On 26th June 2017, a modification of the German law on money laundering gave effect to the new transparency register. Starting from 1st October 2017, companies, their legal representatives and their shareholders face new transparency obligations. Regarding companies investing in real estate, we have summarized frequently asked questions as follows:
What is the transparency register?
The German transparency register is a new electronic register which comprises documents from other publicly accessible registers as well as further information and documents (Section 18 German law on money laundering (Geldwäschegesetz, GWG)). The actual ultimate beneficial owner of a company shall be registered in the transparency register and hence be known to the public.
Who may access the transparency register?
Any person who has a legitimate interest may access the transparency register and search for information and documents included in it, Section 23 GWG. According to the explicit intent of the German legislator, journalists and non-governmental organisations shall be deemed having such a legitimate interest.
What has to be disclosed to the transparency register?
Disclosures to the transparency register have to include the personal details of the ultimate beneficial owner, i.e. his first and last name, his date of birth, his place of birth as well as the details of his interest in the company (Section 19 GWG). Such disclosures do not have to be made if the information is already publically available from other registers. However, disclosure obligations apply in the event that the ultimate beneficial owner is not registered in publicly available registers. This does in particular apply to German trust constellations (Treuhand) as well as to comparable constellations under foreign law.
Who bears the disclosure obligation?
Frequently, real estate investments are carried out by so called “single purpose vehicles” (hereinafter referred to as “SPV”). The SPV bears the obligation to notify the electronical transparency register (Section 20 para. 1 sentence 1 GWG). Additionally, the SPV bears the obligation to collect the requisite information, to store it, to update it and to notify the transparency register without undue delay. Accordingly, the legal representatives of companies have to comply with the first disclosure obligation as well as subsequent disclosure obligations.
What information do the shareholders have to provide?
Shareholders have to provide the SPV with the information necessary in order to comply with the disclosure obligation (Section 20 para. 3 sentence 1 GWG). In particular, the shareholders have the obligation to inform the SPV with regard to investment structures, especially if these investment structures are not publicly available information, i.e. are not registered with the commercial register.
What are „ultimate beneficial owners“?
Ultimate beneficial owners are (i) shareholders who directly or indirectly hold more than 25 per cent of the shares in a company, (ii) shareholders who control more than 25 per cent of the votes in a company, or (iii) persons who have a comparable influence on a company (alternative aiming at any structure created for the avoidance of transparency). In particular, this applies to the trustor (Treugeber) under a trust agreement. The transparency register aims at making the details of the physical person who is the ultimate beneficial owner publically available. Accordingly, a legal entity (e.g. a company) may not be the ultimate beneficial owner under the GWG.
When does the disclosure obligation come into effect?
The disclosure obligation comes into effect starting from 1st October 2017. Subsequent modifications have to be notified without undue delay.
What happens if the SPV does not collect the information or does not provide the required information to the transparency register?
If the SPV does not collect the information with regard to the ultimate beneficial owner or does not store it completely and correctly or does not have it on current status or does not notify correctly and completely the transparency register, it commits a regulatory offence and has to pay administrative fines. The fines shall be calculated depending on the specific information withheld. Simple non-compliance will result in a fine up to EUR 100,000, repeated or systematic non-compliance will be with fines up to EUR 1,000,000 or the double of the advantage taken out of the non-compliance (Section 56, para 1 No. 53 and No. 55 GWG).
What happens if the shareholder does not inform the SPV in accordance with the GWG?
The fines mentioned above do not only apply to the SPV but they do apply to the shareholder that is an ultimate beneficial owner or that is directly controlled by the ultimate beneficial owner (Section 56, para. 1 No. 54 GWG).
How can I assess whether I have to obey a disclosure obligation or whether I have to provide information as a shareholder?
Depending on the facts, the details of e.g. the trust agreement and the nature of the companies involved, the information and disclosure obligations and their enforcement vary.