Germany’s Federal Financial Supervisory Authority (Bafin) has ordered Cadence Growth Capital GmbH to submit its contracts with placement agents to the regulator.

The company will also have to submit other documents required to fulfill its customer due diligence requirements under the German Money Laundering Act (Geldwäschegesetz – GwG).

The order is intended to ensure that, in future, Cadence Growth Capital GmbH complies with its customer due diligence requirements regarding its business relationships with placement agents.

Bafin has found that Cadence Growth Capital GmbH seriously failed to comply with its customer due diligence requirements under the GwG in its business relationship with a placement agent. This concerned the requirements to identify the person acting on behalf of the placement agent and verify their power of representation, to clarify whether the contracting party is acting on behalf of a beneficial owner, and to continuously monitor the business relationship.

Furthermore, it failed to fulfill its enhanced due diligence requirements, even though there was a potentially increased risk of money laundering or terrorist financing. Placement agents are companies or natural persons that receive remuneration from Cadence Growth Capital GmbH for establishing contacts with investors or potential target companies.

The German Money Laundering Act (Geldwäschegesetz – GwG) sets out the requirements that companies must fulfil to prevent money laundering and terrorist financing. Registered and authorised asset management companies are also obliged entities. In particular, companies are obliged to fulfil comprehensive due diligence requirements. This includes identifying the person acting on behalf of the contracting party and verifying their power of representation.

They also have to clarify whether the contracting party is acting on behalf of a beneficial owner; in other words, whether there is a natural person who ultimately exercises control over the contracting party. Companies are also required to continuously monitor their business relationships and transactions. If there is an increased risk of money laundering or terrorist financing, they must fulfill enhanced due diligence requirements.

If Bafin concludes that companies are not adequately complying with the requirements under the GwG, it takes action. Bafin may issue orders designed to ensure compliance in individual cases with the due diligence requirements under the GwG regarding to contractual partners. Bafin has issued such an order to Cadence Growth Capital GmbH on the basis of section 51(2) sentence 1 and sentence 2 of the GwG.