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26.10.2017 | KPMG Law Insights

Money Laundering – Transparency Register: Clarifications by the Federal Administrative Office and Initial Practical Experience

Transparency Register: Clarifications by the Federal Office of Administration and Initial Practical Experience

I. Amendment of the Money Laundering Act (AMLA)

As is well known, the new Money Laundering Act (“AMLA”), which came into force in June, provides for a large number of new regulations to better combat money laundering.

The new AMLA contains a number of aspects that, according to initial practical experience, have considerable relevance for numerous companies that appear to be only marginally affected by the issue of money laundering. This relates in particular to the newly introduced Transparency Register, an electronic register for recording and making accessible information on natural persons who stand behind and control companies and foundations (so-called beneficial owners)(www.transparenzregister.de).

II. The Transparency Register

Since the new AMLA came into force, all domestic corporations, registered partnerships and foundations in particular have been required to provide information on the “beneficial owner”(first and last name, date of birth, place of residence , and type and scope of the beneficial interest) for entry in the transparency register. The notification obligations are continuous , i.e. they also apply to any change in the information subject to notification.

In principle, the beneficial owner is any natural person who directly or indirectly (i) holds more than 25 percent of the capital shares or (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 a mirror obligation to notify the Company without delay of the information required to fulfill the notification obligations and of any changes to this information.

Violations can be punished with a fine of up to EUR 100,000 in simple cases and up to EUR 1 million or EUR 5 million (credit and financial institutions) in serious, repeated or systematic violations.

Notification obligation also applies to control mediating agreements

The new notification obligation is particularly explosive 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 may include, in particular, voting trust, syndicate, usufruct or pool agreements. This creates a level of transparency, particularly in the case of family businesses and fund holdings, that was not wanted in the past for economic or personal reasons. The same applies in the case of trust agreements. This may be a reason to rethink the structure under company law.

Practical challenges

The notification 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 at all who must be reported to the transparency register. Although the explanatory memorandum to the law expressly denies a duty on the part of the companies to investigate, information available in the future will have to be carefully managed.

It must also be ensured on an ongoing basis that changes in the shareholder structure are reviewed and communicated as necessary.

Lastly, care must be taken to ensure that data circulating in different sources (banks, customers, other public registers) is consistent in order to avoid suspicious money laundering reports due to conflicting data sets. This also applies, for example, to subsidiaries and second-tier subsidiaries in other EU countries, as the managing directors there have their own notification obligations. It is obvious that without coordination within the Group, this can lead to contradictory information.

Exemption from the notification requirement

The obligation to notify the transparency register is deemed to have been fulfilled if the information on the beneficial owner is already available from existing registers that can be accessed electronically – for example, the commercial register (so-called notification fiction). However, the fiction of notification does not apply if the nature and extent of the beneficial interest of a beneficiary deviates from the information in the relevant register, which is particularly the case with facts that cannot be registered, such as, for example, a company’s assets. This is the case, for example, with usufructuary rights, voting trust agreements or trust agreements.

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 in February 2017, which seeks to lower the minimum thresholds to 10%, public insight into the registers and the abolition of the restriction to a legitimate interest. Therefore, it cannot be ruled out that the transparency register will also be open to public inspection without restrictions in the future.

III. need for action

Against the background of the new transparency register, we urgently recommend (also to avoid fines and personal liability of the management) to check whether there is a need for action within the existing corporate structures with regard to the fulfillment of (formal) obligations under money laundering law. In corporate groups, it must be noted in particular that the obligations apply separately to each individual group company and that the identification of the beneficial owner is often complex.

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

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