Reform of the transparency register, notification obligations, transitional arrangements judgment of the court – Case C-601/20 and C-37/20 of 22.11.2022
Since 01.08.2021, the previously designed Transparency Register as a catch-all register has been converted into a full register. As a result, new legal reporting obligations apply to companies, as the previous reporting fiction in § 20 (2) of the Money Laundering Act (GwG) has been abolished. If the company and the beneficial owner (shareholder) were previously registered in the commercial register and thus registered, no further notifications to the transparency register were generally required. However, this will now change. The deletion of the reporting fiction will significantly increase the notifications required by law. In practice, it is expected that 1.9 million to 2.3 million companies will be affected by the legal changes.
There are also other important changes, such as the expansion of the concept of the beneficial owner in § 3 of the Money Laundering Act (GwG), which also requires an expansion of the necessary information on the beneficial owner. In the future, companies registered in the newly created register of civil law associations should also be subject to reporting obligations to the Transparency Register.
The Federal Administrative Office has already responded to the legal reforms and updated its questions and answers on the new legal status as of 01.08.2021, which are available on the internet. Below, we would like to inform you about the essential points of the reform, particularly regarding transitional arrangements.
1. Expansion of the concept of beneficial owner and the necessary information in this regard
The reform provides for certain adjustments to § 3 GwG, which defines the concept of beneficial owner. Thus, the vague term „contracting party“ in § 3 para. 1 no. 1 GwG has been removed and replaced by the words „a legal entity, other company or legal arrangement as defined in para. 3“. In addition, the addition of § 3 para. 3 no. 6 GwG is intended to close an existing regulatory gap and revoke the privilege of trusts, trustees and comparable legal arrangements over foundations. Furthermore, in the future, not only one but all nationalities of the beneficial owner must be stated, because apparently numerous reports of inconsistencies under § 23a GwG were due to not all nationalities being reported. However, it remains the case that only in the event of necessary updates to the information on beneficial owners will the additional nationalities need to be reported. In addition, company relocations will continue to be reported in accordance with § 20 para. 2 no. 1 GwG (see Goette, Die Reform des Transparenzregister- und Finanzinformationsgesetzes, DStR 2021, 1551, 1553). It is already current law that the direct acquisition of real estate by foreign buyers is subject to transparency requirements. § 20 para. 1 sentence 2 GwG requires that associations based abroad have an obligation to report if they commit to acquiring ownership of real estate located in Germany. According to § 21 para. 1 sentence 2 GwG, comparable obligations apply to trustees (Trustees) who have their residence or registered office outside the European Union. This is being expanded as part of the reform so that in the future, any indirect acquisition of real estate by foreign legal entities will also be subject to transparency requirements if they reach the limits under § 1 para. 3 GrEStG or if they hold an economic interest in accordance with § 1 para. 3a GrEStG due to a legal transaction. The transparency obligation only applies to the foreign association or trustees to whom the shares of a company with domestic real estate are to be transferred.
2. Changes regarding the identification obligation according to §§ 11 et seq. GwG
New regulations regarding identification requirements according to §§ 11 f. GwG The reform also brings certain changes regarding the regulations for the collection (§ 11 GwG) and verification of information for the purpose of identifying the beneficial owners (§ 12 GwG). The newly formulated § 12 (3) GwG now clarifies that obligated parties fulfill their due diligence obligations when entering into business relationships and transactions with transparency-obligated legal entities, in general, by comparing the information collected on the beneficial owners with the data stored in the transparency register. At least when there are no doubts about the identity or status of a beneficial owner and no increased risks are recognizable according to § 15 (2) GwG, the obligated party meets the requirements placed on them (cf. Goette, loc. cit., DStR 2021, 1551, 1555).
3. Effects of the German Company Law Modernisation Act – MoPeG
The MoPeG, which was passed by the Parliament on 24 June 2021 and already passed the Council of the Federal Republic on 25 June 2021 (BR-Drs. 567/21 (B)), is likely to have further consequences for the transparency register. Among other things, it provides for the introduction of a register for civil partnerships (GbR) similar to the commercial register (cf. §§ 707-707c BGB), which should help to close the long-lamented gaps in transparency in the law of GbR. However, the entry of the GbR in this register is not intended to affect every GbR (cf. § 707 (1) BGB).
According to the legislator’s apparent intention, the transparency obligations of the MLA are also to extend to the companies entered in the GbR register. The corresponding draft bill of the MoPeG literally states: „Finally, the company register will be integrated into both the business register and the transparency register. This makes it possible to view the company-relevant data from the company register alongside those from the commercial, cooperative and partnership register via the company register as a central platform and to determine the beneficial owner of a registered civil-law company.“
To this end, the MoPeG provides for an addition to Section 20 (2) AMLA to extend the notification obligation to registered GbR (cf. Goette loc.cit., DStR 2021, 1551, 1555).
4. Entry into force and transitional periods
The amendments to the Act entered into force on 01.08.2021.
However, § 59 (8) GwG provides for transitional periods for those legal entities that were previously exempt from the obligation to notify the Transparency Register under Section 20 (2) GwG, e.g. due to their entry in a (commercial) register, so that an AG, SE or KGaA that has not been subject to notification until 31.03.2022, a GmbH, cooperative, European Cooperative Society (SCE) or partnership not previously subject to notification until 30.6.2022 and all other legal entities not yet obliged to notify until 31.12.2022 have time to fulfil their obligations by these cut-off dates (cf. § 59 (8) nos. 1-3 GwG).
These periods should be used urgently to clarify – if not already known – the ownership structure as well as other factors of the companies relevant for the proper fulfilment of the notification. In order to avoid the threat of fines, it should be ensured that all required notifications are submitted in time. (cf. Goette loc.cit., DStR 2021, 1551, 1557).
In this context, it should also be pointed out that according to Section 59 (9) AMLA, the fine provisions for an AG, SE or KGaA affected by the deletion of the notification fiction until 31 March 2023, for a GmbH, cooperative, European Cooperative Society (SCE) or partnership affected by the deletion of the notification fiction until 30.06.2023 and for all other legal entities affected by the deletion of the notification fiction until 31 December 2023.
Furthermore, no discrepancy reports need to be submitted for the aforementioned companies until 01.04.2023 if there would have been no obligation to submit a discrepancy report to the Transparency Register under the version of Section 23a (1) in conjunction with § 20 (2) GwG applicable up to and including 31.07.2021 (§ 59 (10) GwG).
It is recommended that the management and beneficial owners of the companies concerned, who are obliged under the GwG, immediately obtain an overview of the necessary notification obligations for all companies concerned, especially in cases where new beneficial owners have been included in the circle of notification obligations.
As a precautionary measure, this also applies to GbR partners if they are external companies that act as GbRs in legal transactions and are to be entered in the register.
The transitional regulations are sufficient for many medium-sized companies to fulfil the statutory notification obligations in time. Only in the case of public limited companies and comparable legal forms must the notification obligations already be fulfilled by 31 March 2022.
The fact that the notification obligations must be observed is already evident from the considerably increased fines in recent years. Against this background, this is a compliance task that must be taken seriously.
6. Landmark decisions of the European Court of Justice (C-601/20 and C-37/20)
The European Court of Justice (ECJ) has ruled that public access to the Transparency Register violates European law and is therefore invalid. The ECJ justified its decision by stating that free access to the register constitutes a serious violation of European fundamental rights, as it allows for a comprehensive profile to be created with certain personal identification data and the financial situation of the person concerned. This interference cannot be justified by the objectives of combating money laundering and terrorism financing. The decision was made in the context of the preliminary ruling procedure in the Sovim SA (case C-601/20) and WM (case C-37/20) cases.
The ECJ has reasoned that public access to the Transparency Register constitutes a serious interference with Article 7 and 8 of the Charter of Fundamental Rights of the European Union. The fight against money laundering and terrorism financing does not justify this interference. The European Commission is called upon to create a uniform definition of the term „legitimate interest“ in order to eliminate uncertainties. The benefits of free access to the register do not outweigh the additional severity of the interference with the ECJ. The fight against money laundering and terrorism financing is not the responsibility of the public, but of the competent authorities and obliged entities under anti-money laundering legislation. Therefore, they must have free access to the register in the course of their duties.
The ECJ’s judgment is legally binding and has comprehensive binding effect at the EU level and in the Member States. National courts and administrative authorities must implement it and may not apply a provision that violates European law, such as § 23 (1) sentence 1 no. 3 of the GwG. Luxembourg has already blocked public access to its national Transparency Register, and Germany is likely to follow suit. The judgment could also have implications for the legislative process of the planned EU anti-money laundering regulation