This article discusses the following topics:
- What will change under the E-TraFinG Gw?
- Impact of the E-TraFinG Gw for Companies in Germany
- Recommended course of action
The transparency register will be transformed into a full register.
Repeal of the notification fiction
1. What will change under the E-TraFinG Gw?
On February 10, 2021, the German government passed a draft law amending the German Money Laundering Act (Transparency Register and Financial Information Act Money Laundering – E-TraFinG Gw), which would result in some significant changes to the German Money Laundering Act (GwG). As part of the larger changes, the legal framework regarding the transparency register would be fundamentally altered. The German government intends to transform the transparency register into an independent and comprehensive register (full register) within 2021. In future, all German companies subject to transparency requirements will be obliged to report information on their beneficial owners to the transparency register.
De lege lata, the transparency register is organized as a catch-all register. If all required information on the beneficial owners can be retrieved from another public register (e.g. commercial register), companies do not have to provide information regarding their beneficial owners to the transparency register for registration. With the planned amendments under the TraFinG Gw, this notification fiction is to be repealed without replacement.
Furthermore, the draft law plans to abolish the current privileged status for publicly listed entities. Publicly listed entities, which are currently exempt from the obligation to register information on their beneficial owners, would in the future – just like any other German company – be required to register their beneficial owners with the transparency register. The same would apply to subsidiaries of listed entities.
2. Impact of the E-TraFinG Gw for Companies in Germany
Repealing the notification fictions will primarily affect companies subject to transparency requirements that at the moment could still rely on a notification fiction under the current regulatory framework. In the future, every German company (with the exception of civil law associations (GbR)) will be required to register its beneficial owners with the transparency register. The same would then also apply to certain foreign companies which directly or indirectly acquire ownership of real estate in Germany (for instance, by acquiring GmbH-shares in the context of Share Deals).
Furthermore, companies will also be required to in the future report all nationalities of their beneficial owners to the transparency register; de lege lata it is still sufficient to report only one nationality. However, pursuant to the latest draft, no immediate subsequent reporting would be required. Rather, the full set of nationalities would only have to be reported once the respective companies update the information on their beneficial owners on a regular basis anyways.
The German government intends to have the TraFinG Gw enter into force by August 1, 2021 already. As of that date, companies could in general no longer rely on one of the notification fictions, but would be obliged to register information on their beneficial owners with the transparency register. However, the draft law contains certain transitional periods in case of first-time notifications: Companies in the form of a stock corporations (AG, SE) or partnerships by shares (KGaA) must comply with the notification requirement by March 31, 2022; limited liabilities companies (GmbH), registered cooperatives (Genossenschaften), European cooperatives or partnerships by June 30, 2022; and companies in all other forms by December 31, 2022.
The transition from the current catch all to the described full register will also result in a duplication of registration requirements and consequently a duplication of register management. After all, repealing the notification fictions implies that in the future any change of beneficial owners (including the so-called fictitious beneficial owners) of a company subject to transparency obligations must be notified not only to the respective subject register (e.g. commercial register), but also to the transparency register.
3. Recommended course of action
All German companies should consider the latest regulatory developments with regard to the transparency register as an opportunity to review their documentation on beneficial owners to ensure that it is up to date. Should the notification fictions in fact be abolished, companies that are currently exempt from registering their beneficial owners with the transparency register, will in the future have to make such a registration. These companies should primarily ensure that a notification fiction actually applies in their favor at the moment. Only if this is the case by the time the TraFinG Gw enters into force at the beginning of August 2021, the transitional periods for initial notification would apply to these companies – otherwise, an immediate notification to the transparency register must be initiated. Failure to notify or incomplete information on beneficial owners can be penalized with substantial fines.