Germany: A Hint Of Brandeis: Proposed Amendments To The German Transparency Register

I. The Transparency Register – A Recap

The 4th EU-Money-Laundering Directive (2015/849), which entered into force in mid-2015, required national legislators of EU Member States to establish, in each jurisdiction, a register for information on the beneficial owners of companies and other undertakings located in such jurisdictions ("Transparency Register"). Echoing Justice Louis D. Brandeis' famous metaphor of publicity as a remedy for social and industrial diseases, the Directive states that information on the beneficial ownership of companies is a key factor for tracing criminals who might otherwise hide their identity behind corporate structures.

In Germany, as reported in one of our previous blog posts, the Transparency Register has been established in late 2017. Since October 1, 2017, all legal entities and certain other types of associations having their statutory seat in Germany have to provide information (to the extent available to them) on their beneficial owner(s), i.e. individuals holding 25% or more of capital or voting rights or able to exercise control in a comparable way, to the Transparency Register. The information to be provided comprises the name of the beneficial owner, the date of birth, the place of residency and information regarding the economic interest (e.g. the percentage of capital interest or voting rights). As of today, only certain public authorities have immediate access to the Transparency Register, and other persons or entities may only be granted access, if they can demonstrate a legitimate interest within the context of the prevention of money laundering.

Since its launch, the concept of the Transparency Register has been subject to criticism and its practical relevance for law enforcement has been limited.

  • Some have argued that the transparency achieved by the current rules goes beyond what the government should reasonably request to be disclosed by private individuals. Indeed, while targeted at criminals hiding behind corporate structures, the obligation for beneficial ownership interests in German companies to be disclosed in the Transparency Register also captures investors who legitimately seek confidentiality of their investments such as private investors or family offices.
  • Others have argued that the achieved level of transparency is not yet sufficient. They point to the fact that, under the current rules, not all major participations in German companies are recorded in the Transparency Register and there is room for circumvention.

Indeed, under the current rules, certain holding structures may not be captured by the disclosure obligations. E.g. in cases in which an individual indirectly holds a participation (> 25% of capital or voting rights) in a German company through another corporate vehicle which is not controlled, i.e. in which the indirect investor holds 50% or less of the capital or voting rights, such individual does not qualify as beneficial owner of the German company. In such a case, as a replacement, the managing director of the German company will be recorded in the Transparency Register as a (fictitious) beneficial owner.

II. New Rules in the Making

In mid-2018, an amendment of the 4th EU-Money-Laundering Directive (2015/849), also known as 5th EU-Money-Laundering Directive (2018/843), has been adopted at the EU level, requiring national legislators of EU Member States to make certain adjustments to the rules on the Transparency Register by January 2020. With a view thereto, the German government has published a draft bill (Referentenentwurf) of an implementing act on May 20, 2019 ("Draft Bill"). In short, both the 5th EU-Money-Laundering Directive and the Draft Bill seem to echo those critics who consider the current level of transparency not yet sufficient (although the most stringent proposals made by some of those critics have not been implemented).

The following are the key changes that will be introduced should the Draft Bill be enacted as proposed:

  • General access: Any member of the general public will be allowed, without having to demonstrate a legitimate interest, to access the Transparency Register and obtain information on beneficial owners.
  • Mandatory use: Persons who are subject to the obligations under the German Anti-Money Laundering Act (Geldwäschegesetz), such as banks, lawyers, notaries or tax advisors, will be required to obtain an excerpt from the Transparency Register, or other evidence of registration, before entering into a commercial relationship with a German company. Also, the Draft Bill will categorize the deposit, administration and custody of crypto assets as a financial service within the meaning of the German Banking Act (Kreditwesengesetz); as a result, persons engaging in these activities will qualify as financial services provider and, in addition to becoming subject to a license requirement under the German Banking Act, become subject to the obligations under the German Anti-Money Laundering Act. In addition, brokers engaged in the brokering of real estate for lease (lease brokers) and certain persons active in the art sector (including art dealers, gallerists, auction houses) will be made subject to the obligations under the German Anti-Money Laundering Act and, as a consequence, have to consult the Transparency Register before entering into a commercial relationship with a German company.
  • Accuracy: Persons who are subject to the obligations under the German Anti-Money Laundering Act will be required to inform the administrator of the Transparency Register of any information contained in the Transparency Register which, based on the information available to them, appear to be inconsistent or inaccurate. The administrator will then initiate administrative procedures aimed at verifying and, if necessary, correcting the relevant information in the Transparency Register.
  • Network: The Transparency Registers of the individual EU Member States will be connected with each other through a European Platform.

III. A Hint of Brandeis

If enacted as proposed, the Draft Bill will leave the key concepts of the legal regime on the Transparency Register such as beneficial ownership and control as well as the ownership thresholds triggering the qualification as beneficial owner unchanged – the latter despite efforts aimed at lowering the relevant threshold to as low as 10% of capital or voting rights (as is the case for purposes of foreign investment control with regard to critical infrastructures). The general trend transpiring from the proposed amendments, though, seems clear: General access; extended pool of persons subject to the obligations under the German Anti-Money Laundering Act and mandatory use by such persons of the Transparency Register; quest for accuracy. The generalized access, in particular, marks a paradigm shift: Pursuant to the 5th EU-Money-Laundering Directive, the opening of the Transparency Register to the general public is aimed at allowing greater scrutiny by civil society, including by the press, and contributing to the preservation of trust in the integrity of business transactions and of the financial system.

It remains to be seen whether, once in effect, the new rules bring about the desired effects and, as Justice Brandeis might have said, shed sunlight or electric light on German corporate structures. Meanwhile, it is not hard to predict what might be next: Expansion of the pool of companies or undertakings subject to the registration requirements under the German Anti-Money Laundering Act and lowering of the relevant ownership thresholds.

Any investor legitimately seeking confidentiality of his or her investment holdings, such as private investors or family offices, should therefore be aware of the proposed amendments contained in the Draft Bill and any further amendments that may possibly be introduced during the legislative process or at a later stage.

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.

To print this article, all you need is to be registered on Mondaq.com.

Click to Login as an existing user or Register so you can print this article.

Authors
Similar Articles
Relevancy Powered by MondaqAI
 
Some comments from our readers…
“The articles are extremely timely and highly applicable”
“I often find critical information not available elsewhere”
“As in-house counsel, Mondaq’s service is of great value”

Related Topics
 
Similar Articles
Relevancy Powered by MondaqAI
Related Articles
 
Up-coming Events Search
Tools
Print
Font Size:
Translation
Channels
Mondaq on Twitter
 
Mondaq Free Registration
Gain access to Mondaq global archive of over 375,000 articles covering 200 countries with a personalised News Alert and automatic login on this device.
Mondaq News Alert (some suggested topics and region)
Select Topics
Registration (please scroll down to set your data preferences)

Mondaq Ltd requires you to register and provide information that personally identifies you, including your content preferences, for three primary purposes (full details of Mondaq’s use of your personal data can be found in our Privacy and Cookies Notice):

  • To allow you to personalize the Mondaq websites you are visiting to show content ("Content") relevant to your interests.
  • To enable features such as password reminder, news alerts, email a colleague, and linking from Mondaq (and its affiliate sites) to your website.
  • To produce demographic feedback for our content providers ("Contributors") who contribute Content for free for your use.

Mondaq hopes that our registered users will support us in maintaining our free to view business model by consenting to our use of your personal data as described below.

Mondaq has a "free to view" business model. Our services are paid for by Contributors in exchange for Mondaq providing them with access to information about who accesses their content. Once personal data is transferred to our Contributors they become a data controller of this personal data. They use it to measure the response that their articles are receiving, as a form of market research. They may also use it to provide Mondaq users with information about their products and services.

Details of each Contributor to which your personal data will be transferred is clearly stated within the Content that you access. For full details of how this Contributor will use your personal data, you should review the Contributor’s own Privacy Notice.

Please indicate your preference below:

Yes, I am happy to support Mondaq in maintaining its free to view business model by agreeing to allow Mondaq to share my personal data with Contributors whose Content I access
No, I do not want Mondaq to share my personal data with Contributors

Also please let us know whether you are happy to receive communications promoting products and services offered by Mondaq:

Yes, I am happy to received promotional communications from Mondaq
No, please do not send me promotional communications from Mondaq
Terms & Conditions

Mondaq.com (the Website) is owned and managed by Mondaq Ltd (Mondaq). Mondaq grants you a non-exclusive, revocable licence to access the Website and associated services, such as the Mondaq News Alerts (Services), subject to and in consideration of your compliance with the following terms and conditions of use (Terms). Your use of the Website and/or Services constitutes your agreement to the Terms. Mondaq may terminate your use of the Website and Services if you are in breach of these Terms or if Mondaq decides to terminate the licence granted hereunder for any reason whatsoever.

Use of www.mondaq.com

To Use Mondaq.com you must be: eighteen (18) years old or over; legally capable of entering into binding contracts; and not in any way prohibited by the applicable law to enter into these Terms in the jurisdiction which you are currently located.

You may use the Website as an unregistered user, however, you are required to register as a user if you wish to read the full text of the Content or to receive the Services.

You may not modify, publish, transmit, transfer or sell, reproduce, create derivative works from, distribute, perform, link, display, or in any way exploit any of the Content, in whole or in part, except as expressly permitted in these Terms or with the prior written consent of Mondaq. You may not use electronic or other means to extract details or information from the Content. Nor shall you extract information about users or Contributors in order to offer them any services or products.

In your use of the Website and/or Services you shall: comply with all applicable laws, regulations, directives and legislations which apply to your Use of the Website and/or Services in whatever country you are physically located including without limitation any and all consumer law, export control laws and regulations; provide to us true, correct and accurate information and promptly inform us in the event that any information that you have provided to us changes or becomes inaccurate; notify Mondaq immediately of any circumstances where you have reason to believe that any Intellectual Property Rights or any other rights of any third party may have been infringed; co-operate with reasonable security or other checks or requests for information made by Mondaq from time to time; and at all times be fully liable for the breach of any of these Terms by a third party using your login details to access the Website and/or Services

however, you shall not: do anything likely to impair, interfere with or damage or cause harm or distress to any persons, or the network; do anything that will infringe any Intellectual Property Rights or other rights of Mondaq or any third party; or use the Website, Services and/or Content otherwise than in accordance with these Terms; use any trade marks or service marks of Mondaq or the Contributors, or do anything which may be seen to take unfair advantage of the reputation and goodwill of Mondaq or the Contributors, or the Website, Services and/or Content.

Mondaq reserves the right, in its sole discretion, to take any action that it deems necessary and appropriate in the event it considers that there is a breach or threatened breach of the Terms.

Mondaq’s Rights and Obligations

Unless otherwise expressly set out to the contrary, nothing in these Terms shall serve to transfer from Mondaq to you, any Intellectual Property Rights owned by and/or licensed to Mondaq and all rights, title and interest in and to such Intellectual Property Rights will remain exclusively with Mondaq and/or its licensors.

Mondaq shall use its reasonable endeavours to make the Website and Services available to you at all times, but we cannot guarantee an uninterrupted and fault free service.

Mondaq reserves the right to make changes to the services and/or the Website or part thereof, from time to time, and we may add, remove, modify and/or vary any elements of features and functionalities of the Website or the services.

Mondaq also reserves the right from time to time to monitor your Use of the Website and/or services.

Disclaimer

The Content is general information only. It is not intended to constitute legal advice or seek to be the complete and comprehensive statement of the law, nor is it intended to address your specific requirements or provide advice on which reliance should be placed. Mondaq and/or its Contributors and other suppliers make no representations about the suitability of the information contained in the Content for any purpose. All Content provided "as is" without warranty of any kind. Mondaq and/or its Contributors and other suppliers hereby exclude and disclaim all representations, warranties or guarantees with regard to the Content, including all implied warranties and conditions of merchantability, fitness for a particular purpose, title and non-infringement. To the maximum extent permitted by law, Mondaq expressly excludes all representations, warranties, obligations, and liabilities arising out of or in connection with all Content. In no event shall Mondaq and/or its respective suppliers be liable for any special, indirect or consequential damages or any damages whatsoever resulting from loss of use, data or profits, whether in an action of contract, negligence or other tortious action, arising out of or in connection with the use of the Content or performance of Mondaq’s Services.

General

Mondaq may alter or amend these Terms by amending them on the Website. By continuing to Use the Services and/or the Website after such amendment, you will be deemed to have accepted any amendment to these Terms.

These Terms shall be governed by and construed in accordance with the laws of England and Wales and you irrevocably submit to the exclusive jurisdiction of the courts of England and Wales to settle any dispute which may arise out of or in connection with these Terms. If you live outside the United Kingdom, English law shall apply only to the extent that English law shall not deprive you of any legal protection accorded in accordance with the law of the place where you are habitually resident ("Local Law"). In the event English law deprives you of any legal protection which is accorded to you under Local Law, then these terms shall be governed by Local Law and any dispute or claim arising out of or in connection with these Terms shall be subject to the non-exclusive jurisdiction of the courts where you are habitually resident.

You may print and keep a copy of these Terms, which form the entire agreement between you and Mondaq and supersede any other communications or advertising in respect of the Service and/or the Website.

No delay in exercising or non-exercise by you and/or Mondaq of any of its rights under or in connection with these Terms shall operate as a waiver or release of each of your or Mondaq’s right. Rather, any such waiver or release must be specifically granted in writing signed by the party granting it.

If any part of these Terms is held unenforceable, that part shall be enforced to the maximum extent permissible so as to give effect to the intent of the parties, and the Terms shall continue in full force and effect.

Mondaq shall not incur any liability to you on account of any loss or damage resulting from any delay or failure to perform all or any part of these Terms if such delay or failure is caused, in whole or in part, by events, occurrences, or causes beyond the control of Mondaq. Such events, occurrences or causes will include, without limitation, acts of God, strikes, lockouts, server and network failure, riots, acts of war, earthquakes, fire and explosions.

By clicking Register you state you have read and agree to our Terms and Conditions