I. Transparency and Finance Information Act (Transparenz-Finanzinformationsgesetz)

The Transparency and Financial Information Act (Transparenz-Finanzinformationsgesetz – TraFinG), which came into force on 1 August 2021, represents a further amendment to the Money Laundering Act (Geldwäschegesetz) AML) by the German legislator within a very short period of time following the last law reform at the end of 2019. The TraFinG is intended to increase the practical and digital usability of the transparency register and to create the data-side prerequisite for the connection of all European transparency registers.

II. Transparency register becomes comprehensive register

Until August 2021 the German transparency register was designed as a mere “backup register” (Auffangregister) containing a notification fiction (Mitteilungsfiktion) from which associations subject to the registration (hereinafter “Reportable Entities”) benefited if the relevant information on their beneficial owners was already available from other publicly accessible registers, in particular the commercial register. If the notification fiction applied, reporting obligations to the transparency register were not triggered and no data had to be transmitted to the transparency register. Under the law reform this notification fiction was deleted without replacement. The key element for achieving the purpose of the TraFinG is the transformation of the transparency register into a comprehensive register (Vollregister).
Since August 2021, every Reportable Entity, in particular every legal entity and every registered partnership, has to (initially) report and continuously update information on its beneficial owners to the transparency register. A beneficial owner is every natural person who holds more than 25 percent of the capital stock, controls more than 25 percent of the voting rights or exercises control in a comparable manner. If no (actual) beneficial owner can be identified, the legal representatives or the managing partner must be reported as (fictitious) beneficial owner.
According to the explanatory memorandum, the transition from a backup register to a comprehensive register is expected to result in an increase of approximately 2.3 million Reportable Entities. For companies, which become subject to reporting requirements for the first time due to the discontinuation of the notification fiction, the law provides for transitional periods (Übergangsfristen), depending on the form of organization, within which Reportable Entities have to report the first and last names, date of birth, place of residence, type and scope of the economic interest as well as all nationalities of their beneficial owners to the transparency register. The TraFinG also provides for so-called suspension periods (Aussetzungsfristen) depending on the respective form of organization, within which a breach of the reporting obligations is not yet subject to a fine. Reportable Entities that benefited from the notification fiction until the TraFinG came into force therefore do not have to expect a fine for breaches of their transparency obligations until the relevant suspension period has expired.
The following list provides an overview of the applicable transition and suspension periods:

• Joint-stock corporations (Aktiengesellschaften), Limited joint-stock partnerships (Kommanditgesellschaften auf Aktien), European public limited-liability (European Company) (Europäische Aktiengesellschaft):
  Transition period: 31 March 2022
  Suspension period: 31 March 2023
• Limited liability companies (Gesellschaften mit beschränkter Haftung), Partnerships, Cooperatives (Genossenschaften), European cooperatives (Europäische Genossenschaften)
  Transition period: 30 June 2022
  Suspension period: 30 June 2023
• Other legal forms (especially registered partnerships (eingetragene Personengesellschaften) and foundations (Stiftungen)):
  Transition period: 31 December 2022
  Suspension period: 31 December 2023

The transition and suspension periods do not apply to companies newly formed on or after 1 August 2021, to companies for which registration was already mandatory prior to the statutory amendments, and not in cases where registration is expressly required. The latter applies, for example, to companies wishing to take advantage of a Covid-19 economic relief (Corona-Hilfen) (interim aid (Überbrückungshilfen)).

III. Consequences for the practice under corporate law

For all Reportable Entities that were able to benefit from the notification fiction until the end of July 2021, it is now important to use the transition periods to (initially) report and update the information of their beneficial owners. They are also advised to make compliance with transparency obligations a standard compliance task and to set up suitable processes to identify any potential need for updates whenever there is a direct or indirect change in the ownership and control structures within the company or group of companies.
For investors and (potential) acquirers of companies the verification of compliance with transparency obligations by the target company/companies should be an integral part of every due diligence.
By restructuring the transparency register, the legislator is centralizing the examination burden with regard to the beneficial owners with the Reportable Entities. On the other hand, it is intended to reduce the – in some cases considerable – efforts that those obliged under AML (hereinafter “AML Obligors”) have to undertake in fulfilling their customer due diligence obligations (KYC process) by verifying the data they have collected on Reportable Entities. From now on, AML Obligors have already fulfilled their verification obligation if they obtain an extract of the data accessible in the transparency register and compare the data they have collected to the information provided by the extract. If the data they have collected matches the information on the beneficial owners in the transparency register and there are no other indications to the contrary, AML Obligors may rely on the information in the transparency register and do not have to take any further measures to verify the identity of the beneficial owners.

IV. Outlook

In the future, all adressees of the AML will have to prepare for further changes to their obligations under the Money Laundering Act. Even before the (German) TraFinG came into force, the European Commission presented extensive proposals for regulations and directives at the end of July 2021 to further standardize the fight against money laundering and terrorist financing in Europe. These include the creation of a separate European supervisory authority, further regulations on the structure of the transparency registers of the EU member states and the introduction of a uniform Europe-wide cash limit of EUR 10,000. It remains to be seen in what form the EU Commission’s plans will become (inter)national law.