The transparency register – What those subject to notification obligations should know
In our blog post of 17 January 2020, we already briefly presented to you the latest developments in connection with the transparency register introduced in 2017 against the background of the amendment to the Money Laundering Act (“AMLA“) which came into force on 1 January 2020.
The Federal Office of Administration (Bundesverwaltungsamt, “FOA“) published frequently asked questions (“FAQ”) on the handling of the transparency register. The FAQ once again illustrate the comprehensive notification obligations to which addressees are subject under sections 20 and 21 of the AMLA. Violation of the notification obligations can be punished by fines in accordance with the catalogue of fines pursuant to Section 56 (1) nos. 55 to 63 AMLA, i.e. in the case of intentional offences up to EUR 150,000, in the case of serious, repeated and systematic violations also up to EUR 1 million. As the responsible legal and supervisory authority, the FOA began in the middle of last year to intensify its monitoring of compliance with the notification obligations to the transparency register by those obliged to report and to impose fines for relevant violations.
Executive Summary
- Since mid-2019, the FOA has been sending out hearing forms to persons who are obliged to make a notification, either because the notification was not made or because it is not valid.
- Misconduct with regard to the details of the beneficial owner subject to the notification requirement is subject to a fine.
- The transparency register has been publicly accessible since 1 January 2020. With regard to the beneficial owner, it is now also mandatory to disclose the nationality.
- There are still some case constellations (e.g. in the case of group matters) which raise questions with regard to the duty of disclosure.
Parties subject to notification obligations
With the exception of companies listed on the regulated market (which are already subject to comprehensive disclosure requirements, primarily under the Securities Trading Act), all legal entities under private law (such as the Ltd., Plc. or SE), registered partnerships (such as the limited partnership (KG) or general partnership (oHG)) and trustees are subject to the notification obligations within the meaning of sections 20 and 21 AMLA. Thus, basically every company with its registered seat in Germany is obliged to provide information, with the exception of the partnership constituted under private law (GbR).
Companies based abroad are obliged to notify if they wish to acquire ownership of a property located in Germany.
Notification obligations
Parties subject to the reporting obligation must provide the transparency register with the information on the beneficial owner as defined in section 19 (1) AMLA. When the transparency register was introduced in 2017, this already included the first and last name of the beneficial owner, the place of residence, date of birth and the nature and scope of the economic interest. Since 1 January 2020, the nationality of the beneficial owner has been added as notification.
Fiction of notification
Pursuant to section 20 (2) AMLA, the duty of notification is deemed to have been fulfilled if the relevant information is completely derived from other public and electronically accessible public registers such as the commercial or business register (“fictional notification“). Probably the most frequent case of application in this context is the list of shareholders deposited in the commercial register: If this list is maintained in such a way that all necessary information on the beneficial owner can be taken from it, there is no longer any need for a separate notification to the transparency register.
Less clear and thus in need of clarification with regard to the assessment of whether or not an effective fictional notification can be used are certainly more complex company law constellations such as the following:
Corporate group matters with foreign participation
Corporate groups usually consist of complex chains of shareholdings in which foreign companies are also involved. As a general rule, there is no group privilege and therefore each company with a German registered seat must independently and separately examine the scope of its notification obligations or the intervention of the fiction of disclosure. In multi-tiered group structures, it must be ensured – especially if the fiction of notification is to take effect – that the beneficial owners can be identified at all levels from public, electronically accessible registers. If this is the case, subsidiaries can benefit from the fiction of notification at the level of the parent company.
With regard to listed group parent companies, which are generally exempt from the obligation to report to the transparency register, the FOA states that subsidiaries can also benefit from this privilege. A prerequisite for this is that they are controlled by the parent company in such a way that ultimately there is no other beneficial owner (as a result of more than 75% share ownership or voting right control). If this is not the case (e.g. due to the participation of a foreign, unlisted company), the subsidiary cannot invoke a fictional notification.
Limited partnership (KG) and Limited & Co. Limited Partnership (GmbH & Co. KG)
All limited partnerships (including limited & Co. limited partnerships) are advised to review their notification obligations to the transparency register in light of a recent clarification by the FOA. In its updated FAQ, the FOA has clarified that a limited partner (Kommanditist) – in addition to the general partner (Komplementär), who will generally be the beneficial owner due to his or her position as a member of a corporate body – can also be the beneficial owner, but in any case, with regard to the information that must be reported and a possible reporting fiction, the amount of the capital contribution deposited in the commercial register cannot be automatically deduced from the liable capital contribution. The limited partners are thus in principle subject to a notification obligation. Exceptions are only to be made for the so-called Einheits-GmbH & Co. KG with only one limited partner and for so-called Ein Personen-GmbH & Co. KG, where the limited partner is also the sole shareholder of the general partner limted. In these constellations, the fictional notification can be used as long as the necessary information on the beneficial owner is available from the public registers.
Verification by obligated parties
Obligated parties (Verpflichtete) under the AMLA are in turn required, in the context of the conduct of their customer due diligence requirements under section 11 (5) sentence 2 AMLA, to verify the information obtained on the beneficial owner by means of an extract from the transparency register. In the event of any discrepancies, obligated parties must immediately submit a corresponding report to the body keeping the register. In practice, any discrepancies may lead to surprising requirements and questions which must be clarified under time pressure. Without a valid transparency register excerpt, the customer due diligence requirements are not conclusively fulfilled, with the result that a business relationship cannot be entered into or the transaction cannot be executed. For example, notaries are prohibited from notarizing transactions if the due diligence requirements have not been conclusively fulfilled.
Correct and complete information
In summary, the accuracy and completeness of the information transmitted to the transparency register is of decisive importance for parties subject to notification obligations. In the opinion of the FOA, even typing errors should lead to the obligated party having to submit a discrepancy report to the transparency register. In a consistent interpretation, the legal regulations on the transparency register also mean that the information in the other public registers, which are used for the purposes of the fiction of notification, must always be kept up to date. If information published here is incorrect or even incomplete, an obligated party will also be required to submit a report of discrepancy.
Conclusion
The regulations on notification obligations and possible fiction of notification are quite complex, especially in group and foreign constellations. Since the FOA has begun investigations, considerable fines are still threatened. In addition, more and more obligated parties may demand proof of the beneficial owner and check their compliance with the information in the transparency register and other public registers. In the context of good corporate compliance, it is therefore important to act now and to disclose any chains of shareholdings and correct any inconsistencies. We would be pleased to support you in this.