Anti-Money Laundering Compliance | Notification obligations vis-à-vis the German transparency register

On June 10, 2021, the German Parliament (Bundestag) passed a new version of the German Anti-Money Laundering Act (AMLA), which will come into force on August 1, 2021 (Transparency Register and Financial Information Act; TraFinG).

With the entry into force of the new version of the AMLA all legal entities under private law and registered partnerships – including companies listed on the stock exchange and their subsidiaries – are in future obliged to positively notify the German transparency register of their beneficial owners. Currently relevant provisions on so-called "fictions of notification" (Mitteilungsfiktionen) are deleted without replacement. Based on estimates by the German government, this affects up to 90% of all German companies.

The accompanying conversion of the German transparency register into a full register (Vollregister) goes – among other things – back to the interconnection of the European transparency registers already provided for in the 5th EU Anti-Money Laundering Directive (EU Directive 2018/843), which we reported on in our article The Transparency Register – Latest Developments due to the 5th EU Anti-Money Laundering Directive.

In particular, EU-wide operating groups should take the planned interconnection of the European transparency registers as an opportunity to provide uniform standards for the determination of their group companies’ beneficial owners and to ensure a central and uniform examination of their existing cross-border notification obligations in a timely manner.

I. Status quo | German transparency register as ”back-up-register”

With the entry into force of the new German Anti-Money Laundering Act (AMLA) on June 26, 2017, legal entities under private law and registered partnerships are obliged to obtain the information on their beneficial owners, retain same, keep it up to date and immediately communicate it for entry in the German transparency register (sec. 20 para. 1 sent. 1 AMLA) since October 1, 2017.

However, according to the current legal situation, this notification obligation does not apply if the information on the (actual or fictitious) beneficial owner is already available from electronically retrievable documents and entries in certain other public registers, in particular the commercial register (so-called "fiction of notification", sec. 20 para. 2 sent. 1 AMLA). In addition, companies listed on an organized market pursuant to sec. 2 para. 11 of the German Securities Trading Act (Wertpapierhandelsgesetz) are always deemed to have fulfilled the notification obligation (so-called "fiction of notification for companies listed on the stock exchange", sec. 20 para. 2 sent. 2 AMLA). According to the current administrative practice of the German Federal Administration Office (Bundesverwaltungsamt; BVA), the fiction of notification for companies listed on the stock exchange also applies to their subsidiaries under certain conditions in analogous application of sec. 20 para. 2 sent. 2 AMLA. (BVA FAQs dated February 9, 2021, chapter A., cipher 3.).

Taking into account the aforementioned fictions of notification, the German transparency register consequently was designed as mere so-called "back-up-register" (Auffangregister) by the German legislator in implementation of the 4th EU Anti-Money Laundering Directive (EU Directive 2015/849).

II. Implementation deficit of member states regarding EU-requirements for the interconnection of European transparency registers

With the enactment of the 5th EU Anti-Money Laundering Directive (EU Directive 2018/843) the European legislator has provided for the interconnection of the EU member states’ transparency registers through the so-called Central European Platform. The still outstanding interconnection should have already taken place by March 10, 2021. However, according to the official justification of the new version of the AMLA, the gradual interconnection is expected to begin in the course of 2021 (Bundestag document no. 19/28164, page 1, 29).

A prerequisite for the implementation of the EU directive’s regulations is that the corresponding data records are comprehensively available in the member states’ (transparency) registers. Regarding the German electronic transparency register designed as a “back-up-register”, this is not the case for the majority of German companies due to the regularly applicable fiction of notification under the current legal situation. According to the official justification, the German legislator assumed in 2017 that up to 90% of German companies would be able to rely on one of the respective relevant fictions of notification (Bundestag document no. 18/11555, page 93).

III. Conversion of the German transparency register into a full register

In order to create the German data-related prerequisites for the interconnection of the EU member states’ transparency registers and to simultaneously improve the practical usability of the German transparency register on the national level, all fictions of notification will be abolished with the entry into force of the TraFinG and the German transparency register will consequently be converted into a full register.

All legal entities under private law and registered partnerships – including companies listed on the stock exchange and their subsidiaries – are therefore in the future not only obliged to obtain the information on their beneficial owners, retain same and keep it up-to-date, but also to positively notify this information to the German transparency register for registration.

According to sec. 3 para. 1 AMLA, the beneficial owner is the natural person that owns or controls a company (no. 1), or at whose initiative transactions of the company are ultimately carried out or business relationships are ultimately established (no. 2). Pursuant to sec. 3 para. 2 sent. 1 AMLA, the beneficial owner is in general the natural person that holds more than 25% of the capital shares of a company, controls more than 25% of the voting rights or that "exercises control in a comparable manner".

If no actual beneficial owner within the meaning of sec. 3 para. 1, 2 sent. 1 – 4 AMLA (irrebuttable presumption) can be identified even after comprehensive investigations, the legal representative or managing partner is deemed to be the beneficial owner pursuant to sec. 3 para. 2 sent. 5 AMLA (rebuttable presumption). Following the abolition of the fictions of notification, these so-called "fictitious beneficial owners" (fiktiv wirtschaftlich Berechtigte) must – without restriction – henceforth also be notified to the German transparency register for entry.

IV. Transitional periods

Regarding companies that are currently not obliged to positively notify the German transparency register due to fictions of notification, sec. 59 of the new version (n.v.) of the AMLA provides for the following gradual transitional periods for notifications to the German transparency register:

• March 31, 2022: stock corporation (Aktiengesellschaft), European stock corporation (Europäische Aktiengesellschaft; SE) and partnership limited by shares (Kommanditgesellschaft auf Aktien) (sec. 59 para. 8 no. 1 AMLA n.v.);
• June 30, 2022: Limited liability company (Gesellschaft mit beschränkter Haftung), cooperatives (Genossenschaften), European cooperatives (Europäische Genossenschaften) and partnerships (Partnerschaften) (sec. 59 para. 8 no. 2 AMLA n.v.);
• December 31, 2022: all other types of companies (sec. 59 para. 8 no. 3 AMLA n.v.).

If a company could not rely on a fiction of notification under the current legal situation, the basic rule of sec. 20 para. 1 sent. 1 AMLA remains applicable, which states that the company subject to notification obligations must notify its beneficial owner to the German transparency register without delay.

This also applies to companies newly established as of the date on which the new version of the AMLA enters into force, i.e. August 1, 2021. According to the clear wording of sec. 59 para. 8 AMLA n.v. these companies do not benefit from the aforementioned transitional periods, but are subject to notification obligations immediately after their establishment.

V. Other (new) regulations of practical relevance

1. Determination of beneficial owners of companies listed on the stock exchange

Even under the new version of the AMLA, beneficial owners of companies listed on the stock exchange are determined in accordance with the very broad general clause of sec. 3 para. 1 AMLA (see cipher III. above). The determination whether a natural person is a notifiable beneficial owner under consideration of all circumstances of a company listed on the stock exchange in this sense, is in practice subject to considerable legal uncertainty due to missing legal specifications in this regard and the current lack of relevant administrative guidelines due to the fiction of notification of sec. 20 para. 2 sent. 2 AMLA, which is regularly applicable to companies listed on the stock exchange.

The direct application of the provision of sec. 3 para. 2 sent. 1 AMLA, which substantiates the general clause of sec. 3 para. 1 AMLA for non-listed companies, to listed companies, was provided for in the original draft bill for the new version of the AMLA (Article. 1 no. 5 lit. b) draft bill; Bundestag document no. 19/28164, page 11), but was not included in the final version of the law on the recommendation of the Financial Committee (Finanzausschuss) due to concerns based on European law (Bundestag document no. 19/30443, page 14, 73). The more specific provisions of sec. 3 para. 2 sent. 1 AMLA (holding 25% of the capital shares of a company, controlling more than 25% of the voting rights or "control in a comparable manner"), which were described in more detail under cipher III. above, can therefore still only be an indication for the determination of beneficial owners of companies listed on the stock exchange. Due to the low level of attendance at the annual general meeting that is customary for companies listed on the stock exchange, the (shareholding) threshold is in doubt likely to be lower than 25%. It remains to be seen, how a reliable administrative practice will develop in this regard, which is – due to the current lack of notification relevance – missing yet.

2. Automated access to the German transparency register

With the entry into force of the new version of the AMLA, the authorities listed in sec. 23 para. 1 sent. 1 no. 1 AMLA (including supervisory authorities, the Central Financial Transaction Investigation Authority, law enforcement authorities, courts) and certain so-called "privileged obligated parties" (credit institutions, financial services institutions, payment institutions, e-money institutions, insurance companies and notaries) are to be provided with automated access to the German transparency register as of January 1, 2023 (sec. 23 para. 3, sec. 59 para. 3 AMLA n.v.). However, the requirements for the inspection should remain unaffected by this. An automated inspection is therefore also only permitted for authorities in order to fulfill their statutory duties and for obligated parties in order to fulfill their due diligence obligations (sec. 23 para. 6 AMLA, n.v.).

3. Data to be notified regarding the beneficial owner | Data on nationality

Under the new version of the AMLA, all nationalities must henceforth be notified to the German transparency register in the case of multiple nationalities of a beneficial owner, in addition to the information on first name and surname, date of birth, place of residence and type and scope of the economic interest (sec. 19 para. 1 no. 5 AMLA, n.v.). However, a corresponding cause-related updating obligation is not triggered hereby. According to the official justification of the AMLA, companies whose beneficial owners are already entered in the German transparency register do not have to update the missing information until they update the information on their beneficial owners on a regular basis (Bundestag document no. 19/28164, page 48).

VI. Conclusion

According to the official justification of the AMLA, the number of German companies subject to notification obligations will increase to approximately 2.3 million with the conversion of the German transparency register into a full register (Bundestag document no. 19/28164, page 33).

With regard to the emerging additional effort, the management or the respective anti-money laundering officers of a company must take into account not only the effort for the respective initial notifications and the regular review of the transparency register accounts with regard to the need for updates, but also, in the case of so-called "fictitious beneficial owners", the maintenance and timely implementation of required notifications of changes to the German transparency register in case of any personnel changes at the management level (change of managing director, dismissal of the chairman of the board of directors, etc.).

Due to the current lack of notification relevance regarding the determination of beneficial owners of companies listed on the stock exchange, no administrative practice has developed so far. This also applies to the question of the specific conditions under which a shareholding of less than 25% is to be recognized in the context of the determination of beneficial owners and at which amount or according to what criteria this threshold is to be determined. Anti-money laundering officers should constantly observe the development of the administrative practice of the anti-money laundering supervisory authorities (German Federal Administration Office, German Federal Financial Supervisory Authority, etc.) in order to ensure a timely execution of any required notifications (of changes).

EU-wide operating groups should not only define uniform standards for the determination of their group companies’ beneficial owners under consideration of the relevant national provisions for the respective group companies, but should also carry out a central and uniform examination of notification obligations. Taking into account the upcoming interconnection of the European transparency registers, divergent notifications to the member states’ registers should – under consideration of the respectively applicable national implementation laws of the 5th EU Anti-Money Laundering Directive – be avoided.

Since violations of the notification obligations to the German transparency register, which now apply to all companies, constitute administrative offenses and are subject to severe fines, companies should take precautions to be able to comply with their notification obligations to the German transparency register in due time before the relevant transitional periods expire.