1 ½ years of Transparency Register - status and current developments

Since December 2017, companies, associations and foundations are obliged to report the natural persons controlling them, the so-called "beneficial owners", to the electronically managed transparency register (https://www.fgvw.de/en/news/archive-2017/corporate-law-introduction-of-the-transparency-register). If this obligation has not been fulfilled, there is a risk of fines to be expected. In addition, it is a threat that the respective regulations will become stricter soon.

Background of the Transparency Register and existing notification obligations

The Transparency Register was introduced in 2017 on the basis of European anti-money laundering and anti-terrorist financing regulations and since then is governed by the Money Laundering Act (Geldwäschegesetz, GWG). Almost all kinds of companies (in particular limited liability companies (GmbH), stock corporations (AG), limited partnerships (KG) and general partnerships (OHG)) as well as associations and foundations must report their beneficial owners to the Transparency Register, i.e. those natural persons who directly or indirectly hold more than 25 % of the shares or voting rights or who otherwise control the company / association concerned (e.g. via decisive influence on corporate bodies, trust or voting right agreements). The companies are not obliged to actively identify their beneficial owners themselves; rather, the beneficial owners and/or shareholders are obliged to notify the company / association accordingly – this obligation does also apply to beneficial owners with residence outside Germany. Exceptions to these notification obligations only exist if the beneficial owner already emerges from certain other registers (in particular the commercial or business register). So far, only a restricted group of persons, in particular criminal prosecution and tax authorities, persons who are under a special obligation to comply with money laundering regulations (e.g. certain goods dealers, banks, notaries and lawyers, have access to the Transparency Register.

Since the introduction of the Transparency Register is based on European law, transparency registers with comparable reporting obligations already exist in some other European countries as well (e.g. France, Italy, Luxembourg or Austria). In other European countries (e.g. the Netherlands) transparency registers are currently built up. Therefore, persons and companies with their registered office or shareholdings outside Germany should not only assess whether they have to and do comply with their obligations under the German GWG, but also assess whether they have similar notification obligations with regard to other transparency registers in the European Union as well.

Issuance of fines in the recent past

The importance of the obligations in regard to the Transparency Register has increased considerably in the recent weeks and months as the responsible Federal Administrative Office has started work and already imposed fines for late or missing notifications to the Transparency Register. In particular, stock corporations are currently systematically contacted and threatened with fines - even if no natural person directly or indirectly holds more than 25% of the shares or voting rights and there is therefore no reporting requirement. Having this in mind, every company should now at the latest check whether there notification obligations to the Transparency Register exist and whether these have been fulfilled properly.  Missing notifications should be made as soon as possible. This applies to the companies as well as to their shareholders and/or beneficial owners who are obliged to report to the respective company / association at the preceding level.

Perspective: Stricter provisions and amendments to the GWG

The recently published draft bill to amend the GWG to implement the 5th EU Money Laundering Directive (Directive (EU) 2018/843) shows that the Transparency Register will become even more important in the future and that several legal questions are still outstanding and constantly changing. In addition to general changes to the GWG - such as the extension of the obligated parties under the GWG - the draft suggests relevant changes with regard to the Transparency Register. For example, the Transparency Register shall become publicly accessible in future; therefore, fiduciary or voting agreements, which for a variety of reasons are generally treated as confidential, may not be completely confidential anymore. In addition, existing obligations will be tightened up or even new obligations created. For example, the draft provides for an obligation for the obligated parties under the GWG to inspect the Transparency Register when entering into new business relationships and to document the transactions in a correspondingly stricter manner. In addition, the (fine-relevant!) notification obligations of the shareholders and beneficial owners vis-à-vis the company/association and the (so far not existing) investigation obligations of the company/association itself shall be extended according to the draft.

Although it is to be expected that in the course of the legislative process some issues in the draft bill will still change, each company should prepare for the relevant tightening of their obligations with regard to the Transparency Register in the future as described above. By the end of this year at the latest, the companies concerned should actively inform themselves about the forthcoming new regulations on the transparency register - the 5th Money Laundering Directive is to be transposed into German law by January 10, 2020. Moreover, it will be interesting to see whether and how the new regulations under the 5th EU Money Laundering Directive (Directive (EU) 2018/843) will be implemented in other European countries.