Money Laundering at Goodwill Dealers and New Transparency Register: Implementation of the Fourth Money Laundering Directive

On February 22, 2017, the German government adopted a draft law implementing the Fourth EU Money Laundering Directive (Directive (EU) 2015/849 of the European Parliament and of the Council of May 20, 2015), implementing the EU Money Transfer Regulation and reorganizing the Central Financial Transaction Investigation Authority (“Government Draft”). This is associated in particular with changes to the Money Laundering Act. The new regulations are scheduled to come into force in Germany on June 26, 2017.

Background

The legislature’s fight against money laundering and terrorist financing has intensified noticeably in recent years, both at the national and international level. The Fourth EU Money Laundering Directive, which came into force in June 2015, and the pending amendment to this directive in connection with the findings of the so-called “Panama Papers” should also be seen against this background. With the implementation of the Fourth Money Laundering Directive, the following in particular take place

• strengthening the risk-based approach,
• the increase of corporate transparency obligations as well as
• the tightening of the rules on fines.

Compared to the draft bill from 2016, changes in the definition of a goods trader and the handling of collected data, particularly in connection with the transparency register, are worth highlighting in the current government draft:

Application to all quality dealers

For the non-financial sector, the government bill withdraws the restriction on the group of obligated parties for goods traders that was included in the draft bill under pressure from interest groups.
In the draft bill, the term merchant of goods had been defined and according to this, only those merchants were to be covered who make or receive cash payments of at least EUR 10,000 in the course of a transaction. Accordingly, goods traders who restrict cash transactions would not have been required to comply with the AMLA and would not have had to fulfill comprehensive risk management obligations and customer-related due diligence obligations or reporting requirements.

Now, however, the federal government has decided to reverse this restriction. Accordingly, persons who sell goods commercially, irrespective of in whose name or on whose account they act, are obligated parties pursuant to the law. § 2 para. 1 No. 16 AMLA-E. This already corresponds to the current legal situation in Germany, which was already more stringent than European law.

However, according to the government draft of February 22, 2017, traders in goods will be subject to the requirements for risk management pursuant to the German Banking Act. § 4 para. 4 GwG-E privileged insofar as they make or receive cash payments of less than EUR 10,000 in the course of a transaction. This is well-intentioned, but what does it mean, for example, for the fulfillment of the continuing duty to perform customer-related due diligence and reporting obligations in “suspicious cases”? How are the duties to be performed without knowledge of the company’s risk situation and without training of employees? So there is still a need for improvement here.

Transparency Register

From a corporate law perspective, the transparency requirements are of particular importance. With the entry into force of the new AMLA, according to the current government draft, all legal entities and registered partnerships, regardless of whether they are obligated parties within the meaning of the AMLA, are subject to the obligation to provide information on the beneficial owner (first name and surname, date of birth, place of residence and type and scope of the economic interest) for entry in the transparency register, insofar as the information is not already available from certain other public registers. This already follows from the Fourth Money Laundering Directive. Under the new rules, beneficial owners are also subject to disclosure requirements that are subject to fines. In addition, the group of possible beneficial owners is also expanded in the case of foundations and transparency is increased.

However, a dispute arose over who should have access to the transparency register and the extent to which a beneficial owner can cause the restriction of transparency. According to the government draft, not everyone is entitled to inspect the transparency register for information purposes alone. Rather, it is necessary for the inspection to prove a legitimate interest. The legislator therefore gives significantly greater weight to the beneficial owner’s interest in protecting his personal data.

For limited liability companies, the government bill now also provides for the already announced amendment to the list of shareholders, in which the percentage shareholding in the GmbH’s share capital is also to be shown in future.

What does this mean for the people involved?

For the time being, traders in goods cannot hope to fall outside the scope of the MLA. To the extent that there are deficits in the money laundering compliance organization, they must address whether or not they can still wait for the legislative process to develop. At first glance, it seems doubtful that a U-turn will be made again.

For all legal entities and commercial partnerships, the entry into force of the law on June 26, 2017, leads to the need for action. The notification to the Transparency Register must be made by October 1, 2017. They must check whether beneficial owners exist for them and how the necessary information is provided not only once but also in good time in the event of changes. Particularly in the case of shareholders domiciled outside Europe, it is a matter of convincing them in good time. Violation of the reporting obligations is punishable by a fine of up to EUR 100,000, unless it is even a serious, repeated or systematic violation. So the interesting principle of “children are liable for their parents” applies.

KPMG Law will be happy to provide you with comprehensive support in all areas of implementing compliance with the new obligations.