The national Transparency Registers that had to be implemented by the EU Member States a few years ago already are now subject to the next step of full transparency: the EU-wide interconnection. On 10 February 2021, the German Federal Government published a draft for the Transparency Register and Financial Information Act (Transparenzregister- und Finanzinformationsgesetz – TraFinG). The draft law serves to establish the prerequisites for the upcoming European interconnection of Transparency Registers in accordance with the Fourth and Fifth EU Money Laundering Directives (Directives (EU) 2015/849 and (EU) 2018/843) and to implement the EU Financial Information Directive on the use of financial information for the purpose of combating money laundering, terrorist financing and other serious criminal offences (Directive (EU) 2019/1153). The TraFinG therefore aims at further improving transparency about legal entities and their beneficial owners as well as exchange of relevant information on both, national and EU level.
The TraFinG provides in particular for comprehensive amendments to the German Money Laundering Act (Geldwäschegesetz – GwG) which, inter alia, regulates the German Transparency Register and the related reporting obligations with respect to beneficial owners.
This article focuses on the envisaged amendments to the GwG and highlights the therewith related (new) reporting requirements to the German Transparency Register.
B. The New and Comprehensive Transparency Register
With the introduction of the German Transparency Register in 2017, most German companies became subject to transparency obligations with respect to their beneficial owners. However, the Transparency Register was not set up as a "full register", but only a "backup register", i.e. companies did not have to register any information on their beneficial owners if, e.g., they were publically listed or if said information was already available from other public registers, in particular the German Commercial Register (Handelsregister). To allow for the German Transparency Register to be linked with the corresponding registers of the other EU Member States, it is now envisaged to convert it from a backup register to a full register. As a result, all German companies would be obliged report their beneficial owners to the Transparency Register and could no longer benefit from the current reporting fictions. Furthermore, it is intended for foreign companies, which currently have to report their beneficial owners if they acquire German real estate, to also become subject to reporting obligations to the German Transparency Register if they intend to acquire shares in a company that holds real property located in Germany.
1. Elimination of Reporting Fictions
The interconnection of the Transparency Registers of the EU Member States was originally to be implemented by 10 March 2021. However, due the COVID-19 pandemic, the adoption of the corresponding implementing regulation by the European Commission is delayed. It is nevertheless expected that the step-by-step implementation of the interconnection can still begin in 2021.
In order to allow for a proper interconnection of the registers, it is required to have structured data records on the beneficial owners in each of the registers in a uniform data format. As explained above, the German Transparency Register does currently not meet this requirement as it is set up as backup register. Consequently, many German companies can rely on reporting fictions, meaning that they do not need to register their beneficial owners with the Transparency Register. Hence, for a large number of German companies, no structured data records are available directly from the Transparency Register, even though they are subject to transparency requirements.
Against this background, it is now envisaged to switch the structure of the German Transparency Register from a backup register to a full register by eliminating the existing reporting fictions. Currently, the obligation of companies to report their beneficial owners to the Transparency Register is in particular deemed to have been fulfilled if the relevant information about the beneficial owners can already be obtained from other publicly accessible registers, such as the commercial register, the partnerships register, or the associations register. This reporting fiction therefore applies in particular in cases
- where beneficial owners of a German limited liability company (GmbH) are included in the list of shareholders that can be retrieved from the commercial register, or
- where the GmbH's managing directors are, in the absence of real beneficial owners, considered as fictive beneficial owners and, as legally required, registered with the commercial register.
While the applicability of the reporting fiction to the latter case was initially unclear, this approach was only recently confirmed by the Federal Office of Administration (Bundesverwaltungsamt), the authority responsible for the German Transparency Register.
Another reporting fiction currently exists for listed companies. According to this, listed companies whose shares are traded on an organized market within the meaning of the German Securities Trading Act (Wertpapierhandelsgesetz – WpHG), and under certain circumstances also for their subsidiaries, the reporting obligations vis-à-vis the Transparency Register are in any event deemed to be fulfilled. As a consequence, listed companies do not have to make a registration with the Transparency Register. This privilege was based on the assumption that the shareholdings in listed companies are sufficiently transparent through the voting rights notifications to be made pursuant to the WpHG.
As a consequence of the elimination of the aforementioned reporting fictions, all German companies which are subject to transparency obligations would have to actively report their beneficial owners to the Transparency Register and could no longer rely on other registers or other publically available information. This applies, in particular, to all German legal entities under private law (e.g., GmbH, AG, SE, KGaA) and all registered partnerships (e.g., KG, OHG).
2. Extended Reporting Requirements for Foreign Companies in Connection with Share Deals
The planned amendments to the GwG will not only result in extended reporting obligations for German companies but also for foreign companies incorporated outside of Germany.
Already under the current legal situation, companies having their registered office abroad must report their beneficial owners to the German transparency register if they undertake to acquire ownership of real property located in Germany. They are only relieved from this obligation if the relevant information about their beneficial owners has already been reported to the transparency register of another EU Member State.
While the current reporting obligation only applies in the event that a foreign company directly acquires real property located in Germany, the TraFinG also provides for a reporting obligation to the German Transparency Register if said foreign company intends to acquire shares in a company holding real property in Germany. Such acquisition of shares would trigger a reporting obligation if it meets the requirements of Section 1 para. 3 Real Estate Transfer Tax Act (Grunderwerbsteuergesetz – GrEStG). This is the case, for example, if a foreign company acquires at least 95% of the shares in a company that directly owns real property in Germany.
If a foreign company does not comply with its reporting obligations to the Transparency Register, German notaries are prohibited from performing a notarization involving this foreign company. As a consequence of the aforementioned extended reporting obligation, this already existing prohibition of notarization would also apply to share deals where a non-reporting foreign company will become the main shareholder of a company owning real property in Germany.
3. Entry into Force and Transition Periods
The draft law provides for the TraFinG to enter into force on 1 August 2021. With respect to companies which are currently able to make use of reporting fictions, transition periods will apply. Depending on their legal form, these companies would have to report their beneficial owners to the transparency register by:
- 31 March 2022 (AG, SE, KGaA),
- 30 June 2022 (GmbH, Cooperative, European Cooperative, Partnership), or
- 31 December 2022 (all others).
C. Practical Implications
The amendments of the GwG by the TraFinG, in particular the conversion of the Transparency Register from a backup register to a full register, will result in extensive reporting obligations. All German companies being subject to transparency obligations must be prepared to actively report their beneficial owners to the Transparency Register, even if they only have fictive beneficial owners (i.e. no natural person qualifies as a beneficial owner).
Also foreign companies would be subject to extended reporting obligations to the German Transparency Register if they undertake transactions involving real property located in Germany. In this context, particular attention should be paid by foreign companies to the fact that beneficial owners are not identified uniformly within the EU. Rather, due to different methods of determining beneficial ownership, in particular within a shareholder chain, a company's beneficial owner according to the laws of one EU Member State might not be considered as beneficial owner in another EU Member State and vice versa.
Any intentional or negligent non-compliance with the reporting obligations is an administrative offence and can therefore result in a fine. The fine amounts to a maximum of EUR 150,000. In case of severe violations, however, the fines can be significantly higher. Apart from that, decisions imposing fines on companies are publicly announced on the homepage of the Federal Office of Administration by naming the fined company.