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Money Laundering Act: New Notification Requirements for Companies and NPOs in Germany

Money Laundering Act enters into force

The law on retrieving benefits from heavy crimes entered into force on 26 June 2017. The old Money Laundering Act (Geldwäschegesetz, GWG) has not only been supplemented, but completely replaced by a new and stricter GWG. It will bring comprehensive notification requirements.

Almost every German business affected

The alterations will affect almost everyone: Legal entities (GmbH, AG, SE, association, foundation), registered partnerships (OHG, KG, GmbH & Co. KG), as well as administrators of trusts and trustees of non-legal (dependent) foundations and other legal entities, which correspond such foundations in their structure and function.

Transparency Register

An important novelty is the introduction of a transparency register, which can be accessed via www.transparenzregister.de. Parties concerned or their legal counsels have to name a beneficial owner for the legal constructions concerned until 1 October 2017. Hence, there is not much time left to act.

Important 25% threshold

Beneficial owner is any person, who owns and controls the legal construction. Those persons that dominate more than 25% of the capital or voting rights are relevant. By that, business enterprise networks shall be made transparent for authorities. It is quite likely that the legislator also wants to prevent tax evasion.

Problem: silent partnerships, sub-participations and voting agreements

The transparency register may lead to significant inconveniences. Silent partnerships, sub-participations, trusts and voting agreements are to be disclosed as well, provided that they result in a participation or control over the threshold of 25%. These or similar (legal) forms of participations are quite popular in practice, be it for protection from competitors or for securing privacy.

Unclear scope of inspection

Authorities and those liable according to the GWG (e.g. attorneys, tax accountants and banks) have an extensive right to inspection of the transparency register. However, it is not clear, to which extent the right to inspection is applicable for everyone. In fact, a legitimate interest has to be stated, but it could be sufficient if a journalist researches about money laundering.

Furthermore, it is not clear, which requirements are necessary in order to express a legitimate interest in practice. As a matter of prudence, it can be expected that the rule will be interpreted in a wider sense, since originally a right of inspection without any requirements was planned.

Individual check necessary – high fines possible

Concerned parties should not waste time and check immediately, which impact the new GWG has on themselves, particularly which data have to be reported. The GWG is characterized by comprehensive special and exception rules.

Immediate action is advised as even simple offences are punished with fines of up to EUR 100,000. Moreover, the framework of fines has been increased significantly compared to the old GWG. Penalties of EUR 1 million or twice the amount of the economic advantage achieved by the offence are possible now.

Threat of reputation damage

Quite delicate is the introduction of a so-called pillory regulation („naming and shaming“). If sanctions or penalties are imposed, the respective company name will be made public. Thus, additionally to the sanctions and penalties, the companie’s reputation will be threatened. Hence, the new rules should not be underestimated.

Counselling on duty to register

Our attorneys specialized in corporate law and supervisory law will help you to check, which duties to register apply for you or your company and will gladly assist you with your registration.

Parties concerned should meet the deadline of 1 October 2017 for not risking any (high) fines. The information in the transparency register will be available from 27 December 2017.

Continue reading:
Modern risk management for German NPOs

Bartosz Dzionsko

Bartosz Dzionsko

Bartosz Dzionsko is a German attorney at law at WINHELLER headquarters in Frankfurt/Main. He specializes in German tax law, criminal tax law, money laundering and German customs law.

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