TraFinG Act Results in Major Changes to Transparency Register Legislation with Effect from 01 August 2021

By Wolfgang Paul, nbs partners

On 25 June 2021, the German Bundestag adopted the Transparenzregister und Finanzinformationsgesetz (TraFinG, transparency register and financial information act). The Act represents the implementation of Directive (EU) 2019/1153 of the European Parliament and of the Council of 20 June 2019.

The purpose of the Act consists, in particular, in facilitating the linking up of European transparency registers, in order to combat money laundering and terrorist financing more effectively than to date. In addition to the link-up function, the Act entails major legal obligations and burdens for all legal entities and registered partnerships in Germany. Furthermore, it affects trust managers as well as trustees of unincorporated for-profit entities based in Germany and the relevant legal structures.

In future, they all have a duty to notify the transparency register of the information on their ultimate beneficial owners indicated in Section 19 (1).

In addition to electronic registration with the transparency register, this requires – especially in the case of complex company and participation structures – to some extent, positively profound knowledge of what the Act defines as an ultimate beneficial owner pursuant to Section 3 GWG (German Money Laundering Act). This applies specifically to participations abroad and/or chain-based participations (Kettenbeteiligungen), trusts, usufruct structures (Nießbrauchkonstruktionen), subparticipations and shareholders’ agreements that comprise, for example, voting agreements or profit transfer agreements etc.

The material effect of the Act is the complete removal of the presumption of notification (Mitteilungsfiktion), which to date was regulated by Section 20 (2) GWG.

To date, it protected the most common types of companies in Germany, namely the GmbH (limited liability company) and GmbH & Co. KG (limited partnership with GmbH as general partner). With regard to the GmbH, the list of shareholders that can be accessed via the commercial register often meant that the ultimate beneficial owner was evident from it and the transparency register did not therefore need to be notified specifically. With regard to the GmbH & Co. KG, this similarly applied, given the favourable view of the German Federal Offce of Administration. All of this changed on 01 August 2021. Every company in Germany (with the exception of unincorporated companies, such as partnerships under the German Civil Code, GbR) must expressly notify the transparency register of its ultimate beneficial owner. This applies, irrespective of whether the ultimate beneficial owner or an intermediate company is located in Germany, in the EU or in a third country outside the EU. Accordingly, foreign investors and partners/shareholders will be evident from the transparency register in future, provided they meet the definition of ultimate beneficial owner under domestic anti-money laundering regulations. It should be noted that – as per the Act – all members of the public rather than only certain authorities and sector-specific companies, such as banks, have the right to inspect the transparency register.

The relatively generous transitional periods, which differ depending on the form of the company, are only of limited help.

In accordance with the Act, the duty to notify the transparency register, for example, is not required until 30 June 2022 for a GmbH and not until 31 December 2022 for a KG (limited partnership). The seemingly more or less generous time frame arising from these rules is deceptive and may result in inconvenient problems. In fact, notification of the ultimate beneficial owner to the transparency register will need to take place significantly sooner in many cases. This is because every company which, for example, enters into a relationship with a bank (opening of an account), which wishes to have a plot of land recorded in an offcial document by a notary, which establishes a client relationship with a tax adviser, accountant/financial auditor or – in many cases also – with a lawyer, or which instructs an estate agent with a property transaction, pursuant to Section 12 (3) Clause 2 GWG, must present an extract from the transparency register and/ or transparency register certificate to the other party to the agreement when the business relationship is established. For this purpose, however, the company must be entered in the transparency register. This already applies before the above-mentioned transitional periods expire and affects every business relationship with a party subject to anti-money laundering duties pursuant to Section 2 (1) GWG if it has an obligation to carry out identity checks as part of its due diligence. In addition to the above-mentioned, this may include other companies from the financial sector, e.g. investment companies, certain insurance companies, payment services providers as well as companies from the non-financial sector, such as high value goods dealers, art dealers and fine art storage facilities.

Consequence: Notaries will refuse certification from 01 August 2021 onwards if no extract from the transparency register is available regarding the parties to the certification procedure. Banks will not open accounts without the relevant extracts from the transparency register.

Conclusion: It can be stated that, in future, law formation will hardly be possible where the persons behind a company or transaction, i.e. the ultimate beneficial owners, do not need to be disclosed.

Wolfgang Paul

GGI member firm
nbs partners
Auditing and Accounting, Tax, Law Firm Services
Hamburg, Germany
T: +49 40 44 19 60 12
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W: bs-partners.de

Published: GGI Insider, No. 115, September 2021 l Photo: engel.ac - stock.adobe.com