The report, issued by advocacy group Transparency International, comes roughly a year after the implosion of German fintech darling Wirecard, Corporate Gemany’s biggest accounting scandal in years, and as many fraud investigators warn of the rise of cryptocurrency scams. Germany, despite its relatively squeaky clean reputation, is also no stranger to more traditional schemes to evade tax and dodge regulatory scrutiny.

The Transparency International report warns of massive gaps in the country’s oversight of individuals and companies. This glaring inconsistency looms large ahead of an impending review later this year by the Financial Action Task Force (FATF), an intra-governmental watchdog originally set up by the Group of Seven in 1989.

“Despite efforts made, Germany does not really deserve to pass its FATF review,” said Christoph Trautvetter, author of the study, during a briefing with journalists on Tuesday. As the money-laundering problem grows, so too does FATF. It now includes 37 member countries and two regional bodies.

In its biennial index, the Tax Justice Network last year ranked Germany the 14th most financially secretive jurisdiction. That’s better than the U.S., Switzerland or UK, but worse than tax havens such as Panama and the Bahamas.

While this represents a marked improvement, it warned the country’s tax authority operates a “fragmented, low-tech and under-resourced approach to collecting tax” that suffers from serious gaps in corporate ownership transparency.

The Wirecard and Cum-Ex scandals

In recent years Europe’s largest economy has been rocked by accounting fraud at former German blue chip fintech Wirecard, as well as tax evasion schemes that bilked the state out of billions of euros, including the Cum-Ex scandal. 

Data dumps such as the FinCEN and Panama papers have furthermore highlighted the prominent role played by leading domestic lender Deutsche Bank in enabling suspicious transactions.

Investing in land is a common method to conceal the black market flow of money. Yet only since October have notaries public in Germany been required to flag questionable deals involving opaque actors, distorted market prices, or deals financed entirely in cash or cryptocurrencies. 

“According to FATF criteria, the economic beneficiary should always be known to the authorities,” Trautvetter said. “Yet if you look at the Berlin real estate market, for example, you cannot currently verify the owner of every tenth property.” 

Due to the lack of precise statistics, it is difficult to accurately assess the size of the overall problem. Studies have suggested the amount of illegal funds laundered in Germany at close to €100 billion annually. The global figure, according to a 2009 United Nations Office on Drugs and Crime report, estimates money-laundering rising to as much as $1.6 trillion.

Not worth the trouble

Part of the problem in Germany is structural and linked to its federalist system that delegates governing powers to constituent regions. The sixteen states, or Länder, are constitutionally tasked with overseeing law enforcement, increasing the difficulty of coordination and communication.

Additionally, the acute lack of human resources focused on combatting money laundering and weak sanctioning mechanisms—a problem the world over—serve as a further contributing factor, according to Trautvetter.  

“For the past 20 years, banks actually have been required to ensure they do not hold any accounts from suspicious actors. But clearing this up is an exhaustive and costly process that tends not to be worth the trouble,” he said. “As long as the maximum fine levied by the German financial regulator Bafin is €15 million, they would rather pay the penalty.”

There are renewed signs that western governments are now finding success in cracking down on dark money pools. Legislators in the U.S. Congress overruled a veto by President Donald Trump to pass the most important anti-corruption reform in decades, one that includes a ban on anonymous shell companies. 

And, in Europe, the EU’s sixth anti-money laundering directive took effect across the bloc last month, tackling loopholes in national laws and adding cybercrime for the first time to a shared list of offenses.

The European Commission is also expected to propose as early as July 20 new legislation to strengthen enforcement, including the establishment of a dedicated authority. 

“Thus far there’s no agency like an EU police force or anything that comes close to that. The system is built around a philosophy of light touch,” said an EU source briefed on the plans. “In the end, even developed countries invest peanuts in comparison to the money criminals are ready to throw at paying as little tax as possible.” 

Concerns over illicit funds has also led to regulatory crackdown on cryptocurrencies and their exchanges. The UK’s Financial Conduct Authority recently banned digital platform Binance from operating an affiliate on British soil. 

Lessons learned

Transparency International’s criticism of Germany’s efforts comes at a sensitive time, with federal elections scheduled for the end of September. 

Finance Minister Olaf Scholz, who leads the Social Democrat ticket, has had to answer questions regarding his prior ties to a Hamburg bank involved in the Cum-Ex scandal. The failure of his department to properly conduct oversight over Wirecard—and the fact that it even targeted journalists investigating the issue instead—has also dented his reputation. 

In a statement to Fortune, the FATF said it currently expects its onsite evaluation to occur in November with a so-called “mutual evaluation” report published in August 2022. The same timeline applies to the Netherlands, another European black sheep with a reputation for financial secrecy.

The last time the FATF paid Germany a visit, in May 2010, the offices of Deutsche Bank and utility group RWE had just been raided as part of an illegal value-added tax carousel involving CO2 emissions trading. 

“Germany is currently holder of the presidency of the FATF, and this offers the unique opportunity to show what lessons we have learned over the years from past mistakes,” said Transparency International’s financial expert, Stephan Ohme.