German legislator intensifies transparency measures against money laundering

Speedread:

• The German Bundestag passed the Act on Transparency Register and Financial Information to enforce AML activities and comply with the European AML networking requirements
• The German Transparency Register (Transparenzregister) becomes a so-called full register
• AML-Obligated Entities must be aware of notification requirements and transition periods to avoid administrative penalty fees

In one of its final parliamentary sessions of this year and before the upcoming federal elections in September 2021 the German Bundestag passed the Act on Transparency Register and Financial Information (Transparenzregister- und Finanzinformationsgesetz) at the beginning of June.

The Act had has been fabricated to implement the European Directives (EU) 2015/839 and (EU) 2019/1153 and to support the European as well as the German strategies to reinforce the prevention of and fight against money laundering and terrorist financing. The primary goal is to increase transparency about legal entities and their Beneficial Owners, in particular in the context of real estate transactions which - according to the German legislator - are considered to be highly attractive to criminals recently.

The most significant novelty of the Act is the reconfiguration of the German Transparency Register (Transparenzregister), which is based in Section 18 of the German Money Laundering Act (Geldwäschegesetz, "GwG"). This register will now become a so called full register. This means that through the cancellation of the formerly possible and valid fiction of notification it is expected to especially increase plausibility and authenticity of the transparency register.

Hitherto it was only necessary to register with one (different) register (e.g. the Commercial Register) and the (orderly) registration entry there was deemed to be sufficient for the transparency register as well. Although already being legally required to do so, Obligated Entities within the scope of the GwG (cf. Section 2) were exempted from an additional notification to the transparency register by way of legal fiction. This fiction is no longer existent and this procedure therewith no longer possible. As a consequence all Obligated Entities subject to the GwG are required to identify their Beneficial Owners and notify this information to the transparency register separately in the future.

To avoid excessive demands and to prevent from precipitance with the new notification regime Section 59 of the GwG will contain several cases of a transition period. This easement will allow all relevant Obligated Entities to implement new and proper notification procedures and to modify internal processes without taking a rush. The notification obligation must be fulfilled by:

All other Entities comprises literally all legal persons the German Civil Law knows, including registered commercial partnerships, cf. Section 20 (1) of the GwG.

The result of this modification is that the entities will be fully responsible for both (a) their data and (b) the notification of their data to be always correct and up to date in every single/individual case.

If an entity fails to comply with its notification obligation pursuant to Section 20 of the GwG, this is punishable by administrative fine of up to EUR 150.000. If this obligation is breached repeatedly or systematically the fine can rise up to EUR 1 million or the double of the economic advantage gained, whichever is higher. However prior to the above mentioned dates these fines do not apply if an entity is currently relying on the legal fiction.

In addition to this burdensome implementation of a supplemental notification requirement for entities which are obligated subject to the GwG, the new Act entitles and obliges the German Authorities to participate in the interconnected data interchange of Europol. Thus not only German law enforcement authorities and prosecutors will have access to the relevant data but European institutions and authorities also.

The legislator expects from this increase in transparency and connectivity to strengthen the fight against money laundering not only in Germany but throughout the entire European Union. Time will tell.

Authors: Dr. Detmar Loff, Partner; Dr. Tobias Bauerfeind, Associate; Ilka Breuer, Senior Associate; and Dr. Cornelius Hille, Associate