The EU Commission continues its fight against money laundering and terrorist financing and, for this purpose, presented a package of extended legislative proposals on 20 July 2021 (available here: please see the full analysis of the EU AML Package of our colleagues here), including a proposal for a new regulation on the prevention of the use of the financial system for the purpose of money laundering and terrorist financing (“Money Laundering Regulation”) and a proposal for a 6th Money Laundering Directive (“Money Laundering Directive”).
The proposals provide for extensive new regulations and a significant expansion of companies' transparency obligations. Among other things, the Money Laundering Regulation aims to standardize the provisions on identifying the beneficial owner and on customer due diligence (KYC checks) within the European Union. While the Money Laundering Regulation will be directly applicable once it enters into force, the new Money Laundering Directive needs to be implemented into national law by the individual member states first. The draft of the Money Laundering Directive includes a separate section on notification obligations of beneficial owners and contains significantly more detailed requirements for national transparency registers.
Effects of the Draft Money Laundering Regulation
One of the most significant amendments by the Money Laundering Regulation is harmonising the definition of beneficial owner (Article 2 para. 22 Money Laundering Regulation). According to this definition, the beneficial owner is "any natural person who ultimately owns or controls a legal entity […] as well as any natural person on whose behalf or for the benefit of whom a transaction or activity is being conducted”.
Control through an ownership interest will in future be seen to exist in multi-level shareholding structures if a natural person - on every level of ownership - holds more than 25% of the shares, voting rights or other ownership interest (Art. 42 para. 1 Money Laundering Regulation). This would broaden the definition of beneficial owners if compared with the legal situation currently applicable in Germany which, in case of multi-level shareholding structures, requires intermediate companies to be controlled in fact or de facto under company law rules (i.e. through a majority of shares). It remains to be seen how the new definition will be handled in practice.
Control via other means is also to be significantly extended (Art. 42 para. 1 Money Laundering Regulation), requiring one of the following criteria in future, even without a direct or indirect shareholder position being necessary:
- “the right to appoint or remove more than half of the members of the board or similar officers of the corporate entity;
- the ability to exert a significant influence on the decisions taken by the corporate entity, including veto rights, decision rights and any decisions regarding profit distributions or leading to a shift in assets;
- control, whether shared or not, through […] agreements with owners, members or the corporate entities, provisions in the articles of association, partnership agreements, syndication agreements, or equivalent documents […], as well as voting arrangements;
- links with family members of managers or directors/those owning or controlling the corporate entity;
- use of […] nominee arrangements.”
The draft regulation provides that the Commission may establish further criteria for determining beneficial owners. It should also be noted that for companies listed on a regulated market the entire section shall not apply (Art. 42 para. 5 lit. a Money Laundering Regulation). Consequently, the reporting obligations for listed companies, which only recently came into force with the Transparency Register and Financial Information Act (available here) (see our article of 30 July 2021), would no longer apply. In contrast, the draft regulation expressly provides for notification obligations in case of trusts: Persons holding shares or management positions for someone else shall notify the company in future of their nominators and their beneficial owner(s) (Art. 47 Money Laundering Regulation). Currently, the FAQ of the Federal Office of Administration (Bundesverwaltungsamt) point out that both the nominee due to his direct control and the nominator due to his indirect control have to be disclosed as beneficial owners.
In addition, more extensive requirements with regard to the collection of data on beneficial owners shall be introduced (Art. 44 Money Laundering Regulation). These requirements significantly exceed the data to be recorded under Section 19 of the German Money Laundering Act (Geldwäschegesetz, GWG), by providing further information such as on place of birth, residential address (not only place of residence), ID number, tax identification number.
If no natural person can be identified as beneficial owner, companies shall in future submit a negative declaration and, in addition to the data on the senior managing officials, provide data on officers and employees with in-depth knowledge of the company-related money laundering risk (Article 45 para. 2 and 3 of the Money Laundering Regulation).
The draft regulation also aims to extend the application of the transparency registers to legal entities from other jurisdictions. In future, legal entities domiciled outside the European Union shall be subject to the notification obligations regarding their beneficial owners to the transparency register of the respective member state, in particular when acquiring real estate in the European Union or when entering into business relations with a person subject to money laundering obligations (Art. 48 Money Laundering Regulation).
Effects of the Draft Money Laundering Directive
Complementary to the specifications of the Money Laundering Regulation, the draft directive contains a separate section on national transparency registers (Art. 10 et seq. Money Laundering Directive). The individual member states shall remain responsible for these registers. However, the directive aims for a far-reaching harmonization of the practice of the registers. For this purpose, the Commission shall also be authorized to specify the format of reports to the transparency register (Art. 10 para. 4 Money Laundering Directive).
Furthermore, the draft of the Money Laundering Directive focuses in particular on the discrepancy reports by companies, which are subject to anti-money laundering obligations (so-called obliged entities): If the information available to them on a beneficial owner differs from the data in the transparency register, they are obliged to report such discrepancy to the register (Article 10 para.5 to 7 of the Money Laundering Directive). In the future, Member States shall, for instance, ensure that discrepancy reports are filed within fourteen calendar days after detecting the discrepancy.
Moreover, the entities in charge of the beneficial ownership registers shall be given additional authority to identify the beneficial owner and to verify the data submitted. For instance, it is envisaged that the entities will be authorized to conduct on-site searches (Art. 10 para. 8 Money Laundering Directive).
Outlook
The fight against money laundering is still a top priority for the EU Commission. Even though the two proposals still have to pass the European legislative process, it is apparent that further far-reaching changes to the notification requirements in the transparency register are imminent. As regards the Money Laundering Regulation, the draft provides for a transitional period of three years after publication in the Official Journal of the European Union before the new regulations come into force. The draft of the Money Laundering Directive, in parallel, provides that it shall be implemented into national law by the member states within three years.
The effects of these new regulations on the legal practice remain to be seen: If, for example, as proposed further personal information on beneficial owners (in particular place of birth, ID number, tax identification number, etc.) will need to be submitted to the transparency register in future, this might have direct consequences on the public accessibility to the transparency register, either as a whole or at least in part.
