On 9 June 2021, the German Federal Parliament passed the German Transparency Register and Financial Information Act (TraFinG) which, in particular, contains extensive amendments to the German Money Laundering Act (GwG) in connection with the transparency register. The TraFinG will come into force on 1 August 2021. The legislative amendment is based on Directive 2019/1153 of the European Parliament and of the Council of 20 June 2019 laying down rules to facilitate the use of financial and other information for the prevention, investigation, detection or prosecution of certain criminal offences and repealing Council Decision 2000/642/JHA.
Established on 1 October 2017, the transparency register is maintained by Bundesanzeiger Verlag GmbH in which the beneficial owner (wirtschaftlich Berechtigte) of legal entities under private law, registered partnerships and trusts must be registered. The obligation to register with the transparency register also applies to associations domiciled abroad if they undertake to acquire ownership of real estate located in Germany. The beneficial owner is, in particular, the individual person who directly or indirectly holds more than 25% of the share capital, controls more than 25% of the voting rights or exercises control in a comparable manner. If, for example, in the case of a stock corporation (Aktiengesellschaft, AG) or a company with limited liability (Gesellschaft mit beschränkter Haftung, GmbH), no such individual person exists or cannot be identified, the members of the board of directors (Vorstand) or management (Geschäftsführung) are so-called fictitious beneficial owners. The transparency register records the following data of the beneficial owner:
- First and last name,
- Date of birth,
- Place of residence,
- Nature and extent of economic interest,
The purpose of the transparency register is to prevent money laundering and terrorist financing as it discloses the individual persons who stand behind complex corporate structures.
How has the structure of the register changed and what deadlines do companies need to be aware of?
Previously, companies did not have to report the beneficial owner to the transparency register if the company was listed on the stock exchange or if the beneficial owner could be derived from public and electronically retrievable documents and entries. With regard to a company with limited liability, for example, there was no obligation to report, as the list of shareholders submitted to the commercial register discloses the direct beneficial owner and basically contains all the information specifying such beneficial owner. This so-called reporting fiction is now eliminated by the TraFinG so that the transparency register is transformed from a catch-all register (Auffangregister) to a full register (Vollregister). This is intended, in particular, to improve the quality of entries in the transparency register.
Companies whose reporting obligations were previously deemed to have been fulfilled due to the reporting fiction do not yet have to comply with the new obligations immediately. The TraFinG contains transition periods and temporarily suspends the prosecution of administrative offenses. Depending on the legal form, the reports do not have to be submitted until the following day:
- Stock corporation, European stock corporation (Europäische Gesellschaft, SE), partnership limited by shares (Kommanditgesellschaft auf Aktien, KGaA): by March 31, 2022,
- Company with limited liability, cooperative (Genossenschaft), European Cooperative (Europäische Genosenschaft, SCE), partnership (Partnerschaft): by June 30, 2022,
- Other legal forms: by December 31, 2022.
Prosecution of regulatory offenses will not begin until one year after the expiration of the aforementioned deadlines.
How often do companies need to report to the register?
Companies must not only make reports for the first time, but also ensure that the reports remain up-to-date. Both of these factors result in considerable additional work for German companies. Particularly in the case of complex, cross-border group structures, the responsible departments must carefully check what impact a share transfer has on any reporting obligations under the transparency register. The beneficial owner is also obliged under the German Money Laundering Act to provide information and details to the reporting company so that it can fulfill its reporting obligations to the transparency register.
What will the consequences of failing to comply with the new reporting obligations be?
Companies will have to comply with extensive (new) reporting obligations. If they fail to comply with these obligations, or fail to do so correctly, completely or on time, they will be acting in breach of the law (ordnungswidrig) and could face severe fines of up to EUR 150,000 in principle. In the event of a serious, repeated or systematic breach, significantly higher fines are conceivable.
Düsseldorf Corporate Counsel, Dr. Sebastian Schuerer, comments:
"The mandatory reports to the transparency register should be made without undue delay. We can provide you with comprehensive support and assess your need for action. Please do not hesitate to contact us if you have any questions regarding your reporting obligations."
The contents of this publication are for reference purposes only and may not be current as at the date of accessing this publication. They do not constitute legal advice and should not be relied upon as such. Specific legal advice about your specific circumstances should always be sought separately before taking any action based on this publication.
© Herbert Smith Freehills 2021