Transparency register converts from a catch-all register to a full register

On 25 June 2021, the Federal Council approved the German Federal Parliament's resolution on the so-called transparency register and Financial Information Act (TraFinG) of 10 June 2021. The TraFinG has come into force on 1 August 2021. This entails far-reaching changes with regard to the transparency register, in particular the obligation of all German companies to report their beneficial owners (almost) without exception. An intentional violation of the reporting obligations under the German Money Laundering Act may result in fines of up to EUR 150,000.00. In the event of serious, repeated or systematic contravention administrative fines can be much higher.

Since 2017, legal representatives of private legal entities, partnerships with legal capacity as well as trustees and fiduciaries have been obliged to report their respective beneficial owners to the transparency register. The now adopted legislative amendments aim to promote an interconnection of the different transparency registers of the EU Member States in order to create cross-border usability in the form of a European platform. So far, the transparency register has been a so-called catch-all register only. If beneficial owners were already listed in other registers, such as the commercial register, the register of associations or the register of cooperatives, there was no need for an additional report of the beneficial owner to the transparency register, as this report was deemed to be "fictitious" (Section 20 para. 2 Money Laundering Act).

This now changed significantly: the transparency register has transformed from a catch-all register to a full register. The reporting fiction is now eliminated by the TraFinG so that from now on the beneficial owners of all legal entities must be reported to the transparency register. Thus, the registration with other registers will not be sufficient anymore. Only registered associations within the meaning of Section 21 of the German Civil Code are exempt from this obligation. The Federal Gazette publishing house (Bundesanzeiger Verlag) is carrying out the necessary registrations for them. In addition, the following should be noted:

• From now on, listed companies also have to report their beneficial owners. Additionally, when establishing business relationships with listed companies, obliged institutions and persons under the Money Laundering Act must also identify the companies’ beneficial owners.
• In the event of multiple nationality, each nationality of a beneficial owner has to be reported. Until now, it was sufficient to specify one nationality among several.
• Foreign companies must report their beneficial owners to the German transparency register not only when they directly acquire a domestic real estate property, as was previously the case, but also when shares in a company owning domestic real estate property within the meaning of Section 1 para. 3 of the German Real Estate Transfer Tax Act (Grunderwerbssteuergesetz) are being transferred to them, i.e. share deals. However, this only applies if the beneficial owners are not already reported to a transparency register of another EU Member State (Section 20 para. 1 Money Laundering Act).

Yet, reporting obligations, which were previously deemed to have been fulfilled due to the reporting fiction, do not have to me made immediately. Instead, the following transitional periods apply to companies obliged to report for the first time under the new legislation:

• for a stock corporation, European stock corporation (SE) and partnership limited by shares (KGaA): by 31 March 2022;
• for a limited liability company, cooperative (Genossenschaft), European Cooperative (Europäische Genossenschaft, SCE) and partnership (Partnerschaft): by 30 June 2022;
• for other legal entities: 31 December 2022.

Moreover, after these deadlines have expired, fine proceedings will only be initiated after a lapse of a further year at the earliest. These generous transitional periods seem appropriate and necessary given the rather drastic changes and the related additional workload for companies. Nevertheless, companies should duly prepare for the changes concerning the reporting obligations. Lastly, it should be noted that registrations with the transparency register already made must always be updated in case of a change of the beneficial owner.

Co-author: Ronja Hoffmann