Filing of the beneficial owner in the transparency register in the case of multi-level shareholdings

The beneficial owners of companies must be filed with the transparency register. However, it is not always simple to determine the beneficial owner of a company, especially in complex corporate structures. The fact that there are now repeated rulings on this topic - for example by the Cologne Administrative Court (Verwaltungsgericht Köln) at the beginning of the year - illustrates this all too well.

The facts of the case

The ruling by the Cologne Administrative Court concerned a dissent between a limited partnership (Kommanditgesellschaft/KG) and the Federal Gazette (Bundesanzeiger Verlag) regarding the determination of beneficial owners and their filing with the transparency register.

A limited partnership was part of a complex ownership structure. One of its partners was another partnership (GmbH & Co. KG), whose managing partner was a company (GmbH) controlled by a single person.

The German authority responsible for the transparency register asked the limited partnership to identify this person as the "beneficial owner" because they believed that, since the person controlled the company at the higher level, they also indirectly controlled the lower-level partnership.

However, the limited partnership disagreed. They argued that even though this person controlled the managing company, the company itself had limited power over the partnership because key decisions required approval from a supervisory board. Therefore, the partnership argued that this person didn’t have control as defined by German money laundering law.

Despite this, the authority maintained its stance and started legal proceedings, which the limited partnership challenged.

The decision of the VG of January 29, 2024, Ref. 9 K 6020/21

The Cologne Administrative Court granted the claim. Due to the special provisions of the partnership agreement, the alleged beneficial owner did not hold indirect control "in a comparable manner" (via the general partner position) in the opinion of the Federal Office of Administration. It should therefore not be filed with the transparency register.

Practical note: Take money laundering compliance seriously

The obligation under money laundering law to report the beneficial owner of a company to the transparency register has been in place for almost seven years and is now an integral part of compliance obligations in companies. Banks, leasing companies, legal and tax advisors and real estate consultants regularly request information on the beneficial owners - also known as "UBOs" (Ultimate Beneficial Owners) - and sometimes multi-page questionnaires have to be provided.

If discrepancy reports are entered in the transparency register in relation to a company - and this has been the case for most companies at some point in recent months - they are more than unwelcome. They lead to inquiries from the companies concerned, time-consuming attempts to provide explanations towards contractual partners, fines and the risk of being publicly listed as a "transparency offender" in the so-called "naming and shaming" lists.

The ruling therefore once again highlights the importance of "money laundering compliance" and the careful determination of beneficial owners. This is particularly important in complicated corporate structures. Such obligation is persisting: whenever the beneficial owners change (e.g. due to share transfers, reorganization measures or changes in managing directors), the transparency register and, if necessary, information towards contractual partners regarding the beneficial owners must be updated.