Anti-Money Laundering Compliance | Easing of notification obligations to the German transparency register

On February 18, 2021, the German Federal Administration Office (Bundesverwaltungsamt - BVA) published an updated version of its interpretation guidelines on the German Anti-Money-Laundering Act (FAQ) dated February 9, 2021. In the current version, the BVA has to a great extent abandoned its legal opinion on the existence of beneficial ownership by a so-called "preventive control" (Verhinderungsbeherrschung); this legal opinion was considerably tightened by the BVA in its FAQ of August 19, 2020, as reported by us in our article Tightening of the reporting obligations to the German transparency register. The BVA as the German anti-money laundering supervisory authority responsible for the compliance with notification obligations to the German transparency register, however, maintains its legal opinion on the existence of beneficial ownership in companies by means of "control in other ways" through veto and objection rights.

For companies and their compliance officers, the unexpected, by large parts of the advocacy vehemently demanded abandonment of the considerable extension of beneficial ownership to cases of a so-called "preventive control" results in a significant relief in complying with their notification obligations to the German transparency register. This applies in particular to multi-level, cross-border group constellations.

I. Background

According to the German Anti-Money Laundering Act (AMLA), since October 1, 2017 legal entities under private law and registered partnerships, among others, are obliged to notify their beneficial owners to the German transparency register for registration (sec. 20 para. 1 sent. 1 AMLA). Violations of the notification obligations to the German transparency register constitute administrative offenses that can be punished with severe fines. Non-appealable decisions imposing administrative fines pursuant to sec. 56 para. 1 sent. 1 nos. 54 to 66 AMLA are published on the homepage of the BVA (so-called “Naming & Shaming”).

According to sec. 3 para. 1 sent. 1 no. 1 AMLA, the beneficial owner is the natural person who owns or controls a company. Pursuant to sec. 3 para. 2 AMLA, a natural person who holds more than 25% of the capital shares in a company, controls more than 25% of the voting rights or "exercises control in a comparable manner" shall be considered as beneficial owner in this meaning.
Consequently, the decisive factor for the existence of a beneficial ownership subject to notification obligations is not exclusively the attainment of a certain participation threshold. Irrespective of this, a direct or indirect beneficial ownership in a company can be assumed if a (natural) person exercises a comparable control by means of a “dominant, controlling influence” over the company (sec. 3 para. 2 sent. 1 no. 3, sent. 4 AMLA in conjunction with sec. 290 para. 2 to 4 German Commercial Code).

II. Beneficial ownership by means of so-called "preventive control" | Abandonment of the tightened legal opinion of the BVA

With its FAQ as of August 19, 2020, the BVA for the first time expressed the legal opinion, that – irrespective of the existence of expressly granted veto and objection rights – a beneficial ownership by means of a “dominant, controlling influence” over a company subject to notification obligations also shall be taken into consideration, in cases where a person can directly or indirectly prevent a decision of the respective shareholders' meeting by means of other options granted by law or the articles of association. This was already to be assumed if a person achieved a – by the BVA not finally defined - blocking minority (Sperrminorität) which allows to prevent shareholder resolutions; in the absence of conclusive specifications by the BVA in this matter, the subject of such relevant blocking minority was not necessarily limited to so-called fundamental resolutions (e.g. amendments to the articles of association, capital reductions, merger resolutions, etc.), but could rather, in case of doubt, cover any type of resolution (BVA FAQ dated August 19, 2020, chapter B, cipher II. 3. and 4., III. 3. and 4.).

This tightened legal opinion of the BVA led to a considerable extension of the previous understanding of beneficial ownership and was vastly criticized, especially by the advocacy. In particular German subsidiaries with multi-level, cross-border group structures were affected by the tightened legal opinion, which was controversially discussed until recently also in the light of the principle of legal certainty (Bestimmtheitsgrundsatz).

In its updated interpretation guidelines, the BVA has now abandoned its tightened legal opinion on the so-called “preventive control” without further justification, referring simply to the "very broad definition of a dominant, controlling influence by a so-called negative control or control through prevention in the FAQ of August 19, 2020" (BVA FAQ dated February 9, 2021, chapter B, cipher II. 3., III. 3). Also in the opinion of the BVA, it is henceforth no longer sufficient for the determination of a beneficial ownership through exercise of control in a comparable manner by means of a dominant, controlling influence (sec. 3 para. 2 sent. 1 no. 3, sent. 2 to 4 AMLA) without further ado, that a (natural) person – irrespective of the existence of explicit veto and objection rights – can prevent a decision of the shareholders' meeting by means of options granted by law or the articles of association.

III. Beneficial ownership by means of veto and objection rights | No return to the status quo ante

However, the BVA did not associate its unexpected turnaround with a return to the status quo ante of its legal opinion on the existence of beneficial ownership resulting from legal possibilities to prevent corporate decisions.

Even before the publication of the FAQ of August 19, 2020 and the associated tightened legal opinion on the now obsolete legal concept of "preventive control", the BVA was of the opinion that veto and objection rights can lead to beneficial ownership by means of "control in a comparable manner" within the meaning of sec. 3 para. 2 sent. 1 no. 3 GwG.

In its now updated FAQ of February 9, 2021, the BVA has retained this view in principle, but "specified" it to the effect that a beneficial ownership by means of "veto or objection rights", respectively "veto or prevention rights", shall exist in particular in case a natural person "de facto controls the respective company via these rights or ultimately initiates its transactions". The "circumstances of the individual case" shall be decisive (BVA FAQ dated February 9, 2021, chapter B, cipher II. 3., III. 3.). A more detailed definition of "de facto control" or a corresponding "transaction catalog" is missing. The same applies for a definition of the legal concept of "prevention rights", used by the BVA for the first time in this context. Thus, a recourse to the general definitions of sec. 290 para. 2 to 4 German Commercial Code analogously in conjunction with sec. 3 para. 2 sent. 4 AMLA (control) and sec. 1 para. 5 sent. 1 AMLA (transactions) seems unavoidable; in case of doubt, this will lead to further interpretation issues which in turn must be further clarified in the future.

IV. Conclusion

Against the background of the considerable legal uncertainty associated with the BVA's tightened legal opinion of August 19, 2020 on the so-called "preventive control" and the correspondingly increased, for companies time-consuming and cost-intensive examination of notification obligations to the German transparency register, the BVA's substantial abandonment of its tightened legal opinion is to be welcomed.

Because of the "control in a comparable manner" decisive for the determination of beneficial ownership by means of veto, objection and - most recently considered as relevant by the BVA - other "prevention rights", the case-by-case consideration henceforth provided for in this context and the inconsistent terminology that has not been conclusively clarified by the BVA, there is unfortunately still a need for more legal clarity for the appropriate determination of beneficial ownership and corresponding notification obligations.

Against the background of the updated legal opinion of the BVA, companies and their compliance officers should again re-examine the compliance with their notification obligations towards the German transparency register. This applies in particular to notifications that were made on the basis of the now obsolete, tightened understanding of the regulatory framework provided for in the FAQ of August 19, 2020; such notifications may need to be corrected.

_{Published: April 2021}