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Obligation to report to the Transparency Register for companies: What managing directors need to know about the amendment to the German Anti-Money Laundering Act
6. September 2021
Many companies are affected by an extension of the reporting obligation to the Transparency Register through an amendment to the German Anti-Money Laundering Act (GWG – Geldwäschegesetzes) as of 1 August 2021. Find out what you need to know about the obligation to report to the Transparency Register.
With regards to the obligation to report to the transparency register, many companies have so far been subject to the so-called „notification fiction“ of Section 20 para. 2 GwG. The decisive change is now the following: due to the previous notification fiction, there was no obligation to enter the beneficial owners into the Transparency Register, provided that the information was stored in other public registers, such as the Commercial Register.
This is no longer the case. A GmbH (German Ltd.) whose shareholders have already been published in a list of shareholders in the Commercial Register, must now nevertheless report the beneficial owners to the Transparency Register. Specifically, this affects around 1.9 million companies in Germany. These shall now undertake to report their beneficial owners to the Transparency Register. This is because with the amendments to the German Anti-Money Laundering Act that came into force on 1 August 2021, the notification fiction no longer applies. We had already provided comprehensive information on the details of the act amendment.
Transitional periods for reporting to the Transparency Register
As a result of the amendments to the Anti-Money Laundering Act, the Transparency Register is no longer a so-called catch-all register, but a full register as of 1 August 2021. Almost all legal entities governed by private law and registered partnerships are now required to report to the Transparency Register. However, transition periods are provided for reporting.
These transition periods vary in length, depending on the legal form of the company: Legal entities governed by private law and registered partnerships whose obligation to notify the Transparency Register was previously deemed to have been fulfilled on the basis of one of the notification provisions, have complied with the requirements laid down in Section 19 (1) of the GwG. Up to the following date:
31 March 2022, in the case of a joint stock company, SE or limited partnership on shares.
30 June 2022, in the case of a Limited Liability Company, Cooperative, European Cooperative or Partnership.
After these transitional periods have expired, there is a risk of severe fines of up to EUR 100,000. According to the Anti-Money Laundering Act, managing directors are responsible for entry in the Transparency Register.
Obligation to report is far-reaching
The obligation to report is not limited to beneficial owners who live in Germany. If there is an obligation to report, foreign shareholders are also required to report. In addition, there extended reporting obligations for companies based abroad may exist. What is new in this context is that the nationalities of the beneficial owners must be disclosed to the Transparency Register.
Not only companies are affected by the obligation to report to the Transparency Register. In individual cases, associations, communities of heirs, non-profit organisations, small companies, predecessor companies and companies currently being set up may also be obliged to register their beneficial owners to the Transparency Register.
Who is the beneficial owner?
The identification of the beneficial owner is often a source of considerable difficulty and uncertainty. Beneficial owners are natural persons who own or control the association in question (see Section 3 of the GwG). In the case of legal persons governed by private law and registered partnerships, natural persons are deemed to be beneficial owners who – directly or indirectly – own more than 25 percent of the capital.
This also applies to persons who control more than 25 percent of the voting rights or exercise control in a comparable manner. If shares, voting rights or control are held or exercised by an association in any other way, the following are deemed to be indirect beneficial owners: the person who controls the parent association. As a rule, capital shares or voting rights of more than 50 percent are required for control.
Special cases right of veto, right of objection, pool agreement, trust
Also due to special cases within associations, beneficial owners in the sense of the GwG may be subject to reporting requirements. This applies, for example, on the basis of a veto or objection right, a pool manager position within voting, pool or consortium agreements or due to fiduciary relationships.
Extension of the reporting obligation to the Transparency Register means considerable administrative effort
Companies that previously did not have to submit a notification to the Transparency Register due to the notification fiction benefiting them will now be burdened with an additional administrative expense. However, a one-time reporting to the Transparency Register is not sufficient. In the future, in addition to updating the Commercial Register, all relevant changes will have to be reported to the Transparency Register. So, for example, in the case of the group structure or the shareholding or in the case of changes to the governing bodies.
Due to the discontinuation of the notification provision, the Transparency Register obligations are no longer „automatically“ fulfilled by updating the notification to the Commercial Register. Instead, a double register management with corresponding administrative effort will be necessary in the future.
In view of the impending fines, we urgently recommend that you implement the reporting obligation on time. In addition, we recommend strict monitoring of the obligation to report changes in order to maintain internal company compliance.
If you have any questions or need help, please do not hesitate to contact us. We will gladly take over the verification of the beneficial owners of your association and their entry in the transparency register for you.