Deadline October 1, 2017: Which obligations are associated with the introduction of the new transparency register for which companies? Who has already fulfilled the new obligations, which are subject to fines?

The Money Laundering Act (GWG), which came into force at the end of June 2017, will come as a surprise to many: As part of the reform of the Money Laundering Act, which is to be implemented on a binding basis at EU level, the legislator has created a new transparency register and associated additional obligations that affect all companies - even if no money laundering allegations have been made against them.

What is the purpose of the new transparency register?

The purpose of the transparency register is to make the so-called "beneficial owners" of companies visible. "Beneficial owner" is the natural person who directly or indirectly holds more than 25% of the capital or voting rights in the company or exercises control over the company in a comparable manner.

What does the new transparency register require?

The transparency register obliges all legal entities under private law and all registered partnerships, with the exception of the BGB partnership, to submit a report by October 1, 2017. Exception: They can take advantage of one of the exemptions, which saves them from having to report to the new register. In addition, companies are now legally required to establish an internal compliance system. Violation of these new GWG rules introduced as part of the money laundering regulations can be punished with heavy fines. The deadline for these new obligations was chosen by the legislator at a surprisingly short notice, namely as early as October 1, 2017. The transparency register is maintained purely electronically by the Bundesanzeigerverlag. It had already been activated before October 1, 2017 [https://www.transparenzregister.de/treg/en/start?0]

Who is exempt from reporting to the registry?

The legislator assumed that most companies did not have to file reports due to the exemption rules as of October 1, 2017, because an existing and accurate disclosure of their beneficial owner in the other electronic German registers - such as the Commercial Register, the Business Register or the Federal Gazette - is considered to fulfill the new reporting obligation as an exemption.

However, this assumption of the legislator is not correct for many companies. In practice, there are many cases in which the existing registers do not provide sufficient information. For example, a list of shareholders in the commercial register that shows companies abroad as shareholders does not contain sufficient information. In the case of companies that were already registered before the introduction of the electronic register on January 1, 2007, the physical "old" documents were not transferred to the electronic register, so that without any changes that have taken place since then, no sufficient information can be identified in the current electronic commercial register. The question of whether central reporting by the holding company is possible in a group of companies or whether each individual group company must report the beneficial owner at the end of the group individually is also currently unresolved.

The same applies to the question of whether the exemption that companies traded on the regulated market of a German stock exchange do not have to report to the transparency register also applies to their shareholdings, so that these are also exempt from the reporting obligation. Or whether the exemption for German companies also applies if a company traded on a comparable market of a foreign stock exchange is at the end of its group of companies.

All companies in the legal form of a foundation had to report to the Transparency Register as of October 1, 2017 in any case, because the foundation registers maintained in the individual federal states do not constitute public registers within the meaning of the GWG.

Who can view the transparency register?

The transparency register can be inspected for the first time as of December 27, 2017. It is not freely accessible, but is open to authorities, GWG obligated parties and persons who can demonstrate a legitimate interest to inspect it. What this means in practice is currently still unclear. For the beneficial owners named in the transparency register, there is therefore no certainty as to whom the information will actually be accessible in the end.

What does the internal compliance system now required mean?

According to the GWG, the management bodies of companies are now obliged to collect the information required under the GWG for each beneficial owner of their company, to keep it, to update it at least once a year and to report the initial status as well as the change in status to the transparency register, unless there is an exemption. In this context, the management bodies have a duty to inquire with their direct shareholders; however, according to the explanatory memorandum to the law, there is to be no separate duty to inquire. How this will be handled in practice by the supervisory bodies is, however, still completely open.

For their part, the shareholders are obliged to notify the company that they are beneficial owners. They must also inform the company immediately of any change. They must also disclose whether they in turn are controlled by a beneficial owner and name such beneficial owner.

The information to be collected about the beneficial owner in this respect is: First and last name, date of birth, place of residence and the nature and extent of his beneficial interest.

Possible legal consequences for violations?

A violation of the duties of the management bodies of the companies or their shareholders newly anchored in the GWG is an administrative offense that can be punished by the competent supervisory authority depending on the type of company with a fine of up to €100,000, in the case of serious, repeated or systematic violations even up to €1,000,000.

How this will be handled in practice is not yet foreseeable today. Inquiries to the Transparency Register about the reporting obligation, the existence of an exemption or the expectations of the compliance system currently remain unanswered.

Conclusion

Against this backdrop, all company managements, their governing bodies and also the shareholders of companies are advised to proactively monitor these issues so that they can assess their specific situation and act quickly if necessary.