Economic sanctions play an increasingly important role in European foreign policy and the pressure for effective enforcement mechanisms is growing. Against this backdrop, the German parliament recently passed the so-called Sanctions Enforcement Act II. In addition to creating a dedicated law for sanctions enforcement, the act also includes amendments to several other laws, in particular the German anti-money laundering (AML) law. Through these amendments, the Transparency Register (Transparenzregister), the scope of which has lately been expanded significantly (see blog post of 10 March 2021), is to undergo further modifications which may affect your company.
Background
The Transparency Register was created to collect more information on companies’ ultimate beneficial owners (UBOs) in order to disclose money laundering risks. UBOs are all natural persons who, directly or indirectly, hold more than 25 per cent of the capital stock, control more than 25 per cent of the voting rights or control companies in a comparable manner. If no such person can be identified – either because there is no such individual or because even after conducting extensive research the reporting entity cannot verify the existence of such an individual – the legal representative or the managing partner is considered to be the UBO (fictitious UBO).
What changes are in the pipeline?
The relevant changes to the transparency register concern the reporting of UBOs as well as the listing of real estate.
Additional Information regarding the fictitious UBO
First, when reporting a fictitious UBO to the transparency register, companies will be required to provide further details on the reasons to report the fictious UBO. Going forward, reporting companies will have to indicate whether no individual fulfils the requirements to be regarded as direct or indirect UBO or no such person can be identified due to a lack of information. This new requirement has been introduced against the backdrop that the latter poses a higher risk for money laundering. The additional information shall put financial institutions in a position to take a risk-adequate approach to the unknown UBO situation. For companies already entered in the transparency register, the change does not include any additional obligations. The amendment does not apply to past filings. For new reports, the obligation to provide this additional information applies from 1 January 2023.
Listing of real estate
General
Going forward, excerpts from the transparency register will not only include the company’s UBOs, but also any real estate which the company owns or has owned. This provision is introduced against the backdrop that searches in land registers (Grundbücher) regularly lead to dead ends as company related changes (e.g. change of name, mergers, acquisitions etc.) are often not reported to the land registry offices. However, the amendment does not trigger to report any additional information to the Transparency Register. Instead, the recording of this information and allocation to the respective companies is carried out by the Bundesverwaltungsamt (the office keeping the register). The integration of the additional information is to be completed by 31 July 2023.
Reporting obligation for foreign companies that own a property
Need for action arises, however, from the new obligation of foreign companies to report themselves to the transparency register, if they already hold property in Germany. Before, foreign companies were only obliged to report to the German Transparency Register when acquiring property in Germany (either through an asset or share deal). The newly introduced amendment extends this obligation to existing property and is introduced inter alia based on the government’s realization that only few real estate holding companies are registered in the Transparency Register (in Berlin less than 30 per cent). However, foreign associations which are already registered in a transparency register of another state of the European Union are exempt from this obligation. Affected companies will have to register until 31 June 2023.
What to do?
Against the backdrop of the above-mentioned changes, companies should pay attention to the following aspects:
In case a company reports a fictious UBO, more background information is to be provided. This is relevant for newly established companies and, from 2024, also for all civil-law associations (GbRs) that register in the new company register.
Foreign companies not registered in the transparency register of another EU state will be required to report to the German transparency register if they hold property in Germany.
In the future, broader organisational changes could also be made within the administration. Up to now, money laundering oversight has been the responsibility of the states, meaning more than 300 authorities work in parallel nationwide. For this reason, the Federal Minister of Finance, Christian Lindner, has brought up the creation of a centralised Higher Federal Authority for Combating Financial Crime (see blog post of 11 October 2022). The resolution attached to the Sanctions Enforcement Act II now reaffirms this intention and calls on the Federal Ministry of Finance to prepare the legal basis for this authority by the end of 2023 with the aim of starting the establishment in 2024. We will keep you informed about further changes here.
