Anti-Money Laundering Compliance

Overview

With entry into force of the Act to Modernise the German Law on Partnerships (MoPeG) on 1 January 2024, the German civil law partnership (“GbR”) obtains the opportunity to register itself in the newly established public civil law partnership register (sec. 707 para. 1 German Civil Code (BGB) new version). This applies exclusively to German civil law partnerships with legal capacity (sec. 705 para. 2 alt. 1 in conjunction with sec. 706 et seq. BGB new version).

The new regulation particularly concerns German civil law partnerships operating in the real estate sector as well as in the context of corporate participations. The registration in the new public register - kept electronically by the respective local courts - will be particularly mandatory for the registration of a German civil law partnership’s rights in the land register (Grundbuch) as well as for the registration of a German civil law partnership as shareholder in the shareholder list of a German limited liability company (GmbH) or as a stockholder in the share register.

The registered German civil law partnership (“eGbR”) resulting from the registration in the new public register will as “registered partnership” subsequently and for the first time also be obliged to notify its beneficial owners to the German transparency register (sec. 20 para. 1 sent. 1 German Anti-Money Laundering Act (GwG)).

Transitional periods for (initial) notifications of a German civil law partnership’s beneficial owners to the German transparency register are not foreseen by the new regulations. Thus, required notifications to the German transparency register must be made immediately after the civil law partnership’s registration in the new public register.

In case of violations of notification obligations to the German transparency register the registered German civil law partnership and its managing partners may be subject to administrative offence proceedings whose consequences may include significant financial penalties and so-called “naming & shaming” sanctions (sec. 56 para. 1 sent. 1 nos. 55 – 63 and sec. 57 GwG, sec. 9 German Administrative Offences Act (OWiG)).

Missing, delayed, incomplete and incorrect notifications to the German transparency register also entail the risk of so-called “notifications of inconsistency” (sec. 23a GwG). Such notifications lead to highly time- and cost-intensive administrative proceedings and may endanger the establishment or continuation of business relationships with parties (particularly credit institutions) that have special obligations under German anti-money laundering law (sec. 10 para. 9 sent. 1, sent. 2 GwG).

1. Notification obligations to the German transparency register

Since latest transitional notification periods expired on 31 December 2022 (sec. 59 para. 8 GwG), legal entities under private law and registered partnerships with registered seat in Germany are meanwhile fully obliged to notify their beneficial owners to the German transparency register (sec. 20 para. 1 sent. 1 GwG). This also applies to companies listed on the stock exchange and their subsidiaries; exceptions may only apply for registered associations (sec. 20a GwG) (Anti-Money Laundering Compliance | Notification obligations vis-à-vis the German transparency register). 

The same obligation applies to domestic administrators of so-called “trusts” as well as domestic trustees of other “special legal constructions” (sec. 21 para. 1 sent. 1, para. 2 GwG).

2. Current legal situation: No notification obligation to the German transparency register for civil law partnerships

The term “registered partnerships” in the meaning of sec. 20 para. 1 sent. 1 GwG only refers to companies registered in “company, commercial or comparable public registers“ (Bundestag document no. 18/11555, page 127). 

The German civil law partnership is currently not subject to notification obligations to the German transparency register as it is not registered in such public registers. According to the relevant explanatory memorandum of underlying German anti-money laundering law and the administrative practice of the German Federal Administrative Office (BVA) as competent German anti-money laundering supervisory authority, this expressly also applies to a civil law partnership with legal capacity (Bundestag document no. 18/11555, page 127; BVA FAQs of 5 May 2023, part 1., chapter A., cipher I.9.).

3.1 The „registered civil law partnership” (eGbR)

a) Introduction of a new public register for German civil law partnerships with legal capacity

On 1 January 2024, the Act to Modernise the German Law on Partnerships (MoPeG) - already adopted on 24 June 2021 - will enter into force. It provides for a fundamental reform of German partnership law (Deloitte Legal | The Reform of the Partnership Law).

This particularly applies for the provisions on German civil law partnerships (sec. 705 et seq. BGB), which will in future explicitly differentiate between civil law partnerships with legal capacity and those without (sec. 705 para. 2 BGB new version). A German civil law partnership with legal capacity will have the option to register itself in the newly introduced public register for German civil law partnerships at the local court in whose district it has its registered office (sec. 705 para. 2 alt. 1 in conjunction with sec. 707 para. 1 BGB new version). Comparable to the German commercial register, the new public register for German civil law partnerships will be kept electronically by the respectively competent local courts (sec. 707b no. 2, sec. 707d BGB new version). Registered German civil law partnerships must use a corresponding name affix, which can be abbreviated as “eGbR” (sec. 707a para. 2 sent. 1 BGB new version).

b) De facto mandatory registration for German civil law partnerships operating in the real estate sector and in the context of corporate participations

In principle, the registration with the new German public register will not be mandatory for a German civil law partnership with legal capacity (sec. 707 para. 1 BGB new version).

However, the legislator establishes a de facto mandatory registration in certain cases. This is particularly achieved by the simultaneous adoption of respective new regulations in the German Land Register Act (GBO), the German Law on Limited Liability Companies (GmbHG), the German Stock Corporation Act (AktG) and the German Transformation Act (UmwG).

After entry into force of the MoPeG, only the registered German civil law partnership (eGbR) will be able to acquire certain rights registered in public registers or dispose of such rights in the following cases:

• Initial registration of rights of a German civil law partnership with legal capacity in the German land register (Grundbuch) as well as changes of existing registrations (sec. 47 para. 2 GBO new version in conjunction with article 229 sec. 21 Introductory Act to the German Civil Code (EGBGB) new version);
• Initial registration of a German civil law partnership with legal capacity as a shareholder of a German limited liability company in the shareholder list as well as changes of existing registrations (sec. 40 para. 1 sent. 3 GmbHG new version in conjunction with sec. 707a para. 1 sent. 2 BGB new version);
• Initial registration of a German civil law partnership with legal capacity in the share register as well as changes of existing registrations (sec. 67 para. 1 sent. 3 AktG new version in conjunction with sec. 707a para. 1 sent. 2 BGB new version);
• Transformation of a German civil law partnership with legal capacity into another legal form (sec. 3 para. 1 no. 1 UmwG new version in conjunction with sec. 124 para. 1 UmwG).

3.2 Transparency register publicity for registered German civil law partnerships (eGbR)

a) Notification obligation to the German transparency register (sec. 20 para. 1 sent. 1 GWG)

Upon entry in the new public register, a German civil law partnership with contractual seat in Germany (sec. 706 sent. 2 BGB new version) will become a “registered partnership” in the meaning of sec. 20 para. 1 sent. 1 GwG and is subsequently subject to notification obligations to the German transparency register (see also BVA FAQs of 5 May 2023, part 1., chapter A., cipher I.9.).

With effect as of 1 January 2024, relevant provisions of the German Anti-Money Laundering Act (GwG) relating to the German transparency register will be amended accordingly (article 92 no. 3, no. 5 MoPeG). This particularly concerns the expansion of the already existing interconnection of German public registers to data records contained in the new public register for German civil law partnerships (cf. sec. 18 para. 4 sent. 4, sec. 22 para 1. sent. 1 no. 9, sent. 2, para. 2 GwG new version).

b) No exceptions of notification obligations

The notification obligation to the German transparency register will exist additionally to the German civil law partnership’s initial registration with the new public register (sec. 707 para. 1, para. 2 BGB new version) and the ongoing obligation to update entries in the public civil law partnership register (sec. 707 para. 3 BGB new version).

The so-called “fiction of notification” (Mitteilungsfiktion) applicable under the previous legal situation in favour of German registered partnerships already registered with certain other public registers (sec. 20 para. 2 sent. 1 GwG old version) was already abolished without replacement with effect as of 1 August 2021. Before this background, the extension of this “fiction of notification” to the registered civil law partnership (eGbR), as provided for in the MoPeG at the time of its adoption on 24 June 2021 (article 92 no. 4 MoPeG), is thus to be considered as an editorial oversight and therefore legally irrelevant.

The new version of the German Anti-Money Laundering Act (GwG) also does not provide for any facilitations of notifications in favour of German civil law partnerships, as they exist, for example, for registered associations (eingetragene Vereine) by way of automatic data transfer from the German register of associations (sec. 20a GwG). 

c) Beginning of notification obligations

The registered civil law partnership’s notification obligation to the German transparency register according to sec. 20 para. 1 sent. 1 GwG arises immediately after its registration with the new public civil law partnership register.

Contrary to previous legislative changes leading to an extension or tightening of notification obligations to the German transparency register (Transparency Register and Financial Information Act: sec. 59 para. 8 GwG; Sanctions Enforcement Act II: sec. 59 para. 13 GwG), the MoPeG does not provide for any transitional periods in favour of the registered German civil law partnership regarding (initial) notifications (cf. article 92 MoPeG).

d) Extent of notification obligations (ongoing obligation)

Pursuant to sec. 20 para. 1 sent. 1 GwG, a registered civil law partnership must obtain the information on its beneficial owners in accordance with sec. 19 para. 1 GwG, retain same, keep it up to date and immediately (i.e., without undue delay) notify it to the register authority for entry into the German transparency register. This also applies in case the notified information changes.

The following information must be notified to the German transparency register according to sec. 19 para. 1 GwG: First and last name, date of birth, place of residence with country of residence (= place of main residence), type and extent of the beneficial interest and all nationalities of the respective beneficial owner.

e) Identification of the beneficial owner

The identification of a registered German civil law partnership’s (actual) beneficial owner to be notified to the German transparency register must be conducted in accordance with the general principles recognized in this regard for associations (legal entities and registered partnerships), as outlined in sec. 20 para. 1 sent. 1, sec. 19 para. 2 sent. 1, sec. 3 para. 1 no. 1, para. 2 sent. 1 - 4 GwG in conjunction with sec. 290 para. 2 - 4 German Commercial Code (HGB); the respectively applicable interpretation guidelines of the competent German supervisory authority (BVA) shall be duly considered.

In case even after extensive investigations no (actual) beneficial owner can be identified for the entity subject to notification obligations, according to sec. 3 para. 2 sent. 5 GwG the “legal representative or managing partner” must be notified to the German transparency register as so-called “fictitious beneficial owner” (fiktiv wirtschaftlich Berechtigter). For a registered German civil law partnership, the fictitious beneficial owners would consequently be its managing partners (sec. 715 para. 1, sec. 720 para. 1 BGB new version in conjunction with the provisions of the respective civil law partnership agreement). In case a managing partner is not a natural but a legal person or a partnership with legal capacity (cf. sec. 707 para. 2 no. 2 lit. b BGB new version), the “legal representatives or managing partners” of such legal person or partnership with legal capacity would have to be notified as fictitious beneficial owners of the eGbR.

f) Consequences of violations of notification obligations to the German transparency register

In case the registered German civil law partnership fails to comply with its obligation to obtain, retain, update and immediately notify the information on its beneficial owners to the German transparency register according to sec. 20 para. 1 sent. 1 GwG, it may be subject to an administrative offence proceeding whose consequences may include significant financial penalties and so-called “naming & shaming” sanctions (sec. 56 para. 1 sent. 1 nos. 55 - 63, sec. 57 GwG).

Monetary fines may amount up to 150,000 euros in the case of intentional commission and up to 100,000 euros in the case of reckless commission, respectively – irrespective of special regulations - up to one million euros or up to twice the economic benefit derived from the violation in the case of serious, repeated, or systematic violations (sec. 56 para. 1 sent. 2, para. 3 sent. 1 GwG). Final decisions on fines are also published on the website of the competent German supervisory authority (BVA) for a period of five years (sec. 57 para. 1 sent. 1, para. 4 sent. 1 GwG).

Furthermore, there is the risk of a so-called “notification of inconsistency” (sec. 23a GwG). Such notification generally leads to a highly time- and cost-intensive administrative proceeding. As the transparency register excerpt of the entity under investigation contains a respective reference to the ongoing notification of inconsistency proceeding, the establishment or continuation of business relationships with parties that have special obligations under German anti-money laundering law (e.g. credit institutions, insurance companies, real estate agents, auditors, tax advisors and public notaries) may be precluded or significantly delayed (sec. 10 para. 9 sent. 1, sent. 2 in conjunction with sec. 2 para. 1 GwG).

II. Conclusion and recommendation

Currently numerous German civil law partnerships with real estate ownership and corporate participations are – inter alia as part of multi-level group structures - actively engaged in legal transactions in Germany. Prior to the adoption of the MoPeG in June 2021, the German Federal Chamber of Notaries (Bundesnotarkammer) and the German Federal Statistical Office (Statistisches Bundesamt) identified around 180,000 German civil law partnerships with real estate ownership (concluding around 16,000 real estate transactions per year) as well as around 17,000 German civil law partnerships with shareholdings in other companies (Bundestag document no.19/27635, page 299). To duly continue their business activities, it is to be expected that all these German civil law partnerships will need to register in the new public register for civil law partnerships and will consequently have to notify their respective beneficial owners to the German transparency register in line with sec. 20 para. 1 sent. 1 GwG.

As a consequence, the German legislator is - at least partially – implementing one of the core demands of the Financial Action Task Force (FATF) contained in the final report on the 2021/2022 Germany audit.

As the leading international body in the area of combating financial crime, the FATF particularly criticized in the "key findings" of its compliance review regarding the due legal implementation and effective application of international standards for combating money laundering and terrorist financing by the Federal Republic of Germany the following: (i) The lack of complete, authentic and accurate information on beneficial owners in the German transparency register in general and (ii) the complete lack of such information regarding German civil law partnerships in particular (FATF Mutual Evaluation Report Germany - August 2022, page 13 (executive summary; point 18); page 198 (chapter 7; key findings, lit. h)).

However, in its recommendation to address existing deficiencies, the FATF did not only demand the introduction of respective statutory notification obligations to the German transparency register for German civil law partnerships. It also recommended that the Federal Republic of Germany punishes respective violations by "use of dissuasive sanctions" (FATF Mutual Evaluation Report Germany - August 2022, page 199 (chapter 7), recommended actions, lit. e) and f)).

Against this background, it must be assumed that in the future the non-compliance with notification obligations to the German transparency register will be prosecuted by the German authorities more consistently and more strictly than before.

To avoid consequences of violations (see cipher I.), particularly German civil law partnerships operating in the real estate sector or in the context of corporate participations should already now take respective precautions for compliance with their upcoming notification obligations to the German transparency register. This particularly includes the identification of beneficial owners, obtaining of information required in this regard as well as conducting the corresponding in-depth examinations, particularly in the case of multi-level, cross-border corporate structures.

Published: December 2023