In response to the Panama leaks the German government intends to introduce an electronic transparency register that is to be updated at regular intervals. The draft bill (implementing “AMLD4”, the Fourth EU Anti-Money Laundering Directive (Directive (EU) 2015/849)) presented by the German Finance Ministry (BMF) on 15 December 2016 is to enter into force this year when adopted by both chambers of the German Parliament.
According to the draft bill, notably legal entities and partnerships having legal capacity must in future immediately report to the transparency register information on their direct and indirect beneficial owners. This is of special importance to private equity sponsors, their portfolio companies as well as other enterprises as it entails ongoing duties of monitoring and disclosure.
Who is the beneficial owner?
The concept of “beneficial owner” has been known from applicable anti-money laundering legislation, but is now being significantly expanded. According to the draft bill, beneficial owners are natural persons
• holding more than 25% of the capital shares in the company, • controlling more than 25% of the voting rights in the company, or • exercising control in a comparable manner,
no matter whether directly or indirectly. So now, besides the existing criteria of capital interest and voting rights share, the additional definition “exercising control in a comparable manner” would also circumscribe a beneficial owner within the meaning of the Anti-Money Laundering Act. This definition would already be met in the case of arrangements between a third party and a shareholder or among multiple shareholders. In the individual case, this implies the disclosure of a control status which may be based on arrangements unknown to the company that is subject to such duty, which can of course cause problems.
Obligation of regular updating
Moreover, the draft bill provides for an obligation of companies not only to report the information for the transparency register once, but to update such information at regular intervals. This means that the company management must ensure that it is fully aware of the beneficial owner at all times. In complex participation situations, such as private equity structures, this may create a considerable (not just one-off, but constant) administrative effort, as the management must make sure that the relevant company receives at all times up-to-date information, e.g. regarding the investors.
Exemption from the duty of disclosure
The draft bill does say that a report to the transparency register can be omitted where the information on the beneficial owner has been published elsewhere, such as in the commercial register. However, one will have to examine in each individual case, especially in complex participation situations, whether the requisite information may already have been sufficiently disclosed in another place.
Inspection of the transparency register: legitimate interest required
According to the national legislator, inspection of the transparency register is to be permissible only for persons having a legitimate interest and only against payment of a fee, similar to the rules applicable to the land register.
More trouble looming on the horizon
From today’s perspective it is unlikely that these new duties of transparency will be alleviated in the course of the legislative process.
On the contrary, the European Commission is working on a renewed revision of the Anti-Money Laundering Directive. The draft revision provides, inter alia, for a reduction from 25% to 10% of the share thresholds constituting beneficial ownership in certain corporate structures and for more stringent duties of care in the case of high risk third countries.
It is thus more than likely that companies subject to the relevant duties will have to further adjust their respective policies (notably regarding in-house measures to prevent money laundering and financing of terrorism). It remains to be seen in what way the national legislator will eventually respond to the amended Directive.
It should be noted, though, that due to the short period allowed for an implementation of AMLD4 (the deadline is 26 June 2017) companies ought to deal with the matter without delay in order to be able to implement any requisite transparency mechanisms in good time.