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Money Laundering – Transparency Register: Negative Control – Role Backwards?

Federal Office of Administration publishes new FAQ – Explanations on prevention control no longer applicable

The Federal Office of Administration (hereinafter: “BVA”), as the register-keeping body of the Transparency Register, would like to provide assistance to associations subject to reporting requirements in the context of its Questions & Answers on the Transparency Register (hereinafter: “FAQ”). At present, however, the adage “well meant does not equal well done” obviously applies here.

Starting point
The FAQs generally provide a comprehensive commentary on reporting obligations to the transparency register in various constellations.

With the update of the FAQ in August 2020, the BVA also defined a so-called negative control as a “control in a comparable manner” in this context. I.e. if an individual shareholder (possibly at the level of the parent company) makes decisions of the shareholders’ meeting based on

  • of its voting rights (requirement of certain majorities)
  • Veto rights
  • Unanimity requirements

can prevent, he was also considered to be the beneficial owner, even if his capital/voting shares are (far) below 25%. This was followed by a great deal of uncertainty among legal practitioners in determining the beneficial owner in light of this interpretation by the BVA.

FAQ update in February 2021
In its latest update of the FAQ, the BVA explicitly distances itself from its own interpretation: “The previous and very broad definition of a controlling influence by a so-called negative control or prevention control in the FAQ of August 19, 2020 is concretized to the effect that statutory or contractually agreed veto or prevention rights in certain cases may lead to a controlling influence within the meaning of Section 3 (2) sentence 4 of the Money Laundering Act in conjunction with Section 290 (2) to (4) of the German Commercial Code. § Section 290 (2) to (4) HGB.”
This is particularly the case if the natural person de facto controls the (parent) association via these rights. This execution is followed as an example by the assumption of beneficial ownership based on a comprehensive right of veto (“right to veto ALL shareholders’ resolutions”).

The explanations on constellations that should be equivalent to a veto right and should also lead to a controlling influence at the parent association and thus an indirect economic entitlement at the subsidiary associations (e.g. unanimity for shareholder resolutions) that were still included in the FAQ of August 2020 have been omitted in the updated version without replacement.

The BVA consistently adds the “more” before the thresholds of 25% and 50%, so that the interpretation in this respect now also corresponds to the wording of the law. Gem. § 3 par. 1 GwG, beneficial owners include any natural person who directly or indirectly holds or controls more than 25 percent of the capital share or voting rights or exercises control in a comparable manner.

Notes on conversion to full register
At the outset, the updated FAQs also refer to the planned new regulation on the conversion of the transparency register to a full register. This means that due to the planned elimination of the reporting fiction, all legal entities under private law and registered partnerships will be required to submit a separate report to the transparency register in the future. It is then no longer sufficient for the required information on the (fictitious) beneficial owner to be derived from another electronically accessible register (e.g. commercial register). The new regulation is scheduled for August 2021.

Recommendations for action and conclusion
The clarification by the BVA is to be welcomed and creates more legal certainty for the companies concerned. With the “concretization” of the controlling influence by means of a so-called negative control, the BVA is in any case again approaching the conventional and pragmatic rule of thumb for the examination of the beneficial owner (participation of more than 25 % on the first participation level or more than 50 % in the case of multi-level participations).

Nevertheless, companies should ensure – also against the background of the approaching full register – that reporting obligations to the transparency register are fulfilled (taking into account any veto rights).

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