30 July 2021
On 1 August 2021, significant amendments to the German Anti-Money Laundering Act (Geldwäschegesetz, “GWG”) will enter into force. Such amendments will significantly increase the importance of the German transparency register, which has so far played only a minor role alongside the other German registers since its introduction at the initiative of the European legislator in 2017. As the reporting fictions for numerous companies will be deleted, new reporting obligations for these companies will be triggered.
Pursuant to sections 20 para. 1 and 19 para. 1 GWG, companies are required to report personal information on their beneficial owners and on the nature and extent of their beneficial interest to the German transparency register. According to section 3 para. 2 GWG, a beneficial owner is any natural person who directly or indirectly (i) holds more than 25 percent of the capital stock, (ii) controls more than 25 percent of the voting rights, or (iii) exercises control in a comparable manner. The purpose of the publication of beneficial owners is to provide transparency about legal entities. Such transparency is an essential element in the Europe-wide fight against money laundering and terrorist financing. Until now, this reporting obligation vis-à-vis the German transparency register only affected selected companies as numerous exceptions were applicable. Thus, for example, the reporting obligation was deemed to be fulfilled for companies listed on an organised market pursuant to section 2 para. 11 of the German Securities Trading Act (Wertpapierhandelsgesetz, “WpHG”) or companies subject to transparency obligations equivalent to community law with regard to voting rights percentages or to comparable international standards. Such reporting fiction also applied to companies for which the information on the beneficial owner was already available from other German registers, in particular the commercial register (Handelsregister). The purpose of these reporting fictions was to reduce the burden on companies as the relevant information could be retrieved from other public registers.
This will now change with the entry into force of the German Act on the European Interconnection of Transparency Registers and the Implementation of Directive (EU) 2019/1153 of the European Parliament and of the Council of 20 June 2019 on the use of financial information for the fight against money laundering, terrorist financing and other serious crime (Transparenzregister- und Finanzinformationsgesetz, “TraFinG”). The legislative amendments intend to create the legal basis for the interconnection of the respective transparency registers of the individual EU member states as provided for under the European Money Laundering Directive. Such interconnection of the European transparency registers requires uniformly structured data records on the beneficial owners of companies. Since the German transparency register was previously not designed as a fully functional and comprehensive register, it did not meet these requirements.
The previously applicable reporting fictions will therefore no longer apply. Henceforth, the German transparency register will offer a comprehensive set of data on the beneficial owners of companies. In the future, all companies which fall within the general scope of the obligation to report their beneficial owners will be obliged to report directly to the German transparency register. This obligation applies regardless of whether such information may be retrieved from another register.
The transformation of the German transparency register to a comprehensive register gave rise to controversial debates during the legislative process, in particular since this transformation leads to an additional burden for numerous companies. Only registered associations (eingetragene Vereine, “e.V.”) benefit from a derogation in order to strengthen voluntary work and to reduce the bureaucratic burden on them. According to section 20a GWG, the register-keeping office will independently create an entry in the transparency register on the basis of the data submitted to the register of associations (Vereinsregister).
The amendments to the transparency register are a paradigm shift and are of immediate relevance for numerous companies which previously benefited from the reporting fiction due to entries in other registers. These companies will have to report the corresponding information on their beneficial owners within the transitional periods pursuant to section 59 para. 8 GWG. For stock corporations (Aktiengesellschaft, “AG”), European companies (“SE”) and partnerships limited by shares (“KGaA”), the reporting must be completed by 31 March 2022, for limited liability companies (“GmbH”), cooperatives (“eG”), European cooperatives (“SCE”) and partnerships by 30 June 2022 - and in all other cases by 31 December 2022. If companies do not properly comply with these new reporting obligations or do otherwise not fulfil their reporting obligations, they may be subject to severe fines. Since obtaining the required information usually takes a certain amount of time, affected companies should address this issue in a timely manner.