10.03.2020

Information on the German Transparency Register – Amendment of the law and update of the "Frequently Asked Questions" (FAQ) by the Federal Office of Administration (Bundesverwaltungsamt)

Since October 2017, German legal entities under private law, including AG, SE or GmbH and partnerships such as KG or OHG, have been required to submit a notification to the electronic Transparency Register of their beneficial owners according to Sec. 20 para. 1 of the Money Laundering Act (GwG). According to Sec. 20 para. 2 sentence 1 GwG, an exception to this only applies if the relevant information is derived from other public, electronically accessible registers, such as the Commercial Register.

In the meantime, the Federal Administrative Office (Bundesverwaltungsamt – BVA) has also started – after having been largely lenient in the early days of the Transparency Register – to monitor the fulfilment of the reporting obligation more closely and to rigorously impose fines for violations of this obligation.

Although the subject is probably now widely known, we nevertheless consider it appropriate to draw once again the attention to compliance with the reporting obligations and to seek legal advice if a fine is imposed, as under certain circumstances a fiction of notification could also intervene for the company concerned and the fine may have been wrongly threatened or imposed.

Innovations since January 1, 2020

The primary aim of proper compliance is to identify the so-called beneficial owner of a legal entity and then to report this to the Transparency Register. Pursuant to Sec. 3 para. sentence 1 GwG, a beneficial owner is defined as the natural person who holds more than 25% of the capital or voting rights of a company or who exercises control over the company in any other way. Whether the beneficial owner is resident in Germany or abroad is irrelevant. Recently (since January 1, 2020), however, the nationality of the beneficial owner must also be reported.

It is also new that a company must report individual changes (change of name, merger, dissolution or change of legal form). In addition, pursuant to Sec. 20 para. 3a GwG, the company must now obtain information from the respective shareholders (if known) about the beneficial owner, as far as a beneficial owner is previously unknown.

Another serious innovation is that now, pursuant to Sec. 23 para. 1 sentence 1 no. 3 GwG, the general public can inspect the Transparency Register, whereas previously this was only possible if a "legitimate interest" existed. No less serious is the insertion of Sec. 23a GwG (together with the new FAQ on this) regarding the obligation to report discrepancies concerning the indication of the beneficial owner.

These new provisions are also accompanied by amended provisions on fines in Sec. 56 GwG.

More extensive FAQ

After the general procedures for determining the beneficial owner are explained at the beginning of the FAQ by the BVA, the explanations on the GmbH & Co KG in particular now occupy a larger place in the FAQ (as of January 3, 2020).

The registered office of the association must always be based on the registered office of the association (cf. FAQ, no. III 2).

The obligation to register also applies to municipal companies, insofar as they are organised as legal persons under private law (i.a. GmbHs) or as registered partnerships. The only exceptions to this are those companies for which the fiction of notification under Sec. 20 para. 2 GwG applies (cf. FAQ, no. II 16). This is the case if the relevant information is derived from other public registers that can be accessed electronically, such as the Commercial Register.

Natural persons as general partners (personally liable partners - Komplementär) of a KG are generally to be regarded as the beneficial owners of a KG based on their corporate status. This only does not apply if the personally liable partner is completely excluded from representation and this is entered in the Commercial Register. In the case of limited partners (Kommanditist), on the other hand, the amount of liability entered in the Commercial Register does not allow any conclusions to be drawn regarding their contribution and the capital shares, as the mandatory contribution (Pflichteinlage) of the limited partners and their distribution of capital shares can differ considerably from the amount of liability (Haftsumme) (cf. FAQ, no. II 17). However, the (GmbH & Co.) KG can also profit from the fictitious notifications of Sec. 20 para.2 sentence 1 GwG:

If the KG is the sole shareholder of the GmbH and the GmbH is in turn the sole personally liable partner of the KG (so-called unitary company – Einheitsgesellschaft) and only one natural person is a limited partner, the fictional notification can be used if all relevant data is derived from the Commercial Register. According to the FAQ, the same applies if the sole limited partner is also a shareholder of the GmbH in addition to the KG. This also applies to the one-person GmbH & Co. KG, where a natural person as limited partner is also the sole shareholder of the general partner-GmbH (cf. FAQ, no. II 18a, 18b). If no limited partner and no personally liable partner of the GmbH & Co. KG can be determined as the beneficial owner, the legal representative of the KG can be relied upon as the beneficial owner (cf. FAQ, no. II 18c). If no limited partner is considered to be the beneficial owner on the basis of his capital shares or voting rights and one or more natural persons are personally liable partners, the fiction of notification intervenes if the required data of all personally liable partners is derived from the Commercial Register. If the general partner is a company, the relevant data for the fiction of the KG must result from the entries in the Commercial Register of the natural person who controls the general partner company (cf. FAQ, no. II 18d).

Current practice of the BVA

Even though the reporting obligations are generally well known or that the fiction of reporting is exploited, many companies are currently being contacted by the BVA for alleged violations of the reporting obligations and (in some cases serious) fines are threatened. Affected companies should not sit idly by, but should have this checked – either by their own compliance department or (better) by experienced legal advisors. For it is not said that the BVA has overlooked possible fictions of notification in its own audits and still threatens to impose fines.

Outlook

The reporting obligations under the GwG will be further tightened. Consequently, each company should have its own in-house compliance officers or legal experts carry out regular audits and ensure that the requirements of the GwG regarding the reporting obligations regarding the beneficial owner are met. If the BVA threatens to impose fines due to omitted or erroneous information, the facts of the case should always be examined in detail. This is necessary in order to exclude liability risks due to violations of compliance requirements in the company.

If you have any further questions or need specific advice on this matter, or even want to take action against a threat of fines, please contact us. Our lawyers at Schalast will be pleased to advise you at our offices in Frankfurt am Main, Hamburg and Berlin.