Revised Anti-Money Laundering Act Introduces New Transparency Register
On 26 June 2017, a new Anti-Money Laundering Act (Geldwäschegesetz – “GwG”) entered into force in Germany, implementing the 4th EU Anti-Money Laundering Directive 2015/849 of 20 May 2015 (the “Directive”). Most prominently, the new GwG introduces a so-called Transparency Register regarding ultimate beneficial owners of all non-listed companies. Mandatory filings have to be made at the latest by 1 October 2017.
The Transparency Register applies to all German corporations, partnerships and even trusts managed by German trustees, with the exception of listed companies. In group structures, each company will be subject to individual filing obligations. The Register will contain the following information about natural persons holding in excess of 25% of the shares or voting rights or otherwise controlling the company: identity, date of birth, and place of residence, as well as type and amount of the economic interest (i.e. share capital, voting rights, voting agreements, position/function in the company). The Transparency Register only applies to natural persons who are economic owners or – in foundations or funds – trustees, board members or beneficiaries.
To the extent this information is available in other registers, such as the commercial register, it must not be repeated in the Transparency Register. However, private German companies will need to keep these details updated and check – as part of their general compliance – at least once a year and report any changes.
According to the GwG, any private German company is entitled to information rights vis-a-vis its direct shareholders and the direct or indirect economic owners, but not relating to indirect shareholders. The Transparency Register will contain the identical information as KYC procedures. However, third parties cannot exclusively rely upon the information in the Transparency Register for purposes of a KYC check, as it is updated only annually and thus may be outdated.
Identifying the economic owner can be challenging in cross-border, multi-layered holding structures with private equity sponsors. The GwG provides for certain exemptions, but at this stage, there is no guidance by German authorities regarding relevant prerequisites. Generally, complex holding structures as such will however generally not justify the exemption, as the new legislation’s aim is to make exactly these structures transparent.
In order to complete the notification obligation in a timely manner, German private companies should analyze their holding structures and collect the various details relating to their economic owners now. Non-compliance with the reporting obligations is an offence and violations are subject to fines of up to EUR 5 Mio. in the case of, inter alia, credit institutions, financial services institutions and alternative investment fund managers (AIFMs) and of up to EUR 1 Mio. in other cases.
Access to the Transparency Register will require prior registration. Starting from 27 December 2017, the register will be available to certain public authorities. Third parties can only consult the Transparency Register in case of so-called justified interest, which is assumed in the context of preventing or combatting money laundering and corruption by non-governmental authorities. In these cases, disclosure will be limited to the identity, and month and year of birth, as well as the country of residence. The search function of the Transparency Register will only allow searches for companies and not directly for economic owners.
The new Transparency Register is only one aspect of the new GwG implementing the Directive. Other changes include for example the obligation of credit institutions, insurance companies and certain other professions to implement an anti-money laundering risk management, which requires, inter alia, conducting an AML risk analysis. Based on the Directive, all EU member states are required to introduce a central register of company beneficial owners, which should be carefully reviewed by companies with affiliates in other EU member states.