The transparency register: key to combating money laundering and terrorist financing

Overcoming the challenges of the transparency register

What is the Transparency Register?

The transparency register is a central electronic database, which in Germany are used to record the so-called “beneficial owner“of legal entities and legal arrangements.

A beneficial owner is a natural person who directly or indirectly exerts significant influence over the business activities of a company.

The register was created to make the ownership and control structures of companies transparent and thereby make financial crime more difficult.

Why the transparency register is crucial in the fight against money laundering

The transparency register is a result of the regulatory framework based on the fourth EU Anti-Money Laundering Directive (Directive (EU) 2015/849).

It plays a vital role in the fight against Money laundering and terrorist financing. By identifying beneficial owners, it enables authorities to scrutinize opaque corporate structures – shell companies – and to reveal the true owners and beneficiaries of economic activities. A well-known example of this is the case of... Panama Papers.

The transparency register is intended to make it more difficult for criminals to launder illicit funds into the legal financial system. It therefore represents an important component in efforts to protect the integrity of the financial system.

Is the transparency register mandatory?

Registration requirement: Who must register in the transparency register and why?

The obligation to register in the transparency register applies to a wide range of company forms, including limited liability companies (GmbHs), public limited companies (AGs), registered cooperatives, associations and registered partnerships such as general partnerships (OHGs) and limited partnerships (KGs).

Foreign companies that own or acquire real estate in Germany must also register their beneficial owners.

Registration details: What information needs to be entered?

The transparency register requires the filing of various pieces of information about the beneficial owners. This includes:

• First and Last Name
• Date of Birth
• City of residence
• Nationality
• Precise description of the economic interest (i.e., the extent of the capital shares held or voting rights)

This information is essential for transparently presenting a company's ownership structure. Regular updates of the data are necessary to ensure that the information is always accurate and complies with legal requirements.

Obligation to access and compare data: Who is entitled to access data and what constitutes a "legitimate interest"?

Access to the transparency register is only possible under certain conditions – this was the result of the ECJ judgment available for review.

Individuals or institutions that can demonstrate a "legitimate interest", such as banks or notaries, have access to the entries.

For example, a bank checks before the Opening a business accountWhether the information in the transparency register matches the customer's information. Comparing this data is particularly important to ensure that no suspicious or criminal activities are concealed. This verification is part of general due diligence obligations.

Fines: Sanctions for non-compliance with obligations

Companies that fail to comply with their obligations to register or verify data risk substantial fines.

Repeated or particularly serious violations can lead to even higher penalties and significantly damage the company's reputation. These financial consequences underscore the importance of diligent and timely compliance with legal requirements.

How good is the quality of the information in the transparency register?

Since the abolition of the notification fiction in August 2021, the number of entries in the transparency register has increased significantly. Many companies that previously relied on other registers now have to actively register their beneficial owners.

This development is generally positive. However, there is still a significant question mark regarding the quality of the entries. Several reasons suggest that the quality of the transparency register is questionable.

Identification of the beneficial owner

Identifying beneficial owners is rarely straightforward. Complex corporate structures and unclear guidelines for determining beneficial ownership mean that entries in the transparency register are not always complete or accurate.

Identifying beneficial owners can be particularly challenging for smaller companies outside the financial sector. They often lack clear structures or the necessary resources to collect and maintain the correct data.

The fictitious beneficial owner as an abbreviation?

If no beneficial owner can be identified, companies have the option of registering a fictitious beneficial owner in the transparency register. This might seem like a convenient way to fulfill the obligation as quickly as possible. However, this approach should be approached with caution; a thorough examination of whether a beneficial owner can be identified is essential beforehand.

From BT-Drs. 20/11496[1] This reveals that of the 12.815 public limited companies listed in the transparency register, 11.120 have provided information on their beneficial owners – 3.176 of which are "fictitious beneficial owners." This corresponds to a share of 28%. For limited liability companies (GmbHs), the figure is 15%.

These high figures support the theory that the information in the transparency register may not be of the expected quality.

The role of authorities: Quality assurance in focus

The authorities also bear an important responsibility when it comes to ensuring the quality of entries in the transparency register. Their task is to check the submitted data and, if necessary, request corrections.

However, it is questionable whether this can always succeed in practice. In particular, the personnel costs for pursuing companies without registered beneficial owners will most likely require a significant commitment of resources.

Future EU regulations could remedy this by defining data verification processes more clearly and involving independent bodies to validate entries.

Such a review would significantly increase the reliability of the transparency register and strengthen trust in data quality in the long term.

Changes due to the EU AML Regulation

The EU AML Regulation This brings far-reaching changes for companies and other obliged entities, aiming for greater harmonization and improvement in money laundering prevention.

One of the key innovations is the introduction of the Anti-Money Laundering Authority (AMLA), a new EU agency that will oversee and coordinate anti-money laundering efforts at the European level. This agency is intended to harmonize anti-money laundering standards and ensure that the same rules apply in all member states.

For companies, this means that the requirements for identifying and documenting beneficial owners will become stricter and must be applied uniformly across Europe.

New requirements and their impact on the transparency register

The EU AML Regulation further tightens the requirements for the transparency register. In the future, the concept of "control" will be given greater emphasis. This means that not only direct participation in capital or voting rights will be decisive, but other forms of influence over a company must also be taken into account.

Theoretically, this should improve the quality of entries, as beneficial owners will be identified more precisely. However, this also makes the process more complex, which can mean increased effort for companies. Furthermore, it will be essential that companies understand and correctly implement the new requirements to avoid discrepancies and potential sanctions.

Innovations in the determination of beneficial owners

Another important change concerns the threshold for identifying beneficial owners. The current limit of over 25% will be lowered to 25%, which will mean that more people will have to be identified as beneficial owners.

Furthermore, the rules for multi-tiered shareholdings are being tightened: In the future, even complex shareholding structures will have to be examined more closely in order to identify all relevant beneficial owners. This could pose a particular challenge for companies with branched ownership structures, as it will be necessary to analyze and correctly document every level of the shareholding chain.

FAQ: Frequently asked questions about the transparency register

How does the transparency register work?

The Transparency Register is a central database that stores information about the beneficial owners of legal entities and legal arrangements in Germany. Companies are required to enter the data of their beneficial owners into the register to make their ownership structures transparent.

This information helps authorities combat money laundering and terrorist financing by enabling them to identify the actual controllers of companies.

How long does the registration take?

Registration in the transparency register usually only takes a few minutes and must be done online. Determining the beneficial owner, which forms the basis for registration, is more time-consuming.

When is the transparency register mandatory?

The Transparency Register has been mandatory for all legal entities under private law and registered partnerships since it came into force on June 27, 2017. Since August 1, 2021, the register has been a full register, meaning that companies must register their beneficial owners in the Transparency Register independently of other public registers.

What happens if false information is provided?

Providing false information in the transparency register can have consequences. Companies that enter incorrect or incomplete information risk fines of up to €150.000.

Repeated or intentional violations can result in even higher penalties and also damage the company's reputation. It is therefore of utmost importance that all information is accurate and up-to-date.

Who can access the transparency register?

Access to the transparency register is granted to individuals or institutions that can demonstrate a "legitimate interest." This includes, for example, banks, notaries, and authorities that require the information for anti-money laundering purposes. However, access is not unrestricted; it is granted only if the legitimate interest is plausibly demonstrated.

Sources

[1] Page 81 ff. https://dserver.bundestag.de/btd/20/114/2011496.pdf

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