Implementation of the fifth money laundering directive in Germany: increased penalty in the course of the transparency register

By Dr. Michael Juenemann, Johannes Wirtz, Timo Foerster

01-2020

At the beginning of the year, the Fifth Money Laundering Directive (“AMLD5”) was implemented in Germany. Thereby, the German Money Laundering Act was subjected to an extensive reform, in regards to penalty infringements within the scope of the Transparency Register.

Important modification of the obligation to report and fines

With regard to the Transparency Register, modifications were made due to the legislative changes. These modifications need to be observed by German companies. These changes are flanked by the extensions of the area of application of the fine regulation under Section 56 of the Money Laundering Act (Geldwäschegesetz – GwG (“AMLA”)).

The reformed AMLA modifies various definitions of terms and partially adopts new fields in scopes of application. An article about the Act on the Implementation of the 5th EU Money Laundering Directive can be found here.

The following article focuses on the changes in regard to the Transparency Register as well as their related fines (which are highly relevant to credit institutions, financial services or payment institutions, as well as; financial companies, insurance companies, insurance intermediaries and, capital management companies).

Nationality of the beneficial owners

Certain details pertaining beneficial owners have to be reported by corporations and (registered) partnerships to the Transparency Register. These include; the name, month and year of birth, country of residence and, the nature and extent of the beneficial interests of the beneficial owners. The nationality of the beneficial owners is now reportable and accessible. If the reportable facts happen to be accessible from another electronical register (such as the commercial register, company register, etc.) then companies are no longer obligated to report these facts. The nationality does not have to be reported individually if the remaining information on the beneficial owners can be obtained from the other relevant registers.

It cannot be inferred directly from the AMLA whether there is an obligation to add citizenship for those companies which already have reported their beneficial owners to the Transparency Register before the reform of the AMLA, In regard to this subject, the Federal Administrative Office, who is responsible for imposing fines under the AMLA, reacted by updating its Q&A's on the Transparency Register earlier this year. The Federal Administrative Office states that it “waives a separate subsequent registration for the beneficial owners who have entered in the Transparency Register by the end of 2019 […]”. However, if the registration in the Transparency Register has to be changed for any other reason, the information of the nationality of the beneficial owners has to be reported.

The requirement to report the nationality of the beneficial owners raises further questions; The Federal Office of Administration has stated that even if the beneficial owners have several nationalities ('double citizenship'), only one nationality must be reported.

Furthermore, it is punishable by a fine if a company (at least recklessly) fails to make the relevant reports to the Transparency Register.

Obligations to cooperate of the beneficial owners

The scope of the obligations to cooperate is being corrected by a new amendment to the law. From now on, the beneficial owner (not only shareholders who are beneficial owners- as it was the case under the previous legislation) must immediately notify the respective company about the necessary information and modifications, which have to be entered in the Transparency Register.

If the reportable company has not received any information, the company is obligated to investigate this concern with the shareholders. If such an inquiry has taken place, then once again the shareholders are now obligated to answer the request for information towards the reportable companies. Additionally, the reportable companies shall document the request for information.

These obligations are supported by the fact that an omission (at least recklessly) is considered an administrative offence and can be prosecuted by a fine.

Obligation to register Trustees with (residential) domicile outside the EU

An additional feature is the obligation to report for administrators of Trusts (Trustees) who have their seat (or residence) outside of the European Union and who establish a business relationship for the Trust with a contracting party in Germany or who undertake to acquire ownership of a real property in Germany. In regard to the managed Trust, they must identify and report the beneficial owners. A simplification in respect to the obligation to report has been made for non-EU Trustees, who establish a business relationship or, acquire a real property in Germany, who either also reside in another EU member state or maintain a business relationship to a contract partner in such a member state. In order to avoid double reporting, it is sufficient, if the non-EU Trustee has registered in at least one EU member state.

Fines may be imposed, if the Trustees have not obtained the required information of the beneficial owners, fail to fully store this information, fail to keep it up to date or do not inform the registry administrator in time or at all.

Financial penalty for non-compliance

Infringements in regards to the reportable information are still considered as administrative offences. This also applies to the newly added obligations in respect to the Transparency Register and can even be punished with a financial penalty.

If the electronic notification for the Transparency Register takes place without the required authorisation of the party, it can result in a fine. This also applies if incorrect information has not been corrected.

Following the rules in connection with the new and extended rules on fines is especially important for credit institutions, financial services, payment institutions, other financial undertakings, insurance undertakings, insurance intermediaries and investment fund managers. For these, the AMLA sets the fine for serious, repeated or systematic infringements at a maximum of EUR 5,000,000 instead of the EUR 1,000,000 which is relevant for other obligated parties. Therefore, the maximum limit is five times higher than with the other obligators.

Conclusion

Not only have new notification obligations been added by the reform of the AMLA, but also more importantly in this respect, the scope of offences has been extended - this increases the risk of a violation of the regulations. In the future, the Federal Administrative Office is more likely to apply stricter assessment standards due to increased media presence. This is especially important for credit institutions, financial services or payment institutions as well as other financial companies, insurance companies, insurance intermediaries and investment fund managers, as these are threatened with a fine which is five times higher than the one imposed on the other obligated parties. Therefore, special care and attention is required for this group.

Germany implemented the Fifth Money Laundering Directive (also known as the "Amending Directive to the Fourth EU Money Laundering Directive" - Directive (EU) 2018/843) on 1 January 2020.