Government endorses legislation to ban discriminatory employment practices
Germany Tightens Controls Against Undeclared Work and Money Laundering
In a bid to combat undeclared work and money laundering, the federal government is targeting barbershops, beauty salons, and nail studios, as part of a new law passed by the cabinet in Berlin.
The new measures, proposed by Finance Minister Lars Klingbeil (SPD), aim to strengthen transparency, compliance, and revenue collection. These measures reflect Germany's alignment with updated EU anti-money laundering directives and criminal sanctions reforms implemented in 2025.
One key aspect of the new regulations is the enhancement of identification and verification procedures. Employees in these sectors will soon be required to carry an ID for possible inspections, similar to the construction industry and catering sector. Acceptable IDs include an identity card, passport, or substitute ID. This aligns with broader EU anti-money laundering (AML) policies, which require regulated entities to report suspicious transactions regardless of amount, focusing on preventing tax evasion and criminal proceeds. ID verification is a critical part of these AML frameworks to track the source and destination of funds.
The measures specifically focus on sectors vulnerable to money laundering and undeclared work, such as financial institutions, credit institutions, estate agents, trust and company service providers, and high-value dealers accepting cash above thresholds (e.g., €15,000 or more). These industries are tasked with enhanced due diligence and reporting obligations to authorities.
By tightening controls and requiring reports of suspicious activities and undeclared work, the government expects to curb illegal financial flows and increase tax compliance, thereby raising additional revenue. While exact revenue projections are not specified, enhanced AML enforcement generally leads to increased detection of tax evasion, money laundering, and unreported labor, contributing positively to public finances. The changes in the law are expected to generate additional revenue for the federal budget, states, and social security institutions, with an estimated two billion euros more by the year 2029.
Better digital networking and data exchange between authorities are planned as part of the changes in the law. The proposed law also aims to relieve the judiciary by allowing the financial control to independently punish cases of fraud.
Recent years have seen money laundering and involvement in criminal gang structures observed in barbershops, and illegal employment and exploitative employment practices have also been found in nail studios. These new measures are intended to address these issues and create a more secure and fair economic environment.
The measures will be debated in the Bundestag. If approved, they will mark a significant step forward in Germany's efforts to combat undeclared work and money laundering, contributing to a more transparent and compliant economy.
[1] European Commission. (2021). Anti-Money Laundering. Retrieved from https://ec.europa.eu/info/business-economy-euro/banking-and-finance/legal-framework/money-laundering-terrorist-financing/anti-money-laundering_en
[4] Bundesministerium der Finanzen. (2021). Geldwäschegesetz. Retrieved from https://www.bundesfinanzministerium.de/Content/DE/Standardartikel/Themen/Geldwaechsches-Gesetz/Geldwaechsches-Gesetz.html
[5] Deutsche Welle. (2021). Germany tightens controls against money laundering. Retrieved from https://www.dw.com/en/germany-tightens-controls-against-money-laundering/a-59016212
- These new measures, targeting sectors prone to money laundering and undeclared work, align Germany's business and finance sector with EU anti-money laundering policies and recent legislations, as seen in the new French banking and financial law of 2021.
- The increased reporting obligations for industries like financial institutions and credit institutions intensify the scrutiny of such sectors within the broader context of global efforts to combat general news issues such as tax evasion and political corruption.
- In the realm of policy-and-legislation, these new regulations are part of a broader international push to enhance transparency and accountability in business operations, with countries like the United States also adopting similar measures to counteract money laundering and facilitate funds tracing.
