The Transparency Register as a Full Register: The Abolition of the Notification Fiction Compels Action

On 1 August 2021, the new Transparency Register and Financial Information Act (Transparenzregister- und Finanzinformationsgesetz) has come into force, which has also led to far-reaching changes in the Transparency Register. From now on, all companies must enter their beneficial owners in the Transparency Register. The previous notification fiction based on entries in other registers no longer applies.

Is there a need for adjustment as a result of the change in the law?

The Transparency Register is currently designed as a “catch-all” register and is now to be transformed into a full register. According to the new legal situation, companies will no longer be able to rely on the fact that their beneficial owners can be found in other public registers (commercial, cooperative, partnership, association or company registers). Instead, the company must now actively disclose the beneficial owners to the Transparency Register. From now on, the companies themselves will be responsible for ensuring that the data is complete, correct and up-to-date.

Every company should become active in its own interest: Current practice shows that high fines are imposed even for minor violations of existing registration obligations. In individual cases, the fine can amount to up to five million euros or ten percent of the company’s total revenue. In addition, infringing companies are publicly named on the homepage of the central service agency of the Federal Government (Bundesverwaltungsamt) according to the motto “naming & shaming”.

Who is the “beneficial owner” to be reported?

In principle, the beneficial owner is any natural person who directly or indirectly holds more than 25 percent of the capital shares or voting rights of a company or exercises control over the company in question in a comparable manner. If there is no such person in the case of a company, foundation or association, the members of the board of directors or management are, in principle, so-called fictitious beneficial owners.

The Transparency Register is open to public inspection for no special reason. As before, beneficial owners have the option of submitting a request to restrict public access to the Transparency Register in order to protect their personal data. The prerequisite for the restriction is that the inspection is contrary to overriding interests of the beneficial owner that are worthy of protection. Such a case may exist if the inspection would expose the beneficial owner to the risk of becoming a victim of certain serious criminal acts.

Am I affected by the changes as a stock-listed company?

Since transparency control via the listing of a company has not proven itself in practice, the exemption option for stock-listed companies has been eliminated. Listed companies and their subsidiaries are no longer exempt from the reporting obligation and must also enter their beneficial owners in the Transparency Register.

As a foreign company, do I also fall within the scope?

Foreign companies are already subject to the obligation to report to the Transparency Register in the event of a direct acquisition of a domestic property. In addition, foreign companies are also subject to the reporting obligation if shares in a company with domestic real estate are transferred to them. The same applies to the acquisition of shares in a company with domestic real estate by foreign trustees.

What extended information will have to be provided in the future?

The catalogue has also been slightly expanded with regard to the data that must be notified. In addition to the first and last name, date of birth, place of residence, type and scope of beneficial interest, the place of birth and all nationalities of the beneficial owner must be provided.

Are there transitional periods for the additional reporting requirements?

Depending on their legal form, companies that have not yet reported data to the transparency register due to the previously existing notification fiction or the discontinuation of the reporting obligation (in the case of stock-listed companies) will be granted a transitional period to make up for the reporting:

–   Public limited companies (AG, SE and KGaA) until 31 March 2022,

–   Limited Companies (GmbH), cooperatives, European Cooperative Societies (SCE) or partnerships until 30 June 2022,

–   in all other cases, in particular foundations and general partnerships, until 31 December 2022.

The transition periods only apply to the new reporting obligations and not to reports that should already have been submitted.

What should I do now?

The renewed tightening of transparency requirements shows how seriously the fight against money laundering and terrorist financing is taken at national and EU level. The changeover to a full register means two main things for companies:

Insofar as the notification fiction previously applied, an independent notification is now necessary for an entry in the Transparency Register (taking into account the transition periods).

Clear internal responsibilities and processes must be implemented for the future, which enable (continuous) identification of the respective beneficial owners.