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New Year - News on the Subject of Money Laundering Compliance

Recently, the topic of "money laundering compliance" has become a permanent topic for companies both inside and outside Germany. This is not at least due to the ambitious legislation at European level and its implementation in the German Money Laundering Act (GwG). In 2020, this topic will remain highly relevant as on 1 January several new regulations in the Money Laundering Act to implement the 5th EU Money Laundering Directive came into force.

Expansion of the obligated parties

The German GwG already provided for a detailed catalogue of the so-called obligated parties, i.e. the persons who are subject to money laundering obligations. The new legislation partly extends this catalogue further. For example, companies which are responsible for the safekeeping, administration and securing of crypto currencies now also fall under the obligations under money laundering law. Art dealers, art warehouse operators and even courts of law that conduct public auctions have also been expressly included in the definition of the obligated parties. Moreover, the legislator has also used the new regulation to answer open questions whether specific persons fall are obligated parties within the meaning of the German GwG or not. In particular, it has been clarified that pure holding companies (outside the financial sector) are not to be regarded as obligated parties.

New provisions for dealers in goods and real estate agents

Some of the amendments to the German GwG concern dealers in goods, i.e. persons or companies selling goods on a commercial basis. Under the previous concept, these were already considered obligated parties, but only had to fulfil money laundering obligations (in particular the obligation to establish a risk management system or to identify contracting parties and beneficial owners) only if they had (at least once) a cash transaction of EUR 10,000 or more. If such dealers in good are trading in precious metals, the threshold value has now been lowered to EUR 2,000.  

In addition, it has been clarified that real estate agents must observe and comply with the obligations under money laundering law not only when brokering ownership of real estate, but also when brokering rental or lease agreements starting at a threshold of EUR 10,000 (monthly net cold rent/lease).

Extension of the general due diligence obligations

If obligated parties establish a business relationship with a third party, they need to fulfil several general due diligence obligations that have been further tightened in the course of the amendment of the GwG. For example, obligates parties are obliged to obtain an electronical extract from the transparency register via the website at the beginning of a new business relationship with an "association" or "legal arrangement" (this includes all common forms of companies such as limited liability companies ("GmbH"), entrepreneurial companies ("UG"), stock corporations ("AG"), general partnerships ("OHG"), limited partnerships ("KG"), associations and foundations with legal capacity).

Special due diligence for transactions with a higher risk

In certain cases (e.g. transactions with politically exposed persons, particularly unusual or complex transaction structures or transactions with counterparties from high-risk countries) the GwG assumes a so-called higher risk where the general due diligence obligations are tighter than normally. This has – particularly for transactions with counterparties from high-risk countries (currently including Afghanistan, the Bahamas, Iran, Iraq, Panama, Saudi Arabia, Yemen) – been further intensified and regulated in detailed catalogues. Inter alia, these cases will trigger the obtaining of additional information, the approval of a member of the management level and increased monitoring obligations.

Changes to the transparency register

There are also changes with regard to the electronic transparency register, in which the beneficial owners of companies and other associations (trusts, foundations, etc.) must be entered since the end of 2017 (for more information see: Introduction of the transparency register) and regarding  the new regulations for 2020 in detail. The respective notification obligations towards the transparency register have now been further extended. For example, companies domiciled abroad are now also obliged to notify the transparency register if they undertake to acquire real estate in Germany. Certain companies must also notify the transparency register not only of their beneficial owners but additionally of specific measures under company law (e.g. name changes, mergers or dissolution). Moreover, the notification obligations of the shareholders and the – possibly deviating – beneficial owners themselves towards the company / association have been substantially extended and a (previously non-existent) obligation of the companies / associations concerned to investigate the beneficial owners has been created. A particularly controversial issue is the unlimited access to the data in the transparency register for everyone since 1 January 2020. Until now, mainly authorities and persons with a legitimate interest had been able to inspect the information in the transparency register. This has been completely changed in favour of an inspection right for “every member of the public” (i.e. everyone) irrespective of any legitimate interests (i.e. also co-shareholders or competitors).

Fines regulations

In addition to the provisions on fines already contained in the German GwG, from January 2020 onwards, there will be additional provisions on the application of fines (e.g. in the case of reports to the transparency register by unauthorized persons or violations of the extended notification obligations relating to the transparency register). As in the past, most infringements are only subject to fines in cases of intent or particularly gross negligence. However, certain infringements (e.g. the failure to appoint a money laundering officer) are now also subject to the threat of fines in cases of simple negligence.

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