participation bank. This institution offers financial products and services that adhere to principles of ethical or faith-based banking, meaning it invests in real assets and maintains a negative list of industries in which it does not invest, such as tobacco, weapons, alcohol, and pornography.

Its origins trace back to a branch opened in a German city in 2004 by its parent company. The parent company itself is majority-owned by a major financial institution from a Gulf state, with other stakes held by that state's social security fund, a prominent Islamic development bank, and a Turkish state foundation administration. By October 2017, the institution had expanded its branch network, with locations in several key German cities, including its main hub, Berlin, and Munich.

The Core Issue: BaFin's Repeated Penalties and Systemic Failures

Despite its growth and wins, the institution faced significant regulatory scrutiny. In November 2023, the bank was fined and had a special commissioner from BaFin assigned due to non-compliance with requirements of the Banking Act and the Anti-Money Laundering Act, as well as violations of supervisory and control duties.

This initial action was followed by a more comprehensive announcement in 2025, revealing that 30 violations had been identified, leading to total fines of €600,000. Each violation incurred a penalty of €20,000.

These penalties stem from critical lapses in institution's compliance framework:

• No effective monitoring of internal safeguarding measures. According to the Money Laundering Act (GwG), credit institutions must establish internal safeguarding measures to manage and mitigate risks of money laundering and terrorist financing, and they must monitor the functionality of these measures and update them as needed.
  

• Failure to retain records of identification documents and reporting addresses. The GwG mandates that credit institutions keep records and other documents for five years to ensure transparency and traceability of business transactions in the event of an investigation.
  

• Lack of continuous monitoring of business relationships. Institutions are required to continuously monitor business relationships and ensure that relevant documents, data, or information are updated at appropriate intervals, considering the respective risk. This includes regularly updating customer data, such as addresses, as they can change over time.
  

• No suitable processes to adequately consider negative information in customer risk classification.
  

• Failure to ascertain the name of the beneficial owner when identifying them. This is a central obligation for customer due diligence, requiring accurate and up-to-date information about the beneficial owner for transparent business structures and efficient internal safeguarding measures.
  

• Failure to obtain approval from a member of the management board before establishing a business relationship. The GwG requires management approval for establishing or continuing risky business relationships in certain cases, especially when increased risks are identified or a PEP status (politically exposed person) is determined.
  

• Omission of suspicious activity reports (SARs). Credit institutions are obligated to report to the Financial Intelligence Unit (FIU) immediately if they suspect a transaction or other business activity may be related to money laundering or terrorist financing.
  

• Granting loans without fully verifying economic circumstances as part of initial and/or ongoing disclosure obligations. The Banking Act (KWG) stipulates that credit institutions can only grant loans above a certain amount if the borrower's economic circumstances are fully disclosed both before the loan is granted and throughout its duration, serving to protect the institution and depositor funds. The bank in question specifically violated these provisions.
  

Key Lessons for Compliance Teams

This case offers critical takeaways that should be integrated into every financial institution's compliance strategy:

Prioritize Effective Internal Controls and Continuous Monitoring:

It's not enough to just have policies; they must be effective and continuously monitored. Compliance teams must regularly review and test their internal safeguarding measures to ensure they are fit for purpose and updated as risks evolve. This goes beyond static procedures; it demands dynamic oversight.

Master Record-Keeping and Data Integrity:

The failure to retain identification records underscores a foundational compliance requirement. Accurate and accessible records are vital for demonstrating compliance to regulators and for investigative purposes. Compliance teams must ensure robust systems for data capture, storage, and retrieval, emphasizing the critical importance of keeping customer data updated.

Elevate Customer Due Diligence (CDD) and Beneficial Ownership Identification:

The omission of beneficial owner names and the lack of processes for incorporating negative information into risk classification highlight severe gaps in CDD. Compliance teams must meticulously identify and verify beneficial owners. Furthermore, a truly risk-based approach means thoroughly scrutinizing all available information, including adverse media or "negative information," during customer onboarding and ongoing monitoring.

Enforce Management Oversight for High-Risk Relationships:

The requirement for management approval before establishing risky relationships is a crucial safeguard. Compliance teams should ensure clear policies are in place and adhered to, requiring senior management sign-off for any client or transaction flagged with elevated risk. This ensures accountability at the highest levels.

Act Swiftly on Suspicious Activity Reporting (SARs):

Failure to submit suspicious activity reports is a grave offense. Compliance teams must cultivate a culture where red flags are immediately recognized and reported without delay. Training staff to identify potential money laundering or terrorist financing indicators and empowering them to escalate concerns is paramount.

Ensure Rigorous Creditworthiness Assessments:

Beyond AML, the case reminds us of core banking compliance: verifying economic circumstances for loans. Compliance teams in lending institutions must work closely with credit departments to ensure that the initial and ongoing assessment of a borrower's financial health is thorough and documented, safeguarding the institution's financial stability and depositor funds.

Utilize Technology for Proactive Compliance

Many of such multimillion-euro violations could have been prevented with advanced regulatory compliance technology (RegTech). Modern regulatory tech solutions offer capabilities like horizon scanning to monitor global regulatory changes in real time, AI-driven obligation and control mapping to translate rules into actionable steps and instantly identify gaps in compliance frameworks.

Conclusion

The €600,000 fine against the German institution is a clear message from its financial watchdog: compliance is not a static checklist. It is a continuous, dynamic process that demands vigilance, robust systems, and a commitment to upholding the integrity of the financial system. For other compliance teams, this case is a powerful reminder to review your own operations, identify potential vulnerabilities, and proactively implement changes — ideally supported by advanced compliance technology.