ECSPR – Anti-money laundering obligations of crowdfunding service providers

In a first article, we reported on the scope of application of the ECSPR and the permission requirement for crowdfunding service providers; in a second article, on the ongoing requirements for crowdfunding service providers and their conduct obligations; in a third article, on the treatment of crypto-tokens under the ECSPR; in a fourth article, on the current German crowdfunding models under the ECSPR. In this fifth contribution, we will address the question of which obligations under money laundering law apply to a crowdfunding service provider.

1. Obliged entity?

In the context of the obligations under money laundering law, the first question is whether crowdfunding service providers are obliged entities within the meaning of the German Money Laundering Act (Geldwäschegesetz - GwG) (the implementation of the European Money Laundering Directives). Obliged entities are subject to certain duties of care and organisation, such as customer due diligence (KYC) when entering into business relationships, such as the identification of the contractual partner, or certain risk management requirements.

The German Money Laundering Act and also the European directives on money laundering do not include crowdfunding service providers in the list of obliged entities so far. Instead, after consulting the European Securities and Markets Authority (ESMA) and the European Banking Authority (EBA), the European Commission is to submit a report to the European Parliament and the Council by 10 November 2023 in which it will assess, among other things, the necessity and proportionality of subjecting crowdfunding service providers to obligations for compliance with national implementations of the Money Laundering Directive.

Should the Commission's report come to the conclusion that the money laundering risk of swarm financing service providers is higher than currently assumed, it is likely that crowdfunding service providers will be included in the scope of the Money Laundering Directive. However, until such time as the adapted Money Laundering Directive is implemented (or gold-plating is made in Member States), crowdfunding service providers are not obliged entities under money laundering law.

2. Other obligations in relation to money laundering law

Even if crowdfunding service providers are not themselves subject to anti-money laundering obligations, there are nevertheless regulations that serve to combat money laundering:

• Examination in the permission procedure
  
  The competent authority checks the reliability of the management of the crowdfunding service provider as part of the application for permission. For this purpose, the applicant must provide evidence that the management and all shareholders who hold at least 20% of the crowdfunding service provider have no criminal record for violations of anti-money laundering law. For this purpose, a certificate of good conduct, which does not contain any entries, together with a declaration of reliability (as known from the previous licensing procedures) will probably be sufficient.
  
  In addition, the permission of the crowdfunding service provider can also be withdrawn if it commits money laundering offences.
  
  
• Examination of the project owners
  
  The crowdfunding service provider is required to conduct an audit of the project owners. This audit can be considered as a kind of KYC-light (know your customer). The ECSPR does not specify the exact scope of the audit.
  
  However, as a minimum requirement, it requires, among other things, that the crowdfunding service provider obtains evidence that the project owner has no criminal record for violations of anti-money laundering laws. In addition, the crowdfunding service provider must verify that the project owner is not established in a country or territory that is considered a "non-cooperative jurisdiction" or a "high-risk third country" under the Money Laundering Directive.
  
  
• Payment services
  
  The requirement that the crowdfunding service provider may only cooperate with authorised payment service providers (or must itself hold such authorisation) in order to provide the payment services necessary for crowdfunding is also a precautionary measure from a money laundering perspective. Thus, the payment service provider (or the crowdfunding service provider that itself holds such a licence) is obliged to identify the customers.
  
  
• General compliance principles
  
  In addition, crowdfunding service providers should also observe the general compliance principles in order to avoid money laundering. A money laundering case within the crowdfunding platform would not only create bad press for the crowdfunding service provider, but also carries the risk of criminal liability for the management and employees of the crowdfunding service provider.

3. Do you have questions about becoming a crowdfunding service provider? 

Our financial regulatory experts combine pragmatism and an interest in innovative solutions with technical know-how. In our daily dealings with German and European regulators, we navigate our clients safely through all registration and licensing procedures and are always up-to-date on new procedures and regulatory practices. We are happy to advise you on this.