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21. February 2022 | The Transparency Register for Beneficiaries in Germany from 2022

22. February 2022 | Insight into the Transparency Register: Who gets access to which data?

23. February 2022 | Reporting of inconsistencies in the Transparency Register

24. February 2022 | Transparency register: which fines threaten administrative offences? (this contribution)

The legislative changes to the Transparency Register, which will apply from 2022, will create new obligations for many companies and other legal entities. If these are not implemented, this is considered an administrative offence within the meaning of the Money Laundering Act. Accordingly, the law sees this as a reason for punishment. Such sanctions may be accompanied by either a warning procedure or a fine procedure. In fact, fines for breaches of the transparency register rules can be quite sensitive. Already in the case of recklessly committed administrative offences, fines to the transparency register can amount to up to EUR 100,000. Therefore, it is not surprising that in the case of particularly serious infringements in connection with the Transparency Register, fines can amount to up to EUR 5,000,000. But the publication of all incontestable fines is also suitable as a measure for the comprehensive implementation of the new regulations in the Money Laundering Act. However, only after one year after the expiry of a specific transitional period should fines be relevant to sanction inconsistencies in the transparency register.

With the recent transformation of the transparency register into a full register, the legislator has implemented the mandatory EU Directive (EU) 2018/843. Germany is thereby making its contribution to the fight against money laundering and terrorist financing. Therefore, it is also understandable that one has to expect fines for violations of the Money Laundering Act (MWG). After all, these are administrative offences.

On the occasion of the new legal situation from 2022 onwards with regard to the Transparency Register, we now report on details of the fines that one risks in the case of administrative offences in this context. In order to provide as comprehensive a picture as possible about the sanctions for administrative offences in the sense of the Money Laundering Act, we also add some further explanations. Fines for breaches of the transparency register are only one aspect of this.

The general provisions on administrative fines relating to money laundering law are codified in § 56 GwG. In fact, this paragraph bears the self-explanatory title “Fines Regulations”. Thus, it also contains the corresponding provisions which fine administrative offences in connection with the transparency register. However, the paragraph also refers to other points in the GwG in order to be guided in particular by the definitions and explanations given there.

For our considerations, the distinction between legal entities subject to registration and their beneficial owners on the one hand and the obliged persons defined in § 2 GwG on the other hand is relevant. The legal entities obliged to publish certain data and to document them must disclose who is economically entitled to them by entering them in the transparency register. This mainly means corporations and other corporations but also partnerships, without this exemplary list being complete. The corresponding legal provisions to which § 56 GwG refers in this regard are contained in §§ 19 to 21 GwG.

The obliged entities are companies and persons who could come into contact with money laundering and terrorist financing in the course of their activities. For example, banks, auditors and real estate agents are included. In order to use these groups to combat such illegal transactions, the GwG stipulates that they must regularly compare the data of their business contacts with the data entered in the transparency register. This obligation is intended to lead to the reimbursement of an inconsistency report to the transparency register operator in the event of discrepancies.

There are other regulations on obliged persons, but these are addressed to their supervisory bodies. For example, the respective tax advisor chamber is responsible for tax consultants. They too must respect certain duties. This includes, for example, the duty of confidentiality about the identity of subordinates, if they issue an inconsistency report. And this too is only one example of manifold obligations by the GwG. Therefore, administrative offences of this kind are also included in the fine regulations of the GwG.

However, we should primarily be interested in the fines in connection with administrative offences in the transparency register in this article. For this purpose, the Federal Office of Administration, which supervises the Transparency Register, has issued a separate catalogue of fines. It provides an explanation of all rules relating to the imposition of fines where they relate to infringements of entries in the transparency register. This catalogue of fines from 05.07.2021 is also current because it takes into account the new regulations of the GwG from 2022.

Another sanction, which is mentioned here in passing, is provided by § 57 GwG. For incontestable decisions on fines in connection with administrative offences relating to the transparency register should therefore also be the subject of a public notice. A glance at the ever-growing list, which the Federal Office of Administration reproduces on its website, gives the name of the legal entities affected by fines as well as the reason for this. In fact, the main reason for the administrative offences documented there is a lack of registration of beneficial owners in the transparency register. However, there is no information on the amount of the fines imposed. However, based on the also visible ordinal numbers for the final, unimpeachable fine decisions, it can be seen that compliance with the regulations of the GwG with regard to the transparency register has apparently not previously been a high priority for many companies. At the beginning of January 2022, the number of incontestable fine decisions published there amounted to 581.

Therefore, the urgent recommendation is required at this point to obtain comprehensive information on the innovations to the Transparency Register and to implement the new obligations on time. If you are looking for support from a tax consultant, you can call us immediately. Our experienced specialists will gladly take over these matters for you. But for now, keep reading!

According to § 56 (1) GwG, there is a whole series of possible administrative offences that can go hand in hand with the violation of this law. Of the 74 points in total, in particular those under § 56 (1) sentence 1 number 54 to 66 GwG with regard to the transparency register are relevant. Most of these deal with violations of the documentation obligations and, of course, against the reporting obligations (for example: compliance with the reporting deadline). It is true that the seriousness of an administrative offence always counts in determining the fines provided for this purpose. For example, one must distinguish whether, for example, an action required by this law is completely or only partially omitted. The incorrect execution of such an action can also cause its own evaluation as an administrative offence in this respect. Furthermore, it makes no difference to commit an administrative offence recklessly or intentionally; Both are relevant to fines.

The only authority that imposes fines for administrative offences in connection with the Transparency Register is the Federal Office of Administration. Because the Federal Office of Administration carries out the specialist supervision in all aspects in connection with the transparency register. In fact, the Federal Office of Administration is entrusted by law in these matters (§ 56 (5) GwG). Therefore, the Federal Office of Administration only imposes fines if it receives information about administrative offences in the transparency register. This is done by reporting inconsistencies that are relevant with regard to an administrative offence. Because by the examination, which causes this inconsistency report, the Federal administrative office also receives knowledge of the existence of a potential administrative offence.

In the context of fulfilling its duty of supervision in connection with the Transparency Register, the Federal Office of Administration has determined when rather than a fine procedure a warning procedure may take effect. This discretionary decision is in accordance with § 56 OWiG. This is only possible in the case of minor administrative offences as an alternative.

If the authority prefers a warning, this excludes the initiation of a fine procedure. However, it is also possible to implement a monetary sanction. If the effect of the warning without a warning money promises only insufficient prospect of success, a warning money of a maximum of EUR 55 may be indicated. And, as we shall see in a moment, this is significantly lower than the fines that can be incurred in the case of administrative offences in connection with the transparency register.

By the way, with a warning one can also avoid a public mention because of an unimpeachable fine.

§ 56 GwG is, in any case, the place where we find more details about the amount of fines both in connection with the transparency register and with other matters relating to the fight against money laundering and terrorist financing.

First of all, we look at the amount of fines that can arise for simple administrative offences in connection with the transparency register. For this purpose, the legislator usually proposes a framework of up to EUR 50,000. However, higher fines of up to EUR 100,000 are also allowed. However, these must be frivolous administrative offences. If, on the other hand, there is intention, the upper limit for fines increases to EUR 150,000. In addition, there is the requirement that the minimum amount for fines relating to the Transparency Register should be EUR 50. This closes the gap to the warning money.

6.1.2 Fines on the Transparency Register: serious infringements

But other, more drastic sanctions may also apply. However, at least one other condition must be met in order to impose higher fines. This is only provided for systematic and, respectively, recurring administrative offences. On the one hand, § 56 (3) GwG stipulates that the amount of the fines for reckless and intentional administrative offences of this kind, which exist in connection with the transparency register, can amount to up to EUR 1,000,000. On the other hand, there is also an alternative method of calculating the amount of such a fine. For this purpose, the fine may amount to a maximum of twice the economic advantage resulting from the committing of the administrative offence. An estimate of the unlawful economic advantage is also permitted.

In addition to fines addressed to legal entities subject to registration and their beneficial owners, there are also fines that the Federal Office of Administration can impose on persons liable for administrative offences. For this purpose, § 56 (3) GwG specifies a maximum amount for fines of EUR 5,000,000 or, as an alternative, 10% of the turnover achieved by an obligated person with a fine in the year before the decision to impose a fine.

But there are also certain conditions attached to this. For example, these strict rules on fines apply only to certain obliged persons. This is the case, on the one hand, where the obliged entities are corporations or associations of persons. Furthermore, in their activity they must fall under the obliged persons referred to in § 2 (1) nos. 1 to 3 and 6 to 9 GwG. Numbers 1 to 3 include credit institutions, financial services companies and payment institutions, including electronic money institutions. The scheme also includes a penalty for administrative offences by all other financial undertakings, insurance undertakings and insurance intermediaries. Here too, certain characteristics of the companies must be observed.

The legal requirements, however, only form the framework within which the authority may impose fines for administrative offences in the transparency register. The exact calculation takes place in a different way. For this purpose, the Federal Office of Administration uses a calculation formula in which a basic amount and certain factors are relevant.

The basic amount depends on the type of administrative offence. The Federal Office of Administration’s catalogue of fines provides a dedicated table for this purpose. The bandwidth for this basic component (for frivolous administrative offences) ranges from EUR 200 to EUR 1,000. For example, the basic amount for incomplete entries in the transparency register is EUR 200. If, on the other hand, a legal entity does not collect any of the required data from its beneficial owners, a basic amount of EUR 600 applies.

The basic amount is then multiplied by a factor that assumes a value of 1 (reckless violations) or 1.5 (intentional violations) depending on the characteristic of the administrative offense. This is factor I.

The next factor (Factor II) takes into account the economic power of the legal entity to which the administrative offence is attributed in the transparency register and which is therefore to pay the fines. The factor ranges from 0.01 to a maximum of 25. A distinction is made between different legal forms. There, in turn, one divides according to the economic facts, as they show, for example, balance sheets.

Factor III includes culpability in the calculation of fines for the transparency register. The range for factor III ranges from 0.5 to 4. But usually you use a factor of 3. Furthermore, the catalogue of fines of the Federal Office of Administration explains under which aspects reductions, but also tightening of this factor are considered. For example, catching up on the neglected duty is a reason to reduce the factor III. Unapologetic behavior, on the other hand, can be sanctioned with a higher approach to factor III.

Due to the current changes, which the GwG introduces from 2022 with regard to the transparency register, certain transition periods have been provided for. Within a certain period, the legal entities required to register in the Transparency Register must comply with their legal obligation in this regard. Different transitional periods apply to different legal forms of legal entities.

Public limited companies, limited partnerships on shares (KGaA) and European companies (SE) receive a relatively short transition period. It shall expire on 31 March 2022. For the legal form of the GmbH and for partnerships, however, a transition period applies until 30.06.2022. All other legal entities have until the end of 2022 to comply with their obligation to register in the Transparency Register.

In this context, there is also an exception for the imposition of fines on the Transparency Register. Only if within one year after the expiry of the respective transitional period no obligation in this regard is fulfilled by entering in the transparency register, should the Federal Office of Administration initiate a fine procedure in this regard.