Transparency Register and Financial Information Act enters into force in August – Major changes in the Anti-Money Laundering Act (AMLA)

Transparenzregister- und Finanzinformationsgesetz - GwG | AML | PayTechLaw | Egor

On 30.06.2021, the Act on the European Interconnection of Transparency Registers and the Implementation of Directive (EU) 2019/1153 of the European Parliament and of the Council of 20 June 2019 on the use of financial information for the purpose of combating money laundering, terrorist financing and other serious criminal offences (Transparency Registers and Financial Information Act – TraFinG) was published in Federal Law Gazette No. 37. The Act will enter into force on 1 July 2021.

In the following, PayTechLaw presents the effects which primarily concern the Transparency Register and the associated notification obligations.

 

I. Background and purpose

The full name of the TraFinG already reveals the double objective of the Act: on the one hand, the objectives are to improve the practical and digital usability of the Transparency Register including the creation of the data-related prerequisites of the European Transparency Register interconnection due in 2021 in accordance with Directive (EU) 2015/839 (EU Anti-Money Laundering Directive), and on the other hand, the implementation of Directive (EU) 2019/1153 on the use of financial information in the fight against serious crime (EU Financial Information Directive).

The law is intended to fit into the European and national strategy to further improve the fight against money laundering and terrorist financing and, in particular, to create transparency about legal entities and their beneficial owners.

 

II. Essential changes

From the collection register to the full register

A major innovation brought about by the TraFinG is the transformation of the Transparency Register from a collection to a full register. According to the EU Anti-Money Laundering Directive (AMLA), the Transparency Registers of the EU Member States should actually be interconnected by 10 March 2021. However, the prerequisite for interconnection is the existence of structured data records on the beneficial owners in the Transparency Registers of the EU member states in a uniform data format. With the Transparency Register in its current form as a collection register, this can only be achieved to a limited extent. Up to now, a report of the beneficial owner to the Transparency Register has not been necessary due to the fiction of notification contained in Section 20 (2) GwG old version, if all required information on the beneficial owner is already available from certain publicly accessible registers, such as the commercial, partnership, cooperative or association register.

 

Abolition of the notification fictions

This notification fiction contained in Section 20 (2) GwG (old version) is to be abolished without replacement. Instead, in future, almost all German legal entities, as well as foreign companies acquiring real estate in Germany, will be actively obliged to identify and notify their beneficial owners to the Transparency Register. This obligation exists regardless of the size of companies. This also applies to the form of the limited liability company (GmbH), which is extremely popular in Germany and which, like the other legal entities, no longer benefits from the notification fiction. Associations are initially not affected by the notification obligation.

 

Abolition of the privileged status of listed companies

Similarly, the privilege for listed companies that are listed on an organised market within the meaning of Section 2 (11) of the German Securities Trading Act (WpHG) no longer applies. In future, the beneficial owners of listed companies must also be identified according to the general principles and reported to the Transparency Register.

 

Sanctions for non-compliance

In the event of violations in the form of missed deadlines and non-compliance with the notification obligations, the legal entities are threatened with sanctioning as an administrative offence under Section 56 GwG.

A fine of up to 150,000 euros may be imposed in the case of a deliberate violation and a fine of up to 100,000 euros in all other cases. In the case of a serious, repeated or systematic violation, the company may also be fined up to 1 million euros or up to twice the economic benefit derived from the violation and, in the case of financial service providers as defined in section 2 (1) nos. 1-3, 6-9 GwG, even up to 5 million euros or 10% of the total turnover.

 

Transitional periods for the subsequent notification of the beneficial owner

For the legal entities that will be required to report in the future and that were previously able to invoke the notification fiction, there is a transitional period for subsequent reporting.

The required information on the beneficial owners shall be submitted to the Transparency Register.

  • until 31 March 2022 in the case of a stock corporation (AG), partnership limited by shares (KGaA) and Societas Europea (SE),
  • until 30 June 2022 in the case of a limited liability company (GmbH), cooperative, European cooperative or partnership, and
  • until 31 December 2022 in all other cases

to communicate.

 

Transitional periods for the applicability of sanctions

Generous transitional periods are provided for the applicability of the provisions on fines to legal entities that have so far benefited from the notification fiction. The offences subject to fines under Section 56 (1) no. 55 and 58 to 60 GwG are in this respect

  • until 31 March 2023 in the case of an AG, KGaA or SE,
  • until 30 June 2023 in the case of a GmbH, cooperative, European cooperative or partnership, and
  • until 31 December 2023 in all other cases

not applicable.

New information on the beneficial owner in the Transparency Register

In future, all nationalities of beneficial owners must be reported to the Transparency Register. Furthermore, in the future, the relocation of the registered office of companies must also be reported to the Transparency Register.

 

Reporting obligations for share deals by foreign companies

Until now, foreign companies have had to enter beneficial owners in the Transparency Register if they directly acquire real estate in Germany and they are not already entered in a Transparency Register of another EU member state. Now foreign companies are also to be obliged to report their beneficial owners to the German Transparency Register if shares in a company holding domestic real estate are transferred to them (so-called share deal). This is subject to the premise that these foreign companies have not already submitted their beneficial owners to a Transparency Register of another EU member state.

Consequently, the prohibition of notarisation for notaries under Section 10 (9) sentence 4 GwG is to be extended to share deals. Accordingly, the notary may only perform a notarisation involving a foreign company that is obliged to report its beneficial owner to the Transparency Register if the latter has fulfilled its reporting obligations.

 

Overviews of the ownership and control structure of reportable associations

In the future, the Federal Gazette is to be authorised to prepare overviews of the ownership and control structure of companies subject to reporting requirements as part of the review of discrepancy reports, whereby these overviews will not be entered in the register. In addition, these overviews are to be kept for two years after the review has been completed and then deleted by the Federal Gazette. Due to data protection concerns and criticism in advance, the disclosure of the overviews should only be possible in individual cases upon request to authorities, according to the explanatory memorandum to the law.

 

Facilitation of the verification of the beneficial owner information

The TraFinG entails considerable additional work for the companies subject to the notification requirement. However, the law also facilitates the verification of information on the beneficial owner.

In the future, those obliged under anti-money laundering law may rely on the information in the Transparency Register when verifying the identity of a beneficial owner. At the moment, obligated parties under anti-money laundering law must take risk-appropriate measures to ensure that the information they have collected on the beneficial owner of a contracting party is correct. In practice, this obligation leads to a considerable KYC effort for the obligated parties in this regard. It is true that obligated parties will still have to collect the information for the identification of the beneficial owner of a contracting party themselves in the future. However, if this information corresponds to the information in the Transparency Register, they have fulfilled their identification obligation.

 

Identification obligations for the transfer of crypto assets

Also new are the identification obligations for the transfer of crypto securities within the meaning of Section 1 (11) sentence 1 no. 10 of the German Banking Act (KWG). The general due diligence obligations according to Sections 10 et seq. GwG must be complied with in future when transferring crypto assets of more than 1,000 euros.

 

III. Evaluation

The simplifications in the verification of the information on the beneficial owner are to be welcomed in practice.

However, the changes in the GwG due to the TraFinG mean a considerable additional effort for companies that could previously rely on the notification fiction. The explanatory memorandum to the law assumes that approximately 2.3 million legal entities will be affected by the transition to the full register. It must be taken into account that companies do not fulfil their obligations under the GwG with a one-time report to the Transparency Register. Rather, in future, every relevant change in group structure or shareholding or, in the cases of Section 3 (2) sentence 5 GwG changes in the management bodies, must be accompanied by an update of the notifications to the Transparency Register in addition to the update of the notifications to the commercial register. If, for example, a managing director entered in the Transparency Register as a beneficial owner of a limited liability company leaves the company, this must be reported to the Transparency Register. Due to the discontinuation of the notification fiction of Section 20 (2) GwG, updating the notification to the commercial register is no longer sufficient.

All affected companies should therefore review their notification obligations and carry them out, taking into account the transitional periods.

 

Cover picture: Copyright © Adobe/Egor

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