I. The term “beneficial owner”

The introduction of an electronic transparency register is a central tool for enhancing transparency in business transactions in order to reduce in particular “corporate structures which lack transparency” – as stated in the official justification for the new money-laundering act which came into effect on 26 June 2017. Therefore, particular information about the “beneficial owner” of legal entities under private law (e.g. GmbH) and registered partnerships (e.g. GmbH & Co. KG, so-called corporate entities) as well as trusts and legal arrangements similar to trusts (so-called legal arrangements) is entered into the register and made available to certain third parties.
The legal basis of the transparency register is the GWG by which the 4th EU Anti-Money Laundering Directive has been implemented into German law. The aim of the GWG is to effectively fight against corruption and money laundering as well as to create more transparency in business transactions. The beneficial owner of legal persons and other entities which are not listed on a regulated market according to the German Securities Trading Act (WpHG) is defined in the new GwG as “any natural person who directly or indirectly holds 1. more than 25 % of the capital shares, 2. controls more than 25 % of the voting rights or 3. exercises control in a comparable manner.” In summary the new GWG is based on the interpretation of corporate law regarding controlling influence.
Regarding foundations with legal capacity and legal arrangements by which assets are held in trust, managed, distributed or the management or distribution is commissioned by third parties, or similar legal arrangements, the beneficial owner includes, inter alia, “1. any natural person who acts as trustor or trustee […], 2. any natural person who is board member of the foundation, 3. any natural person who is appointed as beneficiary, 4. […] and 5. any natural person who directly or indirectly has controlling influence on the asset management or profit distribution in any other manner”.

II. Information about the beneficial owner in the transparency register

The information in the transparency register about the beneficial owner have to include:

• first name and surname
• date of birth
• place of residence
• nature and scope of economic interest.

The information about nature and scope of economic interest shall indicate the basis from which the position as a beneficial owner results.
Regarding legal entities under private law and registered partnerships the position as beneficial owner results from:

• the participation in the entity, in particular, the amount of capital shares or voting rights,
• exercising control in any other manner, in particular due to agreements between a third party and a shareholder or between several shareholders or due to authority granted to a third party to appoint legal representatives or other executive bodies or from
• acting as a legal representative, managing shareholder or partner.

In the case of legal arrangements (trusts and legal arrangements similar to trusts) and foundations with legal capacity the position of the beneficial owner results from acting as a trustor, trustee, board member of a foundation or beneficiary of this shaping of law or incorporated foundation.

III. Transparency and reporting obligations towards the transparency register

The obligation to report to the transparency register primarily concerns the legal representatives of legal entities and registered partnerships. The transparency obligation also concerns trustees of trusts and trustees of certain legal arrangements similar to trusts based in Germany.
These obliged persons have to gather the above-mentioned information about the beneficial owners (usually from their shareholders), to store them, to keep them up to date and to disclose them to the transparency register without undue delay. The first-time notifications to the transparency register have to be made by 1 October 2017. Any amendments made later on also have to be disclosed without undue delay.

IV. Subsidiarity of the transparency register

The obligation to report to the transparency register is deemed to be fulfilled if all information required about the beneficial owner becomes apparent from other electronic public registers. The GwG-E explicitly names the commercial register, the partnership register, the register of cooperatives, the register of associations and the companies register. With regard to companies noted on an organized stock market within the meaning of the WpHG the obligation to report to the transparency register is always deemed to be fulfilled.
The new transparency register has merely the purpose of a collective register which only contains information if this information is not already contained in the above-mentioned publicly accessible registers. The idea is to “link” the transparency register and the registers already existing in order to ensure a connection between the registers and in this way avoid double reporting and reduce the administrative burden for legal entities affected. The official justification cites the following example: “If it already becomes apparent from the list of shareholders of a limited company submitted to the commercial register that it has three natural persons as shareholders with each holding more than 25% of the company’s shares, no further actions by the parties affected by the obligation to report are required. However, an obligation to report was given if there is a trustor behind the shareholder, who would not become apparent by the publicly accessible registers, which means that the shareholder has to disclose the trustor”. The official justification also states “If the legal representatives are not sure if their obligation to report is fulfilled or not, they may report information to the transparency register about their beneficial owner(s) – over-fulfilment will not have a detrimental effect.”

V. Access to the transparency register

Contrary to the original plans by some political circles, there is no free unlimited access “for anybody” to the new transparency register. Instead, the transparency register is only accessible for particular authorities (if and to the extent required for their statutory tasks), any obliged party due to the German Money Laundering Act (in order to fulfill their statutory due diligence obligation) as well as “anybody who can state to the body keeping the register that he has reasonable interest in the access”. According to the official justification for the GwG-E, any other person asking for access has to state “reasonable interest justified by the circumstances” in line with the term “legitimate interest” used in § 12 of the German Land Register Law (GBO). According to the official justification a legitimate interest is given if “comprehensible reference is made to the prevention of and fight against money laundering and related previous crimes such as corruption and terrorist funding”. According to the official justification for the new GwG “specialized journalists” and “NGOs” are explicitly considered persons with potentially legitimate interest. Any access requires a previous online-registration and is charged with a fee.

VI. Enforcement and Legal Consequences

In order to effectively implement the directives of the new law, infringements will be penalized in a stronger manner. Non-compliance with disclosing obligations to the transparency register will be fined. There will be a three-level system for fines: level one is the current upper fine limit in the amount of EUR 100,000.00. Level two is a significantly increased fine level for serious, repeated and systematic violations, that is, twice the amount of the economic benefit gained by the infringement or a maximum of EUR 1,000,000.00. On the third level fines in the amount of a maximum of EUR 5,000,000.00 or 10 % of the turnover may be imposed on particular parties obliged to report (especially credit and financial institutions). Besides, the parties affected will be publicly “shamed”. The supervisory authorities will publish future final measures and non-appealable decisions on their homepage after informing the addressee. The publication has to remain on the website of the supervisory authority for five years.