The transparency register is on its way – New obligations for companies to disclose their beneficial owners now effective

• By 1 October 2017, private companies in the energy sector with registered seat in Germany but not listed on an organised market have to notify the transparency register of the details of all natural persons who directly or indirectly control them (so called beneficial owners). This includes the beneficial owner’s first and surname, date of birth, place of residence as well as the nature and extent of the economic interest.
• In case the company does not already possess the required information, the beneficial owners are in turn obliged to provide the company with their details (Angabepflicht).
• A beneficial owner is any natural person who directly or indirectly controls more than 25 per cent of the shares or voting rights of a company or exerts control in a comparable way, whether the person has its place of residence in Germany or abroad. Control may also be exercised by agreements between shareholders, such as pooling or voting agreements.
• The obligation to notify the transparency register or to provide the company with the required details does not apply if the beneficial owner’s details are already evident from documents and entries in public registers which are electronically accessible, such as the commercial register.
• Companies in the energy sector have to promptly determine their beneficial owners and what kind of information is already accessible via public registers. If all or some of the required details are not publicly accessible, the Company has to communicate the missing details to the transparency register.

Which companies in the energy sector have to notify the transparency register in general?

The obligation to notify the transparency register applies to all legal entities governed by private law as well as registered partnerships with registered seat in Germany (together so called organisations (“Vereinigungen”), section 20(1) GwG). Companies in the energy sector are therefore subject to the notification obligation if they are incorporated in the legal form of a corporation (“AG”, “SE” and “GmbH”) or a commercial partnership (“OHG”, “KG”). However, in case of companies which are listed on an organised market within the meaning of the German Securities Trading Act (Wertpapierhandelsgesetz, WpHG) the notification obligation is always deemed to have been fulfilled (section 20(2) sentence 2 GwG). As such companies are already subject to the strict voting rights notifications under German capital markets law (sections 21 et seq., 26 WpHG),there is no need for additional transparency requirements under the GwG. The same applies to companies which are subject to equivalent transparency requirements under European or international capital markets law. If several organisations are linked by a chain of shareholdings, then each organisation must determine its own beneficial owner and communicate the beneficial owner’s details to the transparency register.

Companies subject to notification obligations have to obtain and keep the details on their beneficial owners, keep them updated, and communicate them to the transparency register without undue delay (section 20(1) sentence 1 GwG). The notification obligation also covers later changes to these details. The obligation has to be met by 1 October 2017 for the first time. Companies have until then to determine their beneficial owners, ascertain what information already exists within the company, and to obtain missing details from those with an obligation to provide them (see below). Beyond that, they are not obliged to further investigate along a possibly longer chain of shareholding. However, companies have to review at least once a year whether they have become aware in some other way of information indicating a change in the beneficial owners as part of their general compliance duties. Therefore, companies have to take appropriate measures in terms of internal organisation, including establishing an effective internal monitoring and notification system.

Which details have to be communicated to the transparency register?

The transparency register must be notified of the beneficial owner’s first and surname, date of birth, place of residence and the nature and extent of the economic interest in the company (section 19(1) GwG). The details on the nature and extent of the economic interest have to clearly indicate the basis of the beneficial owner’s control, for example the level of shares or voting rights, the role as statutory representative or managing director of the company, or all other means by which control is exercised over the company. In this context, the law expressly refers to agreements between a third party and a shareholder or among several shareholders as a means of exercising control, such as voting, pool or consortium agreements (section 19(3) GwG).

How to determine a company’s beneficial owners?

A beneficial owner is the natural person who ultimately owns or controls a company (sections 19(2) sentence 1, 3(1) GwG). This includes any natural person who directly or indirectly controls more than 25 per cent of the shares or voting rights of the company or exerts control in a comparable way. Control is defined as a controlling influence within the meaning of the laws on corporate groups. If it is not possible to determine the beneficial owner beyond doubt, then the company’s statutory representatives or managing shareholders are deemed the beneficial owners (sections 19(2) sentence 1, 3(2) GwG).

From where do companies obtain the required details on their beneficial owners?

Companies in the energy sector subject to notification obligations do not have to obtain the details on their beneficial owners by any means possible. Instead, they can rely on their direct shareholders, who are in turn obliged to provide them with the required details under the conditions set out in section 20(3) sentence 1 GwG. Accordingly, the direct shareholders of the company subject to the notification obligation must assess (i) whether as a natural person they are themselves the company’s beneficial owner or (ii) whether they are directly controlled by a natural person being a beneficial owner of the company. In both cases, the direct shareholder is obliged to provide the company with the required details. Should a natural person be a beneficial owner even further back in the chain of shareholding, i.e. he or she controls the company through at least two or more intermediary companies, he or she has to directly inform the company him or herself instead (section 20(3) sentence 5 GwG).

In which cases is the notification obligation deemed to have already been met by the company?

The obligation to notify the transparency register is deemed to have been met (so called "Mitteilungsfiktion”) if the beneficial owner’s details are already evident from documents and entries in public registers which can be accessed electronically (section 20(2) sentences 1 and 3 GwG). These include entries in the commercial register, lists of shareholders, or issuers’ voting rights notifications under the WpHG. If the “Mitteilungsfiktion” applies to the benefit of the company, those who would be normally obliged to provide the company with the required information are in turn also freed from this obligation (section 20(4) GwG). It is however unclear, if the ”Mitteilungsfiktion” also applies in a chain of shareholdings where the beneficial owner’s details are not evident from the company’s register entry, but from the register entry of an intermediary Company within the chain of shareholding. Given the multiple ways and layers in which shareholdings can be structured, a careful assessment should be made in each specific case as to what information can or cannot already be accessed via public registers.

Who can consult the transparency register?

Access to the transparency register will only be granted to certain entitled persons (section 23(1) GwG). These include certain regulatory and investigatory public authorities. In addition, any person with a justified interest in consulting the transparency register receives access. According to the government’s explanatory memorandum, specialist journalists or NGOs have a sufficient justified interest if they are seriously engaged, in a task-oriented manner, in preventing or combatting Money laundering and corruption. Whether criteria such as “seriously” and “in a task- oriented manner” can be drawn on in practice when limiting consultation of the register remains to be seen.

The beneficial owner may request that consultation of the transparency register be fully or partially restricted if there are interests meriting protection that outweigh other interests. This would apply, for example, if there were a risk of falling victim to certain crimes, or in cases in which the beneficial owner is juvenile or has limited contractual capacity. However, Access by public authorities, certain financial institutions, insurances or notaries cannot be restricted in any case (section 23(2) GwG).

It is still unclear who will manage the transparency register. One option would be a company under private law, such as the publishers of the Federal Gazette (Bundesanzeiger), acting as a private company tasked with public duties (section 25 GwG). In this case the Federal Office of Administration (Bundesverwaltungsamt) will act as supervisory authority and will also be responsible for appeals against rejected requests for restricting access to the register.

What are the legal consequences of infringements?

Infringements of the transparency obligations under the GwG constitute a regulatory offence and may be punished by a fine (section 56 GwG). For simple infringements, a fine of up to EUR 100,000 is possible; serious, repeated or systematic infringements may be punished by a fine of up to EUR 1 million or up to twice the economic benefit derived from the infringement. Final and binding fine notices are published on the regulatory authorities’ website for a minimum period of five years, stating the name of the person responsible and the type and nature of the infringement (so called “naming and shaming”, section 57 GwG).

Citation: Hitzer/Hütten, The transparency register is on its way – New obligations for companies to disclose their beneficial owners now effective, Gleiss Lutz Energy News #11/2017 as of 28 June 2017.