Money laundering is a greatly underestimated problem worldwide. Billions generated by criminal activities are each funneled back into the normal economy and thus "laundered". Germany in particular is considered a money laundering paradise. But that shouldn't be the point. Rather, it is about new regulations that are imposed on cleanly acting companies in Germany - namely their obligation to register in the so-called transparency register in order to contribute to the fight against money laundering. This article explains exactly what it is about and what obligations companies based in Germany – planned from August 1, 2021 – will have to face.
Beneficial owner - What must be entered?
In October 2017, the German legislator introduced the so-called transparency register. From this transparency register, it should be possible for every company to determine who is the last beneficial owner. The law currently in force provides that, in principle, all companies are obliged to have information on the identity of their beneficial owners entered in the transparency register. Beneficial owners are all natural persons who directly or indirectly hold more than 25 percent of the company's capital, control more than 25 percent of the voting rights or exercise control over the company in a comparable way.
All shareholdings down to the last identifiable beneficial owner or beneficial owner must be disclosed, not just the immediate shareholders and their shareholders, if applicable. Every company obliged in this way must provide the name of the beneficial owner or beneficial owner, date of birth, place of residence and nationality as well as information on the type and scope of the beneficial interest. Consequently, fiduciary relationships and sub-participations must also be disclosed.
Transparency register – elimination of exceptions
However, there are significant exceptions in Germany so far. Companies should be relieved of unnecessary bureaucracy through double entries. As a result, no registrations had to be made in the transparency register if the corresponding information was already available from other registers such as the commercial register, register of associations, etc. Furthermore, companies that are listed on a stock exchange or comparable markets are exempt from the obligation to register their beneficial owners and beneficial owners.
In the meantime, reverse exceptions to these exceptions have also come into force. The competent Federal Office of Administration took the view that GmbH & Co KG should also be registered in the transparency register. GmbH & Co KG are already entered in the commercial register. However, the information in the commercial register cannot be used to determine whether limited partners can exercise control rights or not. This has led to considerable legal uncertainty. In order to avoid a fine, the companies concerned made double entries or should have done so and still have to do so. Therefore, check whether your company has to disclose information in the transparency register and whether the corresponding registrations have been made.
Transparency Register - What's new?
These exceptions should now - planned from August 1, 2021 - all be omitted. It is planned to change the German Money Laundering Act and to significantly increase the number of companies subject to registration. This implements European directives that require all EU member states to significantly tighten the measures to prevent money laundering.
To this end, the transparency registers of all EU member states are to be linked in order to make the companies and their beneficial owners transparent across the EU. However, this does not work if, as has been the case in Germany, for example, the information is spread across different registers, namely the commercial register and the transparency register. Since synchronizing the registers for the individual federal states would be too expensive, companies now have to take care of this.
Who must register?
For many companies, the effort has so far been limited because the German legislator saw that the reporting obligations would generate further bureaucratic effort without there being any directly tangible advantage for the company. This is different now. In the future, according to the draft law, all companies based in Germany and also companies outside of Germany that want to acquire real estate in Germany must report information on their beneficial owners or beneficiaries to the transparency register. This applies regardless of whether they are already properly registered in other official registers.
In particular, all GmbH, the most common form of company in Germany, must now disclose information to the transparency register. While around 400,000 companies are currently registered in the transparency register, the number is likely to rise to over two million if the law comes into force. For all beneficial owners and owners, the participation and / or voting rights quota or other control options must be shown. The effort and the susceptibility to errors are considerable. The managing director will often not know the shareholders behind the shareholders down to the last detail. This applies in particular to those shareholders who are not based in Germany or the EU and for whom there is therefore no transparency register that could be inspected. The managing directors therefore face considerable research tasks.
In addition to all this, there is the following: A one-off notification is not enough. Companies must submit a corresponding report to the transparency register in each individual case in which the participation and control rights of the beneficial owners or beneficial owners change. This also applies if the beneficial owner or beneficial owner does not change at the company level, but "further up" at the shareholder level. It is therefore highly recommended that managing directors ask their shareholders at regular intervals whether there have been any changes to the beneficial owner or beneficial owner that are subject to notification.
Of course, the managing directors or owners must also publish all company-related changes such as a change in the registered office, the company, the share capital or the business address in the transparency register.
Transparency Register - Timeline for Changes
In addition, a tight schedule is to be introduced within which companies based in Germany must register with their shareholders and beneficial owners. The national transparency registers of the EU member states should have been linked to each other since March 10, 2021. The German legislature failed to do this.
The draft law provides for the following schedule: GmbHs must have reported their beneficial owners or owners to the transparency register by December 31, 2021. Other companies, in particular for public limited companies, cooperatives or partnerships, have a deadline of March 31, 2022. For registered partnerships, June 30, 2022 should apply. For the remaining cases, the reporting period ends on December 31, 2022.
consequences of violations
The Federal Office of Administration will consistently punish violations of the registration requirements for the transparency register with fines. The managing directors are personally liable for this if they do not comply with their obligation to report the beneficial owners or beneficial owners (read here more about strategies for avoiding breaches of duty as a managing director). If you want to be on the safe side with your obligations, you should consult your lawyer and find out more from the FAQs of the Federal Office of Administration. In the past, the understanding of the term “control” was particularly critical. The Federal Office of Administration has changed its view several times as to whether veto rights and blocking minorities, i.e. purely preventive rights, already mean “control”. The Federal Office of Administration now points out that it depends on the circumstances in the individual case, which really does not help anyone.
The omission of the so-called “notice of notification” can have a particularly serious effect. If a company that is required to report was entered in another register such as the commercial register, association register, foundation register, etc., it was treated as if it had fulfilled its reporting obligations towards the transparency register. This is now omitted without replacement. An active notification to the transparency register is now absolutely necessary.
Summary
The currently planned draft of the law to reform the German transparency register will mean that all companies, the legal entity, i.e. above all corporations and partnerships in Germany, will have to register and register information about their beneficial owners or their beneficial owners. Exceptions have largely been abolished.
In addition, all companies that are obliged to prevent money laundering are now obliged to identify their customers and contractual partners and to compare them with the entry in the register. Managing directors therefore have additional obligations that can result in a violation of the law and personal liability.
Managers should therefore regularly ask their shareholders about changes in control rights. I expect difficulties above all with the question of whether a change in control to over 25% has been achieved in a specific individual case.
