Inside ESG & Compliance – 6 / 11 观点
The Transparency Register has recently become a frequent but unexpected stumbling block in corporate transactions. We would therefore like to highlight below the impact of this still relatively new register on the M&A process and provide tips on which aspects should be addressed at an early stage in order to avoid unwelcome surprises shortly before notarisation of transactions.
The Transparency Register was introduced in Germany in 2017 on the basis of an EU Directive to counteract money laundering and terrorist financing. The aim was to create a publicly accessible register so that natural persons in Germany or abroad who are economically at the top of the respective corporate structure are recognisable to third parties, even in the case of multi-level chains of shareholdings and group transactions. Since then, German companies have been required to enter their respective beneficial owners in this register and to keep the information provided up to date at all times. A beneficial owner is any natural person who directly or indirectly (i) holds more than 25 per cent of the capital shares, (ii) controls more than 25 per cent of the voting rights or (iii) exercises control in a comparable manner. If there are no beneficial owners according to this definition, the fictitious beneficial owners must be entered. As a rule, these are the legal representatives or managing partners.
In this respect, a so-called fictitious notification has applied up until now. This allowed companies to waive the notification of their own beneficial owners to the Transparency Register, as far as the required personal details of the beneficial owners already appeared on other registers, e.g. the shareholders from the lists of GmbH (limited liability company) shareholders or the managing directors as fictitious beneficial owners from the commercial register. This possibility has now been eliminated with the last amendment to the law and the Transparency Register has now become a full register. In the past, companies with the legal form of a GmbH in particular were often able to forego reporting to the Transparency Register against the background of the fictitious notification, since the information they had to report was already contained in other registers. However, the reporting obligation of many companies, which has now been revived by the abolition of the fictitious notification, will only become effective after the expiry of an implementation period. For companies in the legal form of a GmbH, a notification to the Transparency Register must be made by the end of June 2022.
However, this is not likely to be the last amendment to the law, as the EU Money Laundering Regulation, which is currently in the legislative process, and the 6th EU Money Laundering Directive are already looming. It is already foreseeable that the reporting obligations of companies in connection with the Transparency Register will be expanded in the future.
The Transparency Register now also has a direct influence on M&A transactions requiring notarisation, i.e. in particular if the target company is a GmbH.
Where a notary is to notarise the company purchase agreement within the scope of an M&A transaction, the notary, as an obligated party within the meaning of Section 2 of the German Money Laundering Act (“GwG”), must comply with the duties of due diligence under money laundering law incumbent upon him or her pursuant to Section 10 GwG. These duties of the notary then also include, in particular, clarifying whether there is an actual beneficial owner behind the parties to the planned notarisation and, if this is the case, identifying the beneficial owner. Within the scope of this identification obligation, the notary must first independently collect the information on the beneficial owners in accordance with Section 11 (5) GwG and then verify this information in accordance with Section 12 (3) GwG. According to Section 11 (1) GwG, this identification of the beneficial owners by the notary should in principle take place before the establishment of a business relationship or before the execution of a transaction.
In practice, this means that before notarising a company purchase agreement, the notary now calls up a current extract from the Transparency Register on the parties involved in the notarisation in a standardised manner. The notary then compares the information recorded there with the information on the beneficial owners, which he or she has collected from the parties involved in the notarisation. If, despite existing publication obligations, the notary either comes across a completely missing entry in the Transparency Register, or in any case discovers discrepancies in content between the details entered in the Transparency Register and the details of the beneficial owners he or she has determined, notarisation can generally be refused. In our experience, it is not uncommon, especially in the case of multi-level, cross-border chains of shareholdings, for discussions to arise with notaries regarding the question of who is and who is not the beneficial owner of a specific company. This often goes as far as detailed questions, such as whether a Transparency Register entry is incorrect because the second name or second nationality of a beneficial owner is not entered in the Transparency Register. The interpretative notes of the Federal Office of Administration on the Transparency Register, which are often referred to in this context, leave numerous practice-relevant aspects open in any case.
Insofar as the notary refuses notarisation due to discrepancies discovered in the information on the beneficial owners, such refusal is based on the corresponding prohibition of notarisation in Section 10 (9) GwG. Even if this norm provides for exceptions to the fundamental prohibition of certification, the notary, in compliance with his or her own duties of care, nevertheless frequently requests the parties to first correct what he or she considers to be missing or incorrect information in the Transparency Register before any notarisation.
In recent times, notaries have even objected to missing Transparency Register entries of the parties to the notarisation in this context, although the fictitious notification still applied to the companies concerned. Incidentally, no established practice has yet emerged as to whether the notary, in his or her examination, allows the notification of receipt from the Transparency Register to suffice for an entry applied for there, or whether the notary insists on the later entry in the Transparency Register once it has actually taken place. It should be noted that notaries are currently still dealing with the Transparency Register and the corresponding obligations differently in some cases. As a result, notaries tend to interpret their due diligence obligations under money laundering law narrowly and increasingly request the parties to correct their Transparency Register entries before notarisation can take place.
While the Transparency Register originally only addressed companies with their registered office in Germany, now even companies with their registered office abroad are covered by corresponding obligations. Recently, according to Section 20 (1) sentence 2 GwG, companies with their registered office abroad are also required to be registered in the German Transparency Register if they are involved in a legal transaction that results in or aims at the acquisition of German real estate property. This includes, in particular, situations in which the shares in companies with domestic real estate are transferred to a foreign purchaser. If, for example, a limited company with its registered office in Great Britain takes over the shares in a German GmbH, which owns real estate in Germany, by way of a share deal, the British limited company must be entered in the German Transparency Register.
The background to this expansion of the scope of application of the Transparency Register is the legislator’s view that there is an increased risk of money laundering in real estate transactions in particular, since the large number of possible transaction structures in this sector leads to a general tendency to conceal the respective origin of funds. This increased risk is therefore to be countered by requiring disclosure of the parties and their beneficial owners even if they originate from abroad.
Within the framework of the notarisation of such a share deal, in which the shares in a GmbH with domestic real estate property are to be transferred to a British limited company, the notary is subject to increased duties of care under money laundering law compared to situations without the transfer of real estate property. Pursuant to Section 12 (4) GwG, the notary must obtain documentation of the complete ownership and control structure in text form from the British limited company for example, in order to identify the beneficial owners. Insofar as discrepancies arise or the required entry of the beneficial owner of the British limited company in the German Transparency Register is incorrect from the notary’s point of view, the notary is absolutely prohibited from notarising in accordance with Section 10 (9) GwG. Especially in the case of a planned transaction involving foreign companies, it is therefore always recommended to check in good time whether an entry in the Transparency Register is also required for the foreign companies.
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