On June 26, 2017, the German Prevention of Money Laundering Act (the "Act") implementing the 4th EU Money Laundering Directive (Directive (EU) 2015/849 of May 20, 2015, the "Directive") came into effect. The Directive requires all EU Member States to ensure that certain information on beneficial ownership of corporate and other legal entities is held in a central register in each Member State. In addition, in the latest proposal for an amendment of the Directive, the EU envisages the direct interconnection of the national registers in order to facilitate cooperation between the Member States.
Pursuant to the new Act, a German transparency register in which, in general, all German companies have to be registered (the "Transparency Register") is established. Accordingly, from October 1, 2017 onwards, German companies and their legal representatives as well as their shareholders and ultimate beneficial owners are subject to new transparency obligations, unless the required information is already accessible through other German electronic registers.
Legal representatives of German companies should carefully assess whether there is need for a disclosure notification to the Transparency Register. In case of non-compliance with the transparency obligations, the company, its legal representatives as well as the non-compliant shareholders and ultimate beneficial owners may be subject to administrative fines of up to EUR 1,000,000.
In this Client Alert, we have summarized the key aspects of the new Transparency Register, the filing and disclosure obligations as well as potential need for action.
What is the new German Transparency Register?
The Transparency Register is a newly introduced electronic register. Its purpose is to enable the identification of the 'ultimate beneficial owner' of a (share or interest in a) company in order to take action against money laundering and terrorist financing. Therefore, non-transparent holding structures shall be uncovered and the ultimate beneficial owners of a company or other legal entities shall be registered.
On the one hand, the Transparency Register serves as a portal to other German electronically and publicly accessible registers, such as, e.g., the German commercial register (Handelsregister) or the German register of associations (Vereinsregister). On the other hand, the Transparency Register is a genuine register for companies not yet registered in a German electronic register and for legal entities and certain constructs for which no such registers exist in Germany (e.g., trusts, trustee relationships, etc.).
Which organizations are subject to transparency obligations?
In general, every corporation, legal entity and other organization established under German law is obliged to file the required information with the Transparency Register. In addition, custodians of trusts and trustees that have their place of residence or seat in Germany are obliged to file the required information relating to the ultimate beneficial owner of the trust to the Transparency Register. Accordingly, the following German companies and organizations are generally subject to the new transparency obligations:
- Stock corporations (Aktiengesellschaft – AG)
- Limited Liability Companies (Gesellschaft mit beschränkter Haftung – GmbH)
- Societas Europaea (SE) with seat in Germany
- Foundations with legal capacity (rechtsfähige Stiftung) and under certain circumstances foundations without legal capacity
- Associations (eingetragener Verein – e.V.)
- Registered Cooperatives (eingetragene Genossenschaft – e.G.)
- Partnerships limited by shares (Kommanditgesellschaft auf Aktien – KGaA),
- Limited Partnerships (Kommanditgesellschaft – KG)
- General Partnerships (Offene Handelsgesellschaft – OHG)
- Trusts, trustee relationships if the custodian/trustee has its place of residence or seat in Germany
- Other legal arrangements similar to foundations
Thus, virtually all German legal company forms — except for a non-trading partnership (Gesellschaft des Bürgerlichen Rechts – GbR) — are obliged to file the required information (in the following each referred to as a "Filing Organization").
The obligation comprises obtaining and holding adequate, accurate and current information on their ultimate beneficial owners and filing of such information to the Transparency Register. In addition, changes to the relevant information or in the person of the ultimate beneficial owner must be notified to the Transparency Register without undue delay.
However, the filing obligations are deemed satisfied in case the required information is accessible through other electronically accessible German registers, e.g., the commercial register (Handelsregister), association register (Vereinsregister), partnership register (Partnerschaftsregister), business register (Unternehmensregister), etc. In addition, listed companies are exempt from the obligation to file to the Transparency Register.
Who is an 'ultimate beneficial owner'?
An ultimate beneficial owner is an individual who directly or indirectly (i) holds more than 25 per cent of the shares or interest in a company, (ii) controls more than 25 per cent of the voting rights in a company, or (iii) has a comparable controlling influence on a company.
In case the actual ultimate beneficial owner cannot be determined, the legal representative of the company is deemed the ultimate beneficial owner.
In case of foundations, trusts and trustee arrangements particular rules as to ultimate beneficial ownership apply. In these cases, the ultimate beneficial owner is (i) an individual who is the trustor, custodian of a trust (trustee) or protector, (ii) an individual who is a board member of the foundation, (iii) an individual who is the beneficiary, (iv) the group of persons for whose benefit the assets are administrated if the beneficiary has not yet been determined, and (v) an individual who directly or indirectly has controlling influence on the asset administration or income allocation.
Which information is required to be filed to the Transparency Register?
Disclosures to the Transparency Register have to include certain personal details of the ultimate beneficial owner of the shares or interests in the Filing Organization. The personal details comprise
- first and last name,
- date of birth,
- place of residence, and
- details as to the interest in the company (nature and extent/percentage of the beneficial interest).
In case of a trust or a trustee of a foundation without legal capacity or comparable arrangements, in each case provided that the custodian or trustee has its place of residence or seat in Germany, the required information also comprises the nationalities of the ultimate beneficial owners.
The information on the ultimate beneficial owners does not need to be filed by a Filing Organization to the Transparency Register in case the required information is already publicly and electronically available in Germany (see above). However, the Filing Organization is obliged to file in case the ultimate beneficial owner is not registered in a publicly accessible German register, in case of a trust or trustee relationships or a comparable arrangement under foreign law.
What are the additional obligations of the shareholders and the ultimate beneficial owners?
While, in general, each Filing Organization must obtain and hold adequate, accurate and current information on their ultimate beneficial owners as well as file the required information to the Transparency Register unless such information can be accessed otherwise (see above), the ultimate beneficial owners themselves are, regardless of their place of residence or nationality, obliged to provide the Filing Organization with the required information if
- they are the direct shareholders or partners of the respective company, or
- they indirectly hold shares or interests in the company through controlled intermediaries.
Generally, shareholders or partners of a Filing Organization are obliged to provide the Filing Organization with the required information if those shareholders or partners are directly controlled by an ultimate beneficial owner. However, depending on the holding structure certain exemptions may apply.
Furthermore, in case of associations, registered cooperatives, foundations and trusts, particular rules as to the disclosure obligations apply. In particular, in case of an association or registered cooperative members holding more than 25 per cent of the voting rights are obliged to provide the Filing Organization with the relevant information respectively. In case of a foundation with legal capacity the individuals being the ultimate beneficial owners (as mentioned above, see "Who is an 'ultimate beneficial owner'?") are obliged to provide the relevant information to the Filing Organization. The obligation to provide the relevant information applies mutatis mutandis to those persons that are directly controlled by the ultimate beneficial owner. However, in case anyone that would otherwise be obliged to provide the relevant information is indirectly controlled by the ultimate beneficial owner, the ultimate beneficial owner itself is obliged to provide the relevant information to the Filing Organization.
Who may access information from the Transparency Register?
The Transparency Register is generally not publicly accessible. Access to the Transparency Register can be granted starting from December 27, 2017. Access will be granted to authorities, persons who are obliged to identify their contractual partner pursuant to German money laundering law and every person who is able to prove a "legitimate interest" in access to the register (e.g., journalists or NGOs engaged in anti-money laundering or terrorist financing research).
What is the due date for the disclosure obligation?
The disclosure obligation came into effect on October 1, 2017. At this point in time, the required information must be filed to the Transparency Register. Subsequent changes as to the ultimate beneficial owners have to be filed to the Transparency Register without undue delay. Shareholders and ultimate beneficial owners, however, are already obliged since June 26, 2017 to provide the respective Filing Organization with the required information.
What are the sanctions if a Filing Organization or a shareholder does not comply with the disclosure obligations?
Failure in complying with the disclosure obligation constitutes a regulatory offence (Ordnungswidrigkeit) and can be fined with an administrative fine (Bußgeld) of up to EUR 100,000 in case of simple non-compliance and up to EUR 1,000,000 or the double of the advantage resulting from the non-compliance in case of repeated or systematic non-compliance. Such fine may be imposed on the Filing Organization as well as on its legal representatives.
These fines also apply to those persons (shareholders, partners, members, ultimate beneficial owners, etc.) that are obliged to provide the relevant information to the respective Filing Organization if they fail to comply with their obligations.
What steps should Filing Organizations and their legal representatives undertake?
The legal representatives of Filing Organizations should determine whether the required information can be accessed by publicly and electronically accessible registers or if there is need for disclosure to the Transparency Register. If the required information is not yet accessible, the relevant information relating to the respective ultimate beneficial owners will need to be filed with the Transparency Register no later than October 1, 2017.
The disclosure notifications relating to ultimate beneficial owners to the Transparency Register can be made under www.transparenzregister.de.
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.
