On 26 June 2017, the new German anti money laundering act has entered into force. The act provides for the establishment of a German transparency register. The new law obliges all corporate entities (companies, partnerships) that are registered in the German commercial register to report their beneficial owner to the German transparency register. The same applies to other private law corporations (coops, associations, private law foundations) and trusts.
In the case of corporate entities, each natural person who ultimately owns or controls more than 25% of the shares or votes or exercises similar control is considered a beneficial owner. This includes participations of this size held by a nominee. If a corporate entity has no beneficial owner that meets the aforementioned control requirements, the managing director will be recorded in the transparency register as the beneficial owner. All changes to the status of beneficial owner have to be reported to the transparency register.
The new law offers only two exemptions for companies who are registered with the German commercial register:
- The new reporting obligation does not apply to stock corporations whose shares are listed on an organized market. Stock corporations whose shares are listed in the open market are not included in this exemption since the open market does not meet the requirements of an organized market. It is unclear whether the subsidiaries of exempted listed stock corporations are also exempted from the requirement to report their beneficial owner, if any, to the transparency register.
- The new reporting obligation does not apply to the extent the information that would be reported is already published in the commercial register or certain other public sources. The practical scope of this exemption is unclear in many respects.
The transparency register will probably be managed by the Federal Gazette publishing house. Submissions will may only be possible in electronic format.
Companies are not obliged to research externally for information on their beneficial owners. Rather the shareholders who are beneficial owners or who are directly controlled by a beneficial owner are obliged to report their beneficial ownership information to the company. Companies are obliged to review at least once per year whether their data on file with the transparency register is still up to date.
The transparency register is based on the fourth EUR anti money laundering directive. On this basis, all member states are obliged to establish a national transparency register. Companies with affiliated companies in other member states should therefore have an eye on the various national transparency registers across the EU.
A violation of the reporting requirements is a misdemeanor and hence may be fined. The upper limit of administrative fines for violations of the anti money laundering act has been increased from EUR 100,000 to EUR 1,000,000.
Other than, e.g., the commercial register, the transparency register will not be accessible to the general public. Businesses and individuals will be allowed access only to the extent necessary to comply with their KYC obligations under the anti money laundering or if they can show another legitimate interest.
For businesses and their owners, the transparency register will be a burden because it creates additional reporting requirements which are unclear in material respects and subject to administrative fines in case of a violation. At the same time, however, the transparency register will make it easier for businesses to meet their compliance obligation to obtain information on the beneficial owners of the business partners in the EU. It is important to note that information included in the transparency register may not be relied upon in connection with the satisfaction of compliance obligations.
Before the reporting obligations to the transparency register can be carried out practically, the technical infrastructure and further regulations have to be put in place. This will happen over the next months. The reporting obligations to the transparency register enter into force on 1 October 2017.
The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.