Beneficial Owner Register

Beneficial Owner Register

The Beneficial Owner Register has emerged as a pivotal tool in the global fight against money laundering and terrorist financing. Stemming from the European Union’s 4th AMLD and further reinforced by the 5th AMLD, alongside Germany’s GwG, the register plays a crucial role in peeling back the layers of corporate ownership to reveal the individuals who ultimately control or benefit from legal entities. This article delves into the core components of the Beneficial Owner Register, its evolution, and its impact on due diligence processes.

Beneficial Owner Register: A Keystone in Anti-Money Laundering Efforts

Origin and Evolution

The 4th AMLD introduced the concept of the Beneficial Owner Register, requiring EU member states to maintain a central register with information on the beneficial ownership of corporate and other legal entities within their jurisdictions. The directive aimed to enhance transparency and enable competent authorities to effectively monitor and investigate financial transactions.

Building on this foundation, the 5th AMLD expanded access to the Beneficial Owner Register to the general public, thereby increasing transparency and scrutiny. It also extended the requirements to include trusts and similar legal arrangements, ensuring a broader scope and tightening the net around potential financial crimes.

The German Perspective

Germany’s implementation of the AML directives is encapsulated in the GwG, which aligns with the EU’s mandates while tailoring the approach to the national context. The German Federal Financial Supervisory Authority (BaFin) provides further clarification and guidance, particularly on customer due diligence obligations related to beneficial ownership.

BaFin’s guidance emphasizes the importance of identifying beneficial owners, not just to comply with regulatory requirements but to genuinely understand the ownership and control structures of entities. It warns against the misuse of trust structures to circumvent due diligence and mandates thorough verification of beneficial owner information, even advocating for plausibility checks to ensure the accuracy and reliability of the data obtained.

Access the German Beneficial Owner Register („Transparency Register“) here:

Notice: Please note that the official language for any requests in the Transparency Register is German and that any translations on our website are only intended to provide assistance and guidance.

The Linchpin of Compliance

Due diligence is at the heart of the Beneficial Owner Register’s effectiveness. Obliged entities, such as banks and financial institutions, must undertake rigorous checks to identify and verify the beneficial owners of their clients. This includes collecting and verifying personal details and understanding the ownership and control mechanisms behind legal entities and arrangements. The transparency register serves as a critical resource in this process, offering a repository of verified beneficial ownership information that entities can access for verification purposes.

Challenges and Opportunities

While the establishment of the Beneficial Owner Register marks significant progress in the anti-money laundering framework, it is not without challenges. Ensuring the accuracy and timeliness of the data, safeguarding against data misuse, and maintaining the delicate balance between transparency and privacy rights remain ongoing concerns.

Nevertheless, the Beneficial Owner Register represents a significant stride towards a more transparent, accountable, and secure global financial system. As it evolves, it will continue to be a key weapon in the arsenal against financial crimes, safeguarding the integrity of the financial markets and protecting the public interest.

4th AMLD

The 4th Anti-Money Laundering Directive (AMLD), specifically in its focus on the Beneficial Owner Register through Articles 30 and 31, mandates significant requirements for member states to enhance transparency and combat money laundering and terrorist financing. Here’s a summary of the key points from these articles:

Beneficial Ownership Information for Corporate and Other Legal Entities

  • Requirement for Information: Legal entities must obtain and hold accurate information on their beneficial owners, including details of the beneficial interests held.
  • Disclosure to Obliged Entities: This information must be provided to obliged entities (like banks and other financial institutions) during customer due diligence.
  • Central Register: Each member state must maintain a central register (like a commercial or companies register) containing this beneficial ownership information.
  • Accessibility: The information must be accessible to competent authorities and Financial Intelligence Units (FIUs) without restrictions, and to obliged entities for customer due diligence. Additionally, any person or organization with a legitimate interest can access limited information on the beneficial owner.
  • Exemptions: In exceptional cases, access to beneficial ownership information can be restricted to protect the beneficial owner from risks such as fraud or violence.
  • Interconnection of Registers: The Directive anticipates the interconnection of these central registers across member states to facilitate easier access to beneficial ownership information.

Beneficial Ownership Information for Trusts

  • Trustee Requirements: Trustees are required to obtain and hold comprehensive beneficial ownership information for trusts, including the identity of settlors, trustees, protectors, beneficiaries, and any others in control.
  • Disclosure Obligations: Trustees must disclose their status and beneficial ownership information to obliged entities when entering into business relationships or conducting transactions above certain thresholds.
  • Central Register for Trusts: Information on trusts that generate tax consequences must be held in a central register, accessible to competent authorities and FIUs, and, under certain conditions, to obliged entities.
  • Similar Legal Arrangements: The requirements extend to other legal arrangements with structures or functions similar to trusts.

General Implications

These provisions aim to increase transparency in the financial system by ensuring that true ownership information of companies and trusts is accessible to those who are legally entitled to it, thus making it more difficult for individuals to hide behind corporate structures or trusts for the purposes of money laundering or terrorist financing. The introduction of central registers for beneficial ownership information is a significant step towards achieving this transparency, as it provides a mechanism for storing and accessing ownership information efficiently. The ability for competent authorities and FIIs to access this information without alerting the entities involved is crucial for effective investigations and compliance checks.

Furthermore, the potential for interconnection of these registers across the EU could significantly enhance cross-border cooperation and information exchange, making it more challenging for illicit activities to go undetected. However, the Directive also acknowledges the need to balance transparency with privacy and security, allowing for exemptions in cases where disclosing beneficial ownership information could pose a significant risk to the individuals involved.

5th AMLD

The amendments to Directive (EU) 2015/849 made by the 5th Anti-Money Laundering Directive (Directive (EU) 2018/843) focus on enhancing transparency and the regulatory framework surrounding beneficial ownership registers. Here’s a summary of the key amendments related to the Beneficial Owner Register:

Enhanced Requirements for Beneficial Ownership Information

Member States are mandated to ensure that corporate and other legal entities maintain up-to-date and accurate information on their beneficial owners, including details of beneficial interests held. New provisions require beneficial owners to provide necessary information to entities, ensuring compliance.

Mechanisms for Data Accuracy

Member States must establish mechanisms to ensure the data held in the central registers is accurate and current. This includes obligations for obliged entities and, where appropriate, competent authorities to report discrepancies between central register data and the information they possess.

Public Access to Beneficial Ownership Information

Access to beneficial ownership information is expanded to include any member of the general public, subject to data protection rules. This aims to increase transparency and deter money laundering and terrorist financing activities.

Conditional Access and Fees

Member States may condition access to the beneficial ownership information on online registration and may impose fees that should not exceed the administrative costs of making the information available.

Exemptions in Exceptional Circumstances

Provisions allow for exemptions from public access in cases where such access could expose beneficial owners to risks like fraud or violence. These exemptions are granted on a case-by-case basis, with rights to review and judicial remedy ensured.

Interconnection of Central Registers

The central registers of Member States must be interconnected via the European Central Platform, facilitating cross-border access to beneficial ownership information. This aims to enhance cooperation between Member States in combating money laundering and terrorist financing.

Extension to Trusts and Similar Legal Arrangements

The directive extends the requirements to include trusts and similar legal arrangements, requiring trustees to obtain and hold beneficial ownership information and to disclose this information when entering into business relationships or transactions.

Access to Trust Beneficial Ownership Information

Competent authorities, FIUs, and certain entities or individuals demonstrating legitimate interest or involvement in certain transactions have the right to access beneficial ownership information of trusts. This access is also subject to data protection rules.

Reporting and Interconnection Requirements for Trusts

Trusts and similar legal arrangements must register their beneficial ownership information in a central register, particularly when they generate tax consequences, enter into business relationships, or acquire real estate within the EU.

Future Assessments and Reports

The Commission is tasked with assessing the effectiveness of these measures, including the interconnection of registers and the identification and regulation of trusts and similar legal arrangements, and may propose further legislative changes based on these assessments.

These amendments reflect the EU’s ongoing efforts to improve the transparency of corporate and legal entities and trusts, aiming to prevent their misuse for money laundering and terrorist financing.

German GwG

The German GwG contains detailed provisions for the establishment, administration, and access to a Transparency Register aimed at enhancing the transparency of beneficial ownership information for legal entities and arrangements. Here’s a summary focused on the „Beneficial Owner Register“:

Establishment and Administration of the Transparency Register

  • A Transparency Register is established to record beneficial ownership information (Section 18(1)).
  • The register is maintained electronically by a registrar entity as a sovereign function of the Federal Republic of Germany (Section 18(2)).
  • In cases of incomplete or unclear notifications, the registrar entity can request additional information to ensure accurate entries (Section 18(3)).

Information on the Beneficial Owner

  • The register includes detailed information about beneficial owners such as name, date of birth, place of residence, the nature and extent of beneficial interest, and nationality (Section 19).
  • Specific criteria are defined for determining beneficial owners of different types of associations and legal arrangements (Section 19(2) and (3)).

Transparency Obligations

  • Legal persons and partnerships are obliged to obtain, retain, and update beneficial ownership information, and promptly notify the registrar for inclusion in the register (Section 20).
  • Similar obligations apply to trustees of trusts and administrators of similar legal arrangements, with additional requirements for those outside the EU engaged in business relationships in Germany or acquiring German real estate (Section 21).

Access to Information

  • A broad range of entities including supervisory authorities, the Financial Intelligence Unit, law enforcement, and the general public have rights to inspect the register under certain conditions (Sections 22 and 23).
  • The beneficial owner can request restrictions on public access to their information in cases where exposure might lead to a significant risk of crime or harm (Section 23(2)).

Reporting Discrepancies

  • Obliged entities must report discrepancies between the information in the register and their knowledge to the registrar entity (Section 23a).

Fees and Charges

  • Fees are charged for managing the register, inspecting data, and other services related to the register, with exemptions for certain entities like tax-privileged associations (Section 24).

European Interconnection

  • The German Transparency Register is interconnected with other EU member states‘ registers via the European Central Platform, facilitating cross-border access to beneficial ownership information (Section 26).

Overall, the German GwG’s provisions on the Beneficial Owner Register aim to prevent money laundering and terrorist financing by ensuring transparency regarding the ownership structures of legal entities and arrangements within Germany and across the EU.

BaFin-Interpretation and Application Guidance on the German GwG

The BaFin Interpretation and Application Guidance on the German GwG (Money Laundering Act) emphasizes the importance of due diligence obligations related to beneficial ownership. Here’s a summary focusing on the „Beneficial Owner Register“:

Obligation to Identify Beneficial Owners

Obliged entities, such as financial institutions, are required to determine whether a contracting party is acting on behalf of a beneficial owner. If so, they must identify this beneficial owner in line with sections 11(5) and 12(3) of the GwG. This includes understanding the ownership and control structure of the contracting party, particularly when the party is not a natural person.

Prohibition Against Circumvention

The guidance makes it clear that structures, such as trusts, should not be used to avoid the identification of beneficial owners. If a trust structure is unnecessarily used, especially in straightforward transactions, the entities involved must still comply with the identification requirements as if they were dealing directly with the contracting parties.

Simplified Due Diligence

In some cases, where the customer is also an obliged entity regulated by BaFin and poses a lower risk, simplified due diligence may be applied. However, this is contingent on the entity’s ability to provide, upon request, relevant information about its customers who are beneficial owners.

Verification of Beneficial Owner Information

Obliged entities must collect identifying information about the beneficial owner, such as name and potentially additional details based on the assessed risk level. Verification of this information should be done through risk-adequate measures, and the transparency register can be used for this purpose. If the information matches that in the transparency register, further verification may not be necessary unless there are discrepancies or indications of a higher risk.

Plausibility Checks

If a contracting party claims to act on behalf of a beneficial owner, the information provided must be plausible and consistent. If the contracting party is a legal entity, verification of the beneficial owner’s identity may involve checks such as inspecting registers or reviewing documents.

Action in Case of Non-Disclosure

If a contracting party refuses to disclose whether there is a beneficial owner, despite being requested to do so, section 10(9) of the GwG applies, which may involve measures like refusing to establish or continuing the business relationship.

Special Considerations for Trusts

When dealing with trusts, if the trustor is a natural person, the information regarding the business relationship’s overall circumstances must be plausible. If the trustor is a legal entity, the beneficial owner’s identity must be verified, possibly through register inspections or other means to confirm the ownership and control structure.