Transparency Register – new schedule of fines announced

The German Federal Office of Administration (Bundesverwaltungsamt - BVA) has released a detailed schedule of fines for administrative offences in connection with the Transparency Register on its website. The schedule of fines gives an indication of what can be expected in everyday practice in setting the amounts of fines. Published for the first time, the rules for violations, which stipulate multipliers that can increase fines drastically, indicate substantial potential for conflict.

 I. General fine scale for obligations

Since the introduction of the Transparency Register on 1 October 2017, the obligations laid down in sections 20 and 21 of the German Money Laundering Act (Geldwäschegesetz - GwG) apply to enterprises and to natural persons as beneficial owners. The goal is to set up a register that contains complete information regarding significant natural persons behind domestic companies. For this purpose, enterprises are obliged pursuant to section 20(1) GwG to procure, keep, update and report to the Transparency Register information regarding their beneficial owners. Pursuant to section 20(3) GwG. The beneficial owners are obliged to inform the company about their respective position.

The BVA is the German authority responsible for prosecuting administrative offences in connection with the Transparency Register. The fine scale for simple violations goes up to EUR 100,000. For serious, repeated or systematic violations, it can increase to EUR 1,000,000. For violations due to negligence or carelessness, only one-half of the general maximum fine pursuant to section 17(2) of the German Administrative Offences Act (Gesetz über Ordnungswidrigkeiten - OWiG) can be levied.

II. Setting a specific fine using multipliers and discretion

The BVA calculates the exact amount of a fine based on the published table, using a standard amount for each administrative offence. The standard amounts range from EUR 100 (e.g. for delayed reporting or failure to update) to EUR 500 (failure to comply with the reporting obligation). This standard amount is multiplied by three different factors:

• Factor I: careless or intentional Acts
  
  Careless acts are multiplied by 1, intentional acts by 2.
  
  
• Factor II: economic situation of the violator
  
  A multiplier between 0.1 and 200 is applied for enterprises depending on their size. The criteria for determining the size of an enterprise are the number of employees and the annual sales or the annual balance sheet total.
  
  A multiplier between 0.1 and 200 is likewise applied to foundations depending on their size, which is determined based on income or assets.
  
  A multiplier between 0.5 and 3 or higher is applied to natural persons depending on their gross annual income.
  
  
• Factor III: seriousness of the violation
  
  The multiplier is 1 for simple violations and 2 to 10 for serious, repeated or systematic violations.

Due to this method of calculation, even seemingly minor violations can result in severe penalties, as the following example Shows: 

• Sample calculation
  
  An enterprise with 1,000 employees and EUR 100 million in annual income carelessly fails to report information regarding its beneficial owner to the Transparency Register (consecutive no. 2.4.1 of the fine schedule with a standard amount of EUR 500). Due to Factor II, the enterprise's size leads to a multiplier of 100; Factors I and III are both 1. Exclusive of possible decreases or increases which the authority could apply at its discretion, the resulting fine would amount to EUR 50,000.

The BVA has substantial discretionary leeway for increases or decreases when it sets the amount of a particular fine. This leeway is to be used to take a number of factors into consideration, not all of which are listed, and the existence of which is open to broad interpretation. This means that the BVA has quite a wide range of options, a fact that enterprises and beneficial owners should keep in mind.  

III. Important questions remain

The schedule of fines leaves many questions – for which a (more precise) answer would have been necessary – unanswered. How more than one administrative offence will be dealt with (e.g. failure to procure information, which often automatically leads to a failure to keep the information) is especially critical. Considering how often reporting to the Transparency Register has been late, but by only a short time period, since 1 October 2017, it is yet to be seen by how much a fine would be reduced in such a case.

As expected, some of the BVA's wording is not exhaustive. For example, there is little clarification as to what constitutes a serious or systematic violation. With the exception of repeated violations, the BVA offers only general definitions in this regard.