Turn of the times: Transparency Register as a Full Register and Other Significant Changes – the Government Draft of the Transparency Register and Financial Information Act

I. Transparency register as a full register

Based on a draft bill of the Federal Ministry of Finance dated December 23, 2020, the government bill now follows (quite quickly), which focuses on the interconnection of European transparency registers desired by the EU by creating a full register. This is because the 5th EU Money Laundering Directive actually provides for the interconnection of the transparency registers of the EU member states by March 10, 2021.

The law is scheduled to take effect on August 1, 2021, but generous transitional provisions are included. Reports are with current use of the so-called reporting fiction:

• until March 31, 2022 (AG, SE and KGaA),
• until June 30, 2022 (limited liability company, [europäische] cooperative and PartG) or
• until December 31, 2022 (in other cases)

to make. Corresponding fine provisions are to be suspended for an additional year at a time. The same applies to corresponding discrepancy reports – these will only be required from April 2023 in cases where it has been possible to rely on a reporting fiction up to now.

II. Further changes in content

• Extension of reporting requirements for foreign companies / investors: Share deals involving real estate will also be affected in the future: The government draft now also expressly subjects share acquisitions by foreign acquirers to a reporting obligation to the transparency register, provided that they comply with the scope set out in Section 1 (1). 3 Real Estate Transfer Tax Act. In this context, the transparency obligation only extends to the foreign association to which shares in a company with domestic real property are to be transferred. The same applies to trusts. Attention: a notary public has to refuse the notarization if the foreign company or trust has not complied with the notification requirements.
• According to the government draft, obligated parties should be able to rely on the full register within the scope of fulfilling general due diligence obligations if there are no deviating indications that give rise to doubts about the information.
• Now, the reporting of all nationalities is also provided for. However, the addition of the place of birth, which was still envisaged in the draft bill, has been deleted.
• Companies that are not entered in the commercial register, register of cooperatives, register of partnerships or register of associations must also report relocations of registered offices to the transparency register in the future.
• Extension of Fines for Violation of Documentation Requirements Concerning the Identification of the Beneficial Owner in a Group of Companies
• According to the government draft, ownership and control structure overviews of the affected association created in the context of discrepancy reports are not to be made available to other obligated parties, but are to be retained for two years upon completion of the examination of a discrepancy report and then deleted. In the meantime, at best, intra-agency use of the collected findings should occur. In contrast to the draft bill, no information is to be passed on to the originator of a discrepancy report.
• The introduction of an automatic inspection procedure and the associated interfaces should result in considerable relief for (certain) obligated parties under the Money Laundering Act. This is expected to reduce corresponding compliance costs and significantly improve contractor audit results.

III. consequences and conclusion

• According to initial estimates, around 1.9 million (corporate) units are affected by the change.
• The previous nature of the German transparency register as a so-called catch-all register would thus be eliminated. The reporting fiction, which has been explicitly provided for by the legislator as an organizational facilitation, would thus be dropped without replacement and would be transformed into an active reporting and updating obligation.
• This means that groups of companies operating in transparent forms of participation such as limited liability companies or, in particular, listed companies and downstream subsidiaries are faced with a not inconsiderable organizational burden.

• Continued legal uncertainty regarding the definition of negative control by the Federal Office of Administration, despite the February 2021 update of the FAQ without the legislature providing clarity at this point.