Relatively unnoticed, the German Transparency Register and Financial Information Act ("TraFinG"), a further tightening of money laundering law, which is also likely to be of considerable relevance for a large number of German companies, has come into force on 1 August 2021. This concerns the duty to notify the beneficial owners (wirtschaftlich Berechtigte) to the registrar entity for entry into the transparency register. The transparency register, which is intended to facilitate the fight against money laundering and terrorist financing, is maintained by Bundesanzeiger Verlag GmbH (registrar entity) and is subject to the supervision by the Federal Office of Administration (Bundesverwaltungsamt - "BVA").
According to the German Money Laundering Act (Geldwäschegesetz - "GwG"), legal persons governed by private law (e.g. stock corporations, limited liability companies and registered cooperatives) and commercial partnerships (limited partnerships and general partnerships) are in principle obliged to have their beneficial owners entered in the transparency register. According to section 3 (2) GwG, the beneficial owners of such companies generally include all natural persons who, directly or indirectly, hold more than 25% of the capital stock or control more of 25% of the voting rights or exercise control in a comparable manner. If no beneficial owner can be identified according to these criteria, the legal representative, managing partner or partner of the company is deemed to be the beneficial owner (so-called fictitious beneficial owner).
Initially, there were considerable simplifications for the fulfilment of the notification obligations vis-à-vis the transparency register, which ceased to apply with the entry into force of the TraFinG on 1 August 2021. With this newsletter, we would like to inform you about the resulting tightening of the respective notification obligation and the transitional provisions for formerly privileged companies, which will expire in 2022. The serious legal consequences (administrative fines!) which the companies concerned face in the event of a breach of duty should prompt their owners and managers to check any transparency obligations which have not yet been fulfilled and, if necessary, to obtain complete information on the beneficial owners as well as to notify the registrar entity of this information in due time.
I. Previous Legal Situation
According to the previous legal situation, companies whose beneficial owners had already been identified in a comprehensible manner from other publicly accessible and electronically retrievable registers (e.g. commercial register, register of cooperatives or register of associations) could invoke a so-called notification fiction, according to which the obligation to notify the transparency register was deemed to have been fulfilled and therefore no additional notification of the beneficial owner(s) had to be made. The notification fiction was of particular benefit to German limited liability companies (GmbH or UG [haftungsbeschränkt]), since the list of shareholders available in the commercial register could usually be used to determine their beneficial owners. Such a notification fiction also existed for companies listed on the stock exchange (AG, KGaA, SE), as these companies are already subject to comparable disclosure obligations under capital market law.
II. New legal situation as of 1 August 2021
The aforementioned notification fiction has been abolished without replacement by the TraFinG. Since then, all newly established legal entities under private law (e.g. AG, GmbH and eG) and registered partnerships (KG, oHG) are obliged to obtain, retain and update the legal details of their beneficial owners (i.e. first name and surname, date of birth, place of residence, nature and extent of the beneficial interest and all nationalities) as well as to notify them without undue delay to the registrar entity for entry into the transparency register.
It is noteworthy in this context that according to the administrative practice of the BVA, the notification fiction for listed companies is also no longer considered to exist, although the legal definition of beneficial owner for legal persons (sec. 3 para. 2 sent. 1 GwG) continues to contain an explicit exception for listed companies (i.e. companies listed on an organised market under sec. 2 para. 11 of the German Securities Trading Act). This exception was originally also to be abolished, but was reinserted by the Finance Committee of the Bundestag shortly before the law was passed. According to important voices in the legal literature, the aim of this intervention by the Finance Committee was to privilege listed companies in accordance with the underlying EU Money Laundering Directive, i.e. to continue to exempt them from the notification obligation. However, a clarifying enquiry by DSC Legal with the competent BVA confirmed that the authority now assumes a general notification obligation for listed companies. In the opinion of the BVA, the general catch-all provision of section 3 para. 1 GwG should be used for the specific determination of the beneficial owner. Insofar as a listed company that is listed on an organised market does not have an actual beneficial owner, the fictitious beneficial owner (e.g. the members of the management board of a German stock corporation) can also be referred to.
III. Transitional provisions for previously privileged existing companies
The following statutory transitional periods are provided for reporting to the transparency register, which, however, only apply to those companies whose obligation to notify the transparency register was deemed to have been fulfilled until 1 August 2021 due to the notification fictions applicable until then:
- Stock corporations (AG, SE), KGaA by 31 March 2022,
- Limited liability companies (GmbH, UG) and eG by 30 June 2022,
- European cooperatives or partnerships by 30 June 2022,
- in all other cases (above all foundations and registered partnerships such as oHG and KG) by 31 December 2022 at the latest.
IV. Simplification for associations
With regard to the notification obligations for registered associations (eingetragene Vereine - e.V.) pursuant to section 21 of the German Civil Code (Bügerliches Gesetzbuch - BGB), the law provides for substantial simplifications. According to this, the registrar entity is in principle obliged, on the basis of the data in the register of associations, to make the entries for the association in the transparency register without the need for separate notification by the association. The data in the register of associations shall be deemed to be information of the association. The members of the association's executive board are entered as beneficial owners. Exceptionally, however, the association has its own obligation to notify if a change in the association's executive board was not applied for entry into the register of associations without undue delay or if the information in the register of associations is incorrect. An (automatic) entry in the transparency register will be made for the first time no later than 1 January 2023. Thereafter, automatic entry will be made on an ad hoc basis.
V. Legal consequences of contraventions
A wilful or negligent violation of the statutory obligations to obtain, retain and update the information on the beneficial owners and/or the obligation to notify the registrar entity (completely, correctly and in due time) of this information without undue delay for entry into the transpareny register constitutes an administrative offence that may be punished with a fine of up to EUR 150,000.00 (in case of intent) or EUR 100,000.00 (in case of negligence). The fine may even be up to EUR 1,000,000.00 or up to twice the economic benefit derived from the contravention if it is a serious, repeated or systematic contravention. The economic benefit comprises profits gained and losses avoided and may be estimated.
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