The embattled agency at the heart of the German ministry raids

(Corrects first paragraph to make clear the Finance and Justice Ministries were raided, not the FIU)

BERLIN (Reuters) -German prosecutors on Thursday raided https://www.reuters.com/world/europe/german-prosecutors-search-ministries-over-money-laundering-probe-2021-09-09 the country's Finance and Justice Ministries, looking for evidence that the Financial Intelligence Unit fraud-busting agency had failed to act on anti-money-laundering tip-offs.

The development, three weeks before a national election, has the potential to damage Finance Minister Olaf Scholz, the Social Democrat candidate to become chancellor, who polls show is currently frontrunner to replace Angela Merkel.

WHAT IS THE FINANCIAL INTELLIGENCE UNIT?

The FIU is a branch of German customs, which is itself an agency of the federal Finance Ministry.

The unit was once part of the Federal Criminal Office, a law enforcement body, but was transferred to the customs department by former finance minister Wolfgang Schaeuble. Scholz, his successor, tripled its staff to 469 people.

The agency has spent the past year in the spotlight. Its boss had to testify to a parliamentary inquiry over allegations that it acted too late on tips about fraud at Wirecard, a payments company that collapsed in Germany's largest post-war fraud.

WHAT DOES IT DO?

Based in Cologne, the FIU's job is to collect and analyse tips and reports of suspected money laundering that it receives from banks and other bodies, forwarding them to prosecutors and other authorities.

It has a heavy workload, having received 144,005 reports in 2020, 12 times more than a decade ago. Critics say it struggles to cope with a huge backlog of reports.

The agency was moved from law enforcement to customs in 2017, and its critics say that the move cost it expertise and made it more reliant on less experienced staff.

WHY IS IT IN THE NEWS?

Prosecutors raided the Finance and Justice Ministries to look for evidence that they might have directed the FIU not to act on reports it had received relating to millions of euros of suspect transactions, including to Africa, between 2018 and 2020.

The prosecutors said the agency was alerted by banks because of concerns the money was linked to trafficking of arms and drugs and terrorism financing, saying that the FIU took note of the report but did not forward it to law enforcement agencies.

(Reporting by Patricia Uhlig and Tom Sims, writing by Thomas Escritt; Editing by Douglas Busvine and Jane Merriman)