Following the Directive 2018/843 of 30 May 2018 and the Directive 2019/1153 of 20 June 2019 of the European Parliament and of the Council, each EU member state has been obliged to implement regulations aimed at improving money laundering and terrorism financing prevention within and in relation to the EU.
What effects do the AML directives have on companies? We asked Dr. Jan J. Kruppa, legal advisor, permanent author for the juris PraxisReport (the most-comprehensive legal online portal in Germany) and lecturer at Hochschule Fresenius University of Applied Sciences, for his view on the way these regulations have been applied in Germany and what they mean to domestic entities.
FORDATA: Could you tell our readers, what recent legal changes you see that have a significant impact on German companies in relation to the AML directives?
Jan J. Kruppa: The role of the (German) Transparency Register – this is the official name for the German beneficial ownership register – has recently been upgraded. Since 01 August 2021, it is a full register. A full register means that all relevant information is centralized and you do not need anymore to derive them from other public registers.
The new changes are based especially on the Directive (EU) 2019/1153 of the European Parliament and of the Council of 20 June 2019 laying down rules facilitating the use of financial and other information for prevention, detection, investigation or prosecution of certain criminal offences; and the Directive (EU) 2018/843 of the European Parliament and of the Council of 30 May 2018.
What does this change mean specifically to German companies?
Legal entities under private law and registered partnerships must now, without delay, provide information on the beneficial owners of these companies to the Transparency Register. The information includes, in particular, first and last name, date of birth, place of residence, nature and extent of the beneficial interest, and all nationalities.
How relevant is the information about the beneficial owner anyway?
Simply put, the information about the beneficial owner reveals who the natural person actually is who ultimately owns or controls a company. The beneficial owner of a company is, in particular, the natural person who directly or indirectly holds more than 25% of the share capital, controls more than 25% of the voting rights or exercises control in a comparable manner.
That kind of information can be of interest to competitors, journalists and the public, right?
Exactly. Before the Transparency Register existed, you had to research this very information in other public registers. For example, you could find in the commercial register who the shareholders of a German limited liability company (GmbH) are. However, you could and would get a purely formal answer. The information would provide you with the name of the person who officially acquired the shares of the particular company. If, for example, a trust agreement existed and the business shares were formally held by a third party, the public could not find out who actually was in control of the company or on whose account the shares were held.
Especially in competitive or employment environment, the beneficial owner could avoid the disclosure of this information and keep it secret.
Did it mean that the beneficial owner could completely hide behind a third person and conceal this information?
Under normal circumstances, parties involved in, for example, a trust agreement had the duty to disclose the information about the beneficial ownership to relevant government agencies, especially to the tax authorities. The public had no right to receive this information. Therefore, it happened that the very trust agreement breached contractual obligations under civil law. In practice, the concerned parties would not even find out about it.
The aim of the Transparency Register is to collect information about the beneficial owners. Can we assume that these data fall under data protection and the public can only get this information if special conditions are met?
That is actually how it worked in the beginning. The Transparency Register started in October 2017, and unlike government agencies, private parties or the public had to provide a legitimate interest if they wanted to get access to the Transparency Register. But since 01 January 2020, anyone can get these data.
Legal provisions can often achieve the desired behavior only if there are consequences in non-compliance cases. How is the legal situation regarding the Transparency Register?
That’s a really good perception of reality. As for the management body, failing to provide the required information leads to a compliance violation and (personal) liability.
The obligated companies can be sanctioned with fines if the required information is not kept up to date or is not communicated to the Transparency Register at all, not correctly, not completely or not in time.
The administrative offense can be sanctioned with a fine of up to 150,000 euros if it is committed intentionally, and, otherwise, with a fine of up to 100,000 euros (normal case). In special cases, the fine could also amount to several millions of euros.
Would it make sense for the companies to wait and see if anyone notices that the required information is not accurate?
And is there a transition period or do all obligated companies need to act immediately?
As of 1 August 2021, the obligation applies to every obligated company founded after 1 August 2021. From 1 August 2021 onwards, this obligation applies likewise to all obligated companies if relevant changes occur in the person of the beneficial owner after 1 August 2021.
If the required information could be taken from other public registers until 31 July 2021, nothing further needs to be done. This applies only in so far as there are no changes. Depending on the type of obligated company the transition period ends either on 31 March 2022, on 30 June 2022, or on 31 December 2022.
On 1 January 2023, however, all obligated companies will have to comply with the new requirements.
What do you recommend German companies to do?
Every obligated company, its management body and advisors must actively ensure that the Transparency Register has the required information and that it is correct and kept up-to-date at all times.
But is it only a specific German challenge because of the chosen implementation of these EU directives?
The goal of these EU directives is to prevent money laundering and terrorist financing. One component of the solution is to establish in every Member State a central register in which beneficial ownership information is set out. The ultimate goal is to establish an interconnection of Member States’ beneficial ownership registers. This will create an EU-wide database with access possibilities for third parties and authorities. Everyone will have the right to ascertain who the beneficial owners of companies in the EU are.