Transparency register - Germany

Private equity firms, family businesses and companies whose shares are traded on the open market of stock exchanges (but many others as well) must act now. The requirements of the transparency register in Germany have been eased, but still new - and possibly unpleasant - notification obligations are expected for the summer of 2017.

The German government has presented a bill on the transposition of the Fourth EU Money Laundering Directive, on the implementation of the EU Transfer of Funds Regulation and on the reorganization of the Central Investigation Office for Financial Transactions. The bill contains the regulations on the new transparency register. Thus, the register requiring disclosure of the economic beneficiaries of many companies will actually be established. The register is planned to be established by June 2017; it is also in June that the EU transposition period will expire. Similar steps are being taken in the other Member States. Should the register not have been introduced by this summer (which is unlikely), a longer delay until 2018 would have to be expected due to the upcoming elections for the Federal Parliament (Bundestag).

It is private equity firms, family businesses or other structures in which persons hold 25% or more of the capital shares, and which have not been required or have not wished to disclose this financial state for good reasons (eg in case of trust agreements, to prevent the state of ownership from becoming public directly in the market or even on its periphery), that will then be subject to a notification obligation. In the end, companies listed on the regulated market should not be affected; yet, the present bill is still a little unclear on this issue.

Now is the time to check your structures for possible notification obligations. Please find a short overview of the new obligations below.

1. What is the transparency register?

A register to collect data on the economic beneficiary and make such data available.

2. Who is the beneficiary?

The natural person who ultimately owns or controls a company.

In case of legal persons (other than foundations with legal capacity) and other companies that are not listed at an organized market and that thus are not subject to related transparency requirements concerning voting rights, economic beneficiary means each natural person who directly or indirectly (1) holds more than 25% of the capital shares, (2) controls more than 25% of the voting rights or (3) exercises control over the company in a comparable way.

Indirect control is exercised in particular when such shares or voting rights are held by one or more companies that are controlled by a natural person. Such control exists if the natural person can directly or indirectly exert controlling influence on the company.

If after a comprehensive review no natural person could be determined as economic beneficiary, the legal representative or managing partner of the company is considered to be the economic beneficiary; the obligation for notification to the transparency register might be deemed fulfilled in this case due to existing entries in other registers which identify the legal representative or managing partner (please compare number 6 below).

3. Data on the economic beneficiary

First and last name; date of birth; place of residence, and nature and extent of the economic interest, including information on what the state of economic beneficiary is owed to.

In case of legal persons governed by private law and registered partnerships other than foundations with legal capacity, the economic interest results from the holding in the association itself, in particular the volume of the capital shares or power of the voting rights; if control is exercised in any other way, through an agreement between a third party and a shareholder or between several shareholders, due to the power to appoint legal representatives or other executive body members being granted to a third party, the economic interest is rooted in this relationship.

4. Who will keep the register?

The transparency register will be kept by electronic means as an official duty of the federal government by a body still to be determined. Details on this will be clarified by statutory regulation.

5. Persons obligated to provide a notification to the transparency register

It is in particular all legal persons governed by private law and all registered partnerships themselves, ie ultimately their managing directors, but also certain other legal entities that will be obligated to provide a notification to the register.

It is shareholders that are economic beneficiaries or that are directly controlled by the beneficiary that will be obligated to notify the company. These shareholders must provide the company with any data required to fulfill the notification obligations and with any changes to this data without delay. If persons obligated to provide information within the meaning of this bill are indirectly controlled by an economic beneficiary, it is the beneficiary who will be subject to the notification obligation.

6. What does notify mean?

The companies, ie their managing directors, must collect, retain, and update the data on the economic beneficiaries, and must immediately notify the body responsible for keeping the register of such data, so that it may make an entry in the transparency register.

The notification must be made electronically in a form that renders making it available by electronic means possible.
The legal persons’ and partnerships’ obligation to provide a notification to the transparency register will be deemed fulfilled if the data on the economic beneficiary can already be derived from existing entries, as eg from the commercial register, the partnership register, the register of cooperatives or the company register. Up to this point it is not clear, whether the economic beneficiary has to be derived from an existing entry for the obligated legal person or partnership or if in a group structure it might be sufficient that the economic beneficiary can be derived indirectly from an entry for a parent company.

Separate information on the nature and extent of the holding will not be necessary if other documents and entries yield what the state of economic beneficiary is owed to. These documents and entries include eg disclosures due to voting rights notifications under stock corporation or capital market laws. However, in this regard, the requirements of the transparency register and of the Capital Market law are not yet entirely congruent.

7. Access to the register

Certain authorities, eg relevant supervisory authorities, the Central Investigation Office for Financial Transactions and law enforcement authorities, may access the register. Furthermore, bodies or persons described as obligated parties in this bill, under certain conditions also lawyers, may access the register if this is required so that they may discharge their duties of care defined in detail in the bill; other than that, anyone demonstrating to the body responsible for keeping the register that they have a legitimate interest in accessing the register may access the register.

If access to the register is allowed due to a legitimate interest, beside the first and last name, and the nature and extent of the economic interest, only the beneficiary’s month and year of birth, and the country of residence, may be accessed, unless all data to be published pursuant to the regulations on the transparency register can already be seen from other public registers.

Under certain conditions, the beneficiary can move to have any access to the register restricted as a whole or in part. For this, the beneficiary must have an interest that is generally worthy of protection, which is particularly the case if facts justify the assumption that access to the register would expose the beneficiary to the risk of falling victim to certain offenses.

8. Provisions on monetary fines

Offenses against the regulations on the transparency register are punished by a monetary fine (Geldbuße). Offenses may be punished by a monetary fine of up to one million euros or up to twice the economic advantage taken from the offense, if a serious, repeated or systematic offense is committed, if a company does not fulfill its afore-mentioned obligations or if a person obligated to provide information to the company does not fulfill this obligation.

9. Miscellaneous

Details, such as eg the registration process and the technical specifications of the data transfer, also between the authorities of the states and the transparency register, will be governed by regulation.

10. What do we have to offer?

• We would already check and optimize your existing structure today and would point out notification obligations to be fulfilled in the new legal situation.
• We would check the situation in other relevant EU Member States. As the directive will be implemented nationally, it cannot be excluded that, in certain countries, further notifications must be made and other groups of people may have access to data. In the end, Germany will implement the directive rather restrictively in this area.
• We would establish an internal warning system tailored to your structure in order to prevent any non-compliance in the future.
• We would advise on exceptions to protect your interests and would file notifications with the responsible body on your behalf.