Transparency Register – Duties when it is launched on 1 October 2017

From 1 October 2017 onwards, all domestic legal entities under private law and registered partnerships, with the exception of partnerships under German civil law, are subject to the duties set out under section 20 of the German Anti-Money Laundering Act (Geldwäschegesetz – GwG) (the “Act”) in connection with the newly created Transparency Register. Fines can be imposed if these duties are breached. Although the majority of companies will not have to send any notification directly to the Transparency Register, the establishment of an internal compliance system is, however, required by law.

I. How the Transparency Register works

The Transparency Register, which is managed by the Federal Gazette, is a purely electronic platform. The objective of the Register is to publish information relating to natural persons who directly or indirectly hold more than 25 per cent of the capital or voting rights of a company or exert control on the company in a similar way (referred to as “beneficial owners”). The Transparency Register website has already gone live and facilitates registration, which is necessary in order to send notification to the Transparency Register.

II. Scope of duties for governing bodies and shareholders

The governing bodies of a company must in accordance with section 20(1) of the Act obtain, retain, update and report information relating to any and all beneficial owners (first and last name, date of birth, residential address and the type and scope of the economic interest). Companies must establish an appropriate compliance system for this, which in particular ensures that it can be reviewed at least once a year whether changes in connection with the beneficial owners have become known. The governing bodies therefore have a duty to request this information from their direct shareholders and to retain such information, but do not have any obligation to carry out their own research in this regard.

Shareholders on their part have the duty in accordance with section 20(3) of the Act to inform the company if they are a beneficial owner and to inform the company without undue delay about any changes. This obligation to provide information also includes notifying the company if shareholders on their part are directly subject to the control of any beneficial owner.

Any breaches of the duties set forth in sections 20(1) and 20(3) of the Act are deemed to be administrative offences and can be punished with an administrative fine of up to €100,000 or, in the event of serious, repeated or systematic breaches, with a fine of up to €1,000,000. 

III. Restricted access

The information stored in the Transparency Register can first be accessed as of 27 December 2017, but is not freely accessible. In accordance with sec. 23(1) of the Act, only authorities, parties subject to anti-money laundering regulations and persons with legitimate interests have the right to access the information in the Transparency Register. A request for such access has to be filed via the Transparency Register’s website. Beneficial owners do not, however, ultimately have any certainty about who can in fact access their information.

IV. Legal assessment

The majority of companies, particularly limited liability companies (GmbH), limited partnerships (KG) and many stock corporations (AG) under German law, will not have to directly notify the Transparency Register on 1 October 2017 because the existing and accurate disclosure of ownership structure in public registers such as the Commercial Register, the Register of Companies and the Federal Gazette, from which a company’s beneficial owners can be derived, constitutes compliance with the obligations set forth in section 20(2) of the Act. Negative notifications to the Transparency Register are not required. The establishment of an internal query, notification and monitoring system by a company’s governing bodies to ensure compliance with all obligations under section 20(1) of the Act is, however, required, as mentioned above.

A closer look at the notification obligation in accordance with section 20 of the Act is, however, required if the actual control and/or voting rights of a natural person are not specified in public registers. Examples of this are shareholders residing in foreign countries and voting trust agreements, special provisions in the articles of association (in particular for partnerships), trust and usufruct relationships, sub-participations and silent participations or constellations in which natural persons hold capital shares and/or voting rights indirectly via shareholding chains.

Foundations are definitely required to send notification to the Transparency Register in order to in particular state the members of the foundation’s executive board. These persons have not to date been specified in public registers as defined by the Act.