As already previously reported here, the German lawmaker was very active during the last weeks of the past legislative period – especially in the area of compliance / prevention of white collar crime. The reform of the German Money Laundering Act, including the introduction of a Transparency Register, hereby occupies a prominent position.
Due to the reduction of the upper limit for cash transactions (previously Euro 15,000), as well as the introduction of extensive analysis, documentation and reporting duties, which are generally not dependent on the size of the company, the effects for SMEs are still underestimated.
On June 26, 2017, the amendment to the Money Laundering Act (Geldwäschegesetz, GWG) entered into force, implementing the Fourth EU Money Laundering Directive (in due time) into German law and also introducing the Transparency Register.
The amended Money Laundering Act
The revision of the GWG goes hand in hand with a tightening of the previous requirements of German money laundering law, in particular with regard to fines. The aim of the GWG is to combat the criminological phenomenon of money laundering beyond the existing criminal law. The reform – especially after the terrorist attacks in Paris – also aims to dry up the financial resources of (international) terrorism.
Money laundering, according to the common definition, exists when the actual source of illicit revenue is intentionally concealed. The group of addressees (in the wording of the law called “obliged entity”, “Verpflichtete“) are subject to certain due diligence requirements when accepting funds. In addition to the “usual suspects”, such as banks, financial service providers and insurance companies, ” other persons trading in goods” are also regarded as “obliged entities” within the GWG. Goods traders within the meaning of the law are any entities which sell goods commercially, regardless on whose behalf or account it trades (§ 1 (9) GWG). These include e.g. also electricity and water suppliers (see here). Especially for this group of obliged entities it is important that the reform lowered the upper limit for cash transactions from previously Euro 15,000 to Euro 10,000. If this threshold (in a transaction) is exceeded, obliged entities must comply with the due diligence requirements imposed by the GWG.
The previous essential obligations – general due diligence, documentation and reporting obligations – are now complemented by the obligation to maintain a risk management system, which strengthens the so-called “risk-based approach”. As a result, obliged entities must carry out regular risk analyzes of the partners in their transaction relationships – and document them.
Finally, the amendment significantly enlarges the possibilities for sanction against the obliged entities. In the future, fines of up to one million euros, up to ten per cent of the obligor’s annual turnover or up to twice the economic advantage resulting from the infringement respectively, are possible for a transgression of the law. In addition, the persons concerned and the type of infringement committed by them may be made public. Especially the fines related to turnover or “economic advantage” could easily become life-threating for the affected companies.
The Transparency Register
An integral part of the previously discussed Money Laundering Act is the introduction of a central transparency register, which is already online since 1 October 2017. The Transparency Register aims to oversee the ownership and control structures of the registered associations in order to prevent the misuse of these structures for money laundering and terrorist financing.
To this aim the register collects information on natural persons directly or indirectly holding more than 25 per cent of the capital or voting shares in domestic entities (with the exception of the Civil Partnership (Gesellschaft bürgerlichen Rechts, GbR) or exercising similar control. The management of the respective entity concerned must furnish the relevant information, provided the relevant information about the beneficial owner is not already (completely) available in from public, electronically retrievable registers. For companies traded on a stock exchange these duties are assumed to be fulfilled already, with the publicity obligations associated with the listing , but the official Public Share Register (Aktienregister) itself is not considered to be such a compulsory register.
Although the details of the Transparency Register will be available for inspection for the first time on 27 December 2017, they will not be accessible to anyone. In principle, only authorities, obliged entities and persons with a legitimate interest have the right to inspect the register.
A breach of the duties enshrined in the MLA is considered an administrative offense and can be punished by a fine of up to € 100,000 or, in the case of serious, repeated or systematic violations, up to € 1,000,000.
Evaluation of the reforms
At present, Germany is (unfortunately) “leading” in terms of financial intransparency (see here for the so-called “Financial Secrecy Index”, where Germany occupies the 8th place), partly Germany therefore is called an “Eldorado for Money launderer “(see here, in German).
However, it is questionable whether the regulations that have now been introduced to reform the GWG and the Transparency Register will significantly change this situation. The new regulations put extensive new obligations on the respective companies that can only be met systematically in an integrated compliance management system. However, these cost-intensive measures are unlikely to provide adequate benefits for companies. The effects of the Transparency Register are likely to be limited due to the lack of good faith associated with it, because entities obliged under the GWG are not allowed to rely on the Transparency Register as part of their duty to identify. Entities outside the EU (hence, soon Great Britain, too!) will also not be covered by the Transparency Register. Conversely, it has already been criticized that on the one hand only certain groups of people have the right to inspect, but for the beneficial owners there is no certainty as to who actually receives the information contained in the register.
Fourth EU Money Laundering Directive (in English)
Gesetz zur Umsetzung der Vierten EU-Geldwäscherichtlinie, zur Ausführung der EU-Geldtransferverordnung und zur Neuorganisation der Zentralstelle für Finanztransaktionsuntersuchungen (Geldwäschegesetz), BGBl. I 2017, 1822 (in German)
www.transparenzregister.de (in German)