On 26 June, 2017, the new Money Laundering Act (Geldwäschegesetz, or “GWG”, in the following the “Act”) implementing the 4th EU Money Laundering Directive came into force. The Act regulates inter alia the introduction of a so-called transparency register.
It is the purpose of the transparency register to identify economic interdependencies to fight money laundering and terror financing. In view of the above, certain associations which are nationally resident shall be obliged to report information regarding the so-called beneficial owner to the new transparency register.
For many companies and entrepreneurs, the transparency register creates new notification and disclosure obligations.
But what does the new legal provision mean for a company, for the natural persons “behind” the company or the management body?
Which main obligations do exist?
The objective of the Act is to disclose and record the legal person behind the relevant company structure. For so-called associations/ legal forms, the Act determines in this context
- notification obligations towards the transparency register;
- simultaneously disclosure obligations of the beneficial owner towards its relevant association;
- retention obligations regarding the information for the association/ legal form; as well as
- obligations to update such information regularly.
The notifications had to be effected as of October, 1 2017 for the first time.
Which associations/ legal forms are concerned?
The term associations includes all legal persons under private law as well as registered business partnerships that means AG (Aktiengesellschaft, “stock corporation”), KGaA (Kommanditgesellschaft auf Aktien, “partnership limited by shares”), SE (Societas Europaea), GmbH (Gesellschaft mit beschränkter Haftung, „limited liability company“), OHG (Offene Handelsgesellschaft, „general partnership“), KG (Kommanditgesellschaft, „limited partnership“), PartG (Partnerschafts-gesellschaft mit beschränkter Berufshaftung, „partnership company with limited professional liability“) as well as registered/economic associations, registered cooperatives and foundations with legal capacity. The partnership under civil law (GbR) is excluded from the scope of application due to lack of registration. The same applies for the silent partnership.
Notification obligations only relate to such associations having their registered offices in Germany.
The term legal forms shall classify especially trusts and non-legal foundations with a self-interested purpose of foundation in the founder’s perspective.
Who is the beneficial owner?
Beneficial owner is each natural person holding directly or indirectly more than 25 percent of the shares, controlling more than 25 percent of the voting rights or having control in a similar manner.
„Control“ is in particular given if the natural person can directly or indirectly exert a controlling influence. Regarding the question at what point the opportunity for a controlling influence is given, the Act refers to Section 290 para. II through IV German Commercial Code (HGB) accordingly.
This definition applies irrespectively of the natural person have his/her residence in or outside Germany or of nationality.
Provided that no such natural person can be identified or that there are doubts whether the identified person is beneficial owner, a fiction becomes effective: The legal representative or respectively the managing partner of the company is classified as beneficial owner.
The Act stipulates special regulations for foundations with legal capacities.
What does the notification obligation comprises towards the transparency register?
The association/ legal form must electronically notify the following information regarding the beneficial owner to the transparency register:
- first and last name,
- date of birth,
- place of residence as well as
- nature and extent of the beneficial interest.
The information regarding the nature and extent of the beneficial interest must serve to determine the basis for the position of a beneficial owner. This may generally result from the shareholding, especially from the amount of the capital shares or the voting rights, the exertion of control in other ways (agreements, authorisations) or the function as legal representative, managing partner or partner.
Special regulations shall apply for foundations or other legal forms.
How are the beneficial owners identified?
In order to meet the notification obligations, the association/ legal form must dispose of the corresponding information.
In view of the above, the Act regulates a so-called “disclosure obligation” of the direct/ indirect beneficial owner. The extent of the beneficial interest must be concretised by the beneficial owner by indicating the interest in the association itself (especially capital share, voting right), the exertion of control in other ways (for example by agreements among the shareholders) or the function as legal representative of a managing partner.
The person subject to disclosure is not obliged by law to investigate. However, respective information already existing in the company’s sphere may be attributed to it. Moreover, the representative bodies will have the task to keep the available information regarding the beneficial owners up to date at regular intervals (annually). This aspect shall also be subject to the compliance obligation of the representative bodies.
In group companies, a unit may be subject to disclosure and notification obligation at the same time.
When will the notification/disclosure obligation be suspended?
In order to not unnecessarily increase the administrative burden for the companies concerned, the Act comprises regulations according to which the notification/ disclosure obligations are deemed to be fulfilled. In particular:
- In case of listed companies (organized market or EU stock markets with comparable standards of transparency), the obligations are always deemed to be fulfilled in view of the stipulations of the WpHG (Wertpapierhandelsgesetz, “German Securities Trading Act”).
- Insofar as the information already result from public registers like commercial, cooperative, association or company register (for example due to the formal position of the beneficial owner as shareholder – inter alia in the shareholders’ list -, as managing director or legal representative of a company), a notification/ disclosure is also not required.
- The internal share register of a non-listed stock corporation does not meet the requirements of the Act. The stock corporation shall therefore notify the transparency register of the beneficial owners. The shareholder’s disclosure obligation in turn is deemed to be fulfilled by registration with the share register.
Who has access to the transparency register?
The electronic transparency register is operated by Bundesanzeiger Verlag GmbH with limited access for the public.
Authorities have access to the transparency register as far as this is required to fulfil their statutory tasks (prosecution authorities, federal central tax office).
In addition, each person may access the register who has legitimate interest. The explanatory memorandum of the Act shows by all means that the legitimate interest must be connected to the purpose of the law (money laundering and fight against terrorism). Even in case of a legitimate interest, “only” month and year of birth as well as the country of residence will be disclosed.
The beneficial owner is entitled to restrict the access to the transparency register in whole or in part. This requires from the beneficial owner the explanation of an overriding legitimate interest – for example, the danger of certain crimes or the minority of a beneficial owner. The confidentiality interests to avoid inheritance disputes or with view to competing companies must also be included, though.
The access will be possible for the first time from 27.12.2017 onwards. The ordinance regulating the details for access and restriction is currently pending.
What are the sanctions in case of infringements?
Wilful or reckless infringements of the obligations of transparency of the Act constitute an administrative offence and may be punished by a fine. This applies for both the notification and disclosure obligations. The amount of the fine may be up to 100,000 Euro even in case of simple infringements. Besides, any infringement may result in fines to the persons subject to supervisory duties pursuant to Section 130 OWiG (Ordnungswidrigkeitsgesetz, “German Administrative Offences Act”).
In addition to the imposition of fines, a negative public image may occur: The supervisory authority may announce on its website whether fines have been imposed – by indicating the nature and character of the underlying infringement as well as the relevant responsible person.
Which changes occurred in connection with the shareholders’ list of the GmbH?
Finally we consider it important to also refer to the new requirements regarding the information in the shareholders’ lists of a GmbH.
From 26.06.2017 onwards, not only the shareholders including last name, first name, date of birth and place of residence (for companies: name of company, registered office, responsible register and register number) as well as the nominal values and the serial numbers of the shares must be specified; the shareholders’ list, moreover, must explicitly state the percentage share in the share capital provided by the relevant nominal value of a share. As far as a shareholder holds more than one share, the overall scope of the interest in the share capital, besides, must be stated separately as percentage in the shareholders’ list.
On top, there are some particularities for the GbR: In addition to the GbR itself, its relevant shareholders under a summary designation with last name, first name, date of birth and place of residence shall be listed.