AQUAN Update: 5. EU Anti-Money Laundering Directive

Amendments to the electronic transparency register with the 5. EU Anti-Money Laundering Directive 

The realisation of the 5. EU Anti-Money Laundering Directive is imminent. It was published on 19 June 2018 and has to be realised by the EU member states by 10 January 2020.

Since the implementation of the 4. EU Anti-Money Laundering Directive in 2017, legal entities under private law and registered partnerships are obliged to disclose their beneficial owners in the transparency register set up for this purpose. In summary, any person that holds or indirectly controls more than 25% of the capital shares and/or voting rights in a company must be disclosed, whereby special regulations apply to foundations and similar structures.

The 5. EU Anti-Money Laundering Directive has quite a few changes for the transparency register.

The main changes in regard to the transparency register under the 5. EU Anti-Money Laundering Directive are as follows:

1. So far, comprehensive access to the information in the transparency register has only been available to certain authorities, as well as to companies that are obliged to inspect it before the establishment of a business relationship or a company transaction. Other parties were previously only able to access the information in the transparency register if they could prove a legitimate interest.

This regulation will no longer apply with the implementation of the 5. EU Anti-Money Laundering Directive. According to the draft bill, “all members of the public” may access the transparency register on presentation of a copy of their identity card and payment of a fee. The requirement of prior online registration shall prevent possible abuse and provide information about who has accessed the transparency register. Thus, the transparency register becomes a public register.

2. With the implementation of the 5. EU Anti-Money Laundering Directive, the nationality of the beneficial owners must now also be reported to the transparency register.

3. In addition, the circle of beneficial owners of a foundation with legal capacity will be expanded. Previously, only certain natural persons directly connected with the foundation had to be named. As per 10 January 2020 the following applies: If the executive board or beneficiary of the foundation is a legal entity under private law or a registered partnership, the persons who control this association are now also deemed to be beneficial owners.

In principle, the extended reporting obligations are to be fulfilled as soon as the Directive enters into force. According to the responsible Federal Administrative Office, higher fines and, in the event of a breach of the reporting obligation, publication on the Internet are threatened, among other things. Therefore, we recommend that missing information in the transparency register on the beneficial owners be reported in good time.

Furthermore, the requirement to report the nationality of the beneficial owners applies to all beneficial owners. Thus, all foundations with legal capacity should check whether they have to submit supplementary declarations.

As a reminder:

Who is affected by the new transparency register?

Legal entities under private law, i.e. GmbH, UG (haftungsbeschränkt), Limited or AG and all registered partnerships, such as OHG, KG, GmbH & Co. KG are obliged to report to the transparency register. Even if they are only a so-called one-person company, these companies must provide the electronic transparency register (www.transparenzregister.de) – maintained by the Federal Gazette Publisher – with details of their beneficial owners.

What needs to be done by the executive management?

The information of the beneficial owners of thse legal entities and registered partnerships must be

  • obtained,
  • stored,
  • kept up to date,
  • and immediately reported to the transparency register

by the managing directors.

This had to be done for the first time by 1 October 2017. Breach of duty is punishable by fines of up to 100,000 EUR as an administrative offence.

Who should be reported?

‘Beneficial owners’ are the people who control corporations or partnerships. This applies to natural persons who, either directly or indirectly,

  • hold capital shares of more than 25 percent or
  • control more than 25 percent of the voting rights or
  • exercise control in a comparable manner, for example through a voting trust agreement.

‘Indirect control’ means, inter alia, ownership of shares by one or more associations controlled by the natural person.

Example: GmbH Y owns 26 percent of the shares of the reportable GmbH X. On the other hand, a natural person owns 51 percent of GmbH Y. This natural person then exercises indirect control over the reportable GmbH X because of this majority shareholding. They must be reported as the beneficial owner.

‘Control’ applies if the natural person is in a position to directly or indirectly exercise a dominant influence over the association. If the beneficial owner cannot be determined beyond doubt, the legal representatives or managing partners are entered into the transparency register (fictitious beneficial owner).

Example: Four shareholders hold equal shares in GmbH X. Since each of them does not hold more than 25 percent of the capital shares, none of them has to be reported. However, the managing directors of the GmbH must instead be reported as so-called fictitious beneficial owners.

What data has to be reported to the transparency register?

The following Data relating to the beneficial owners (25%+ of the shares/voting rights) must be reported:

  • Name
  • First name
  • Date of birth
  • Place of residence
  • Nature and scope of the economic interest
  • Nationality

Is it possible to avoid the report?

If the required data can be obtained from certain other public registers, namely

  • the commercial register
  • the partnership register
  • the register of cooperatives
  • the register of associations
  • the business register

the reporting obligation is regarded as fulfilled. A separate report to the transparency register is then no longer necessary. All information should be correct and up-to-date and should enable the identification of the applicable shareholder(s) as the beneficial owner(s).

Example: In the case of a GmbH with three shareholders, each of whom holds the same amount of shares, the entry in the commercial register is sufficient if the last name, first name, date of birth and place of residence can be seen from the current list of shareholders. All three are regarded as beneficial owners since each of the partners holds one third of the shares in the company and thus has direct relevant control of more than 25 percent of the capital shares.

Once something has been reported to the transparency register, all future changes must continue to be maintained there. And according to the will of the legislator this has to be done ‘without delay’ with every change.

Problems can arise with dormant holdings, voting right agreements or similar structures if they result in different beneficial owners.

Practical advice

Managing directors should check whether the information in the list of shareholders in the commercial register, for example, is up-to-date and correct and whether the relevant shareholder(s) can be identified as the beneficial owner(s). The current status of the commercial register can be viewed, for example, at handelsregister.de for a fee. In order to avoid unnecessary efforts, the safest way would certainly be to simply report to the transparency register and keep the entry up-to-date. This should not take a lot of extra time since the company’s management is obliged to do regular checks on whether anything has changed with the beneficial owners and document these checks anyway, Otherwise, fines for an administrative offence may be imposed.