The New Electronic Transparency Register
The new German Anti-Money Laundering Act (Geldwäschegesetz, or “GwG nF”) came into force on 26 June 2017; along with it came the introduction of the new electronic transparency register. The purpose of the new register is to fight money laundering and terror financing through more transparency. It should be prevented that criminals can hide behind corporate structures, like offshore companies.
I. Obligation to Notify
According to sec. 20 para. 1 sentence 1, legal persons governed by private law as well as registered commercial partnerships based in Germany (specified as “Organisations” within the GwG nF) must obtain, hold, update and electronically submit information about their beneficial owners to the transparency register without delay. This comprises inter alia German limited liability companies (GmbH), stock corporations (AG), general partnerships (OHG) and limited partnerships (KG) (sec. 20 para. 1 GwG nF). Civil law partnerships pursuant to the German Civil Code (GbR) are not included, since they are not registered.
The obligation to communicate the necessary information to the transparency register applies to the legal representatives of the respective corporation or partnership. It includes the duty to update the information and keep it current as well as to communicate any changes to the transparency register without delay.
Along with the obligation of the legal representatives to submit the described information to the transparency register, there comes the obligation of the beneficial owners to disclose the necessary information to the legal representatives (sec. 20 para. 3 GwG nF).
The communication of information to the transparency register must be made by 1 October 2017 for the first time.
II. The Term Beneficial Owner
According to sec. 19 para. 2 GwG nF in conjunction with sec. 3 GwG nF, a beneficial owner is
- a natural person that is the owner or who is in control of [the Organization], or
- a natural person, who is in a position to grant permission to make financial transactions or constitute new partnerships.
According to the GwG nF, the beneficial owner can thus only be a natural person. As specified under sec. 3 para. 2 GwG nF, for a legal person (except foundations under public law and listed corporations) or other companies, a natural person may be beneficial owner if it directly or indirectly
- holds more than 25% of the share capital
- controls more than 25% of the voting rights or
- controls the firm in a comparable way.
Indirect control specifically exists if shares are held by one or more organisations, which are controlled by a natural person, according to sec. 20 para. 1 GwG nF. Control ultimately exists, if the natural person can directly or indirectly exercise dominant influence on the organisation, according to sec. 20 para. 1 GwG nF. To determine the existence of a dominant influence sec. 290 para. 2 to 4 of the German Commercial Code (HGB) are applicable mutatis mutandis. Thereby, the GwG nF makes use of the existing corporate law specification of a dominant influence.
III. Necessary Information on the Beneficial Owner
According to sec. 19 Para. 1 GwG nF the information about the beneficiary owner to be submitted comprises:
(1) first and surname,
(2) date of birth,
(3) address and
(4) nature and extent of the beneficial interest
Sec. 19 para. 3 GwG nF specifies that the information regarding the nature and extent of the beneficial interest must determine the composition of the position of a beneficiary owner:
For organisations according to sec. 20 para. 1 sentence 1 GwG nF (except foundations under public law) it holds that the nature and extent of the beneficial interest comprises of
- the amount of capital share or the number of voting rights,
- the exercise of control through other means, especially by agreement between a third party and a shareholder or between several shareholders,
- the position of the legal representative, managing partner or partner as such.
IV. Exceptions to the Obligation to Notify
The obligation to notify is regarded as fulfilled when all the necessary information is already contained in documents and records from public registers such as the commercial register, partnerships register, register of cooperatives, register of associations or business register, which are available in electronical form through the transparency register, sec. 20 para. 2 GwG nF.
Sec. 20 para. 2 sentence 2 GwG nF specifies that listed corporations do not need to submit information to the transparency register, due to the fact that they are already subject to the extensive disclosure requirements of the capital market.
V. Access to the Data of the Transparency Register
The specific regulation of the technical details and administration of the register is still pending. However, it is clear that only a limited access to the register will be granted. To this extent, the authorities and above mentioned obliged entities have access insofar as this is necessary for the performance of their duties and legal obligations. Apart from that, access will only be granted when a legitimate interest in being granted access can be presented, which may well be shown inter alia by specialist journalists and non-governmental organisations.
Beneficial owners may also request an interlock to their data in whole or in part if there is a risk that they become victims of property offenses or abuse (sec. 3 para. 2 GwG nF). If the beneficial owner is a minor or legally incapable, the access is also blocked, but not towards authorities and the above mentioned obliged entities.
VI. Consequences of the Failure to Notify
Everyone who intentionally or recklessly violates his/her obligations under the Anti-Money Laundering Act commits a regulatory offence, according to sec. 56 para. 1 GwG nF and must fear to receive a high regulatory fine. Not only the failure to notify, but also the notification of false information as well as obtaining access to the transparency register by fraud under false pretences is sanctioned with a regulatory fine.
The regulatory fines may amount pursuant to sec. 56 para. 2 GwG nF to up to
- 100,000.00 EUR, or
- in case of a severe, repeated or systematic breach of the law,
- up to EUR 1,000,000 or to twice the amount of the benefit derived from the breach, or,
- for certain legal or natural persons within the financial sector, up to EUR 5,000,000 or to 10 percent of the total turnover.
The legislative proposal for the new German Anti-Money Laundering Act has been heavily criticised. On the one hand, it has been criticised that firms and their legal representatives are burdened with a high bureaucratic additional expense, and on the other hand that there is an insufficient consideration of data protection. Additionally, it is unclear whether the introduction of the transparency register will promote the achievement of the prevention of money laundering as well as the financing of terror.
Regardless of all the criticism of the new German Anti-Money Laundering Act, it came into force on 26 June 2017. The disclosure requirements have to be fulfilled by 1 October 2017 for the first time and the transparency register is expected to be available online from 27 December 2017.
As a result, prompt action of the companies is due. With the help of expert advice, the statutory obligations for the respective company have to be outlined and the necessary information on the company, contract partners and beneficial owners has to be obtained at an early stage. The data already stored in other public electronic registers must also be checked in this context. Therefore, it is advisable to define and build up the necessary responsibilities within the company and to install a monitoring system for continuous updating.