New regulations on the Money Laundering Act – special topics in focus

Transparency register and need for action for holding companies

I. Selected material changes at a glance

On June 2, 2017, the German Bundesrat passed the law implementing the 4th EU Money Laundering Directive (RL(EU) 2015/849). The new Money Laundering Act (“AMLCA”) is scheduled to enter into force on June 26, 2017. The law contains a number of aspects that are of considerable relevance to a large number of companies that appear to be only marginally affected by the issue of money laundering. This concerns in particular

• the introduction of the so-called transparency register
• tightened regulations concerning holding companies

II. Introduction of the so-called transparency register

With the entry into force of the new AMLA, all domestic corporations, registered partnerships and foundations in particular are required to provide information on the “beneficial owner” (first name and surname, date of birth, place of residence and type and scope of beneficial interest) for entry in the electronically managed transparency register for the first time by October 1, 2017.

In principle, the beneficial owner is any natural person who directly or indirectly (i) holds more than 25 percent of the capital shares, (ii) controls more than 25 percent of the voting rights; or (iii) exercises control in a comparable manner.

Shareholders who are beneficial owners or who are directly controlled by the beneficial owner have the mirror-image obligation to notify the Company without delay of the information required to fulfill the reporting obligations and of any changes to this information.

Violations can be punished by fines of up to €100,000, and up to €1 million for serious, repeated or systematic violations.

Notification obligation also applies to control mediating agreements

The new reporting obligation is particularly sensitive because, for example, agreements that mediate control, as is often the case with family businesses in particular, must also be reported to the transparency register. This includes in particular voting trust, syndicate and pool agreements.

Practical challenges

The reporting obligation regulated by the legislator poses a challenge in particular for companies with complex corporate structures or with foreign shareholders. In this context, information on shareholders must be obtained, recorded and updated in a timely manner. If necessary, it must be carefully checked whether there is a beneficial owner to be reported at all.

Although the explanatory memorandum to the law explicitly denies a duty to investigate, future available information will have to be carefully managed.

It must now be ensured that changes in the shareholder structure within a group are communicated.

Since not only “classic” beneficial owners, but also voting trust and pooling agreements in particular, must be disclosed, transparency arises, especially in the case of family businesses and fund holdings, which may not have been desired in the past for economic or personal reasons. This may be an occasion to rethink the structure under company law.

Lastly, care must be taken to ensure that data circulating in different sources (banks, customers, other public registers) are consistent in order to avoid suspicion of money laundering due to conflicting data sets.

Transparency register possibly open to public inspection

The new AMLA does stipulate that the transparency register is not open to public inspection, but that there must be a “legitimate interest in inspection” for information to be provided. In principle, however, anyone who can credibly demonstrate such a justified interest is entitled to inspection rights. The transparency register is intended precisely to help the business community identify the beneficial owner of a potential contractual partner.

In addition, the committees of the EU Parliament have already launched another directive initiative with the decision of February 28, 2017, which seeks public insight into the registers and the abolition of the restriction to a legitimate interest. The Bundesrat expressed a similar opinion in its statement on the government bill. Therefore, it cannot be ruled out that the transparency register will become publicly accessible at a later date.

III. tightened regulations concerning holding companies

Already under the current legal situation, holding companies were regularly classified as financial enterprises within the meaning of Section 2 (2) of the German Commercial Code. 1 No. 3 GwG in conjunction with. § 1 para. 3 No. 1 German Banking Act (Kreditwesengesetz – KWG).

In this context, the KWG defines finance companies as “companies that are not institutions and are not capital management companies or externally managed investment companies and whose main activity is to acquire and hold investments.”

This means that holding companies were already obliged in principle in the past to appoint an anti-money laundering officer, for example. However, a violation of this obligation was not subject to a fine.

Under the new provisions of the AMLA, a violation of the obligation to appoint a money laundering officer, for example, is now subject to a fine under Section 56 (1). 1 No. 7 GwG n.F. (fine range up to € 100,000 or, in the case of serious violations, up to € 5 million, cf. Section 56 (2) and (3) GwG n.F.).

In addition, under a strict interpretation of the law, holding companies are now subject to the new, increased obligations under Section 2 of the revised version of the GWG (in particular, implementation of risk management, group-wide approach), non-compliance with which is also subject to fines.

IV. Need for action

Against the background of the planned changes, we urgently recommend (also in order to avoid fines) to check in the short term whether holding companies exist within the framework of the existing corporate structures for which action is required with regard to the fulfillment of (formal) obligations under money laundering law.

In addition, with regard to the obligation to report to the transparency register, it must be carefully examined whether and which information in connection with
(domestic and foreign) corporate structures must be made available. In the event of a notification obligation, the required information must be prepared in a suitable form and reported in due time.

We will of course support you in this and will be happy to answer any questions you may have on this subject at any time.