German Anti-Money Laundering Act: Reporting obligation to Transparency Register for foreign “associations”

The revised version of the GwG, based on the fourth European Anti-Money Laundering Directive, led to the introduction of the Transparency Register in October 2017 in accordance with Art. 18 (1) GwG. Since then, it has been subject to various other legislative amendments.

The key question in connection with the Transparency Register is the determination of the so-called beneficial owner pursuant to Art. 3 GwG, which aims to determine such individual(s) by whom the domestic legal entity under private law or registered partnership is ultimately owned or controlled. In this context, the GwG also mentions “associations” (Art. 20 GwG). 

Conversion of the transparency register to a full register – now reporting obligation for almost all forms of associations

Since the Transparency Register has been converted into a full register with effect from August 1, 2021, the reporting of beneficial owners has been mandatory for almost all associations. Since the Act on the Modernization of Partnership Law (“MoPeG”) came into force on January 1, 2024, this also includes registered partnerships under civil law (Art. 707 BGB (German Civil Code)). 

However, associations domiciled abroad may also be subject to a reporting obligation in the Federal Republic of Germany’s Transparency Register. Non-compliance can have far-reaching consequences. 

German Anti-Money Laundering Act and foreign associations – when does the reporting obligation apply?
Art. 20 (1) sentence 2 GwG regulates exactly when a foreign association is subject to the reporting obligation pursuant to Art. 20 (1) sentence 1; the obligation can be divided into three main groups of cases: 

1. If the association holds or undertakes to acquire ownership of a real property located in Germany.

The first case group deals with the intended acquisition of ownership by a foreign association and, since December28, 2022, also with already existing ownership of a real property in Germany. 

Pursuant to Art. 20 (1) sentence 2 GwG, real property includes land as well as rights equivalent to real property such as hereditary building rights as well as condominium and part ownership pursuant to the German Condominium Act (“WEG”). Foreign associations owning real estate in Germany as of December 28, 2022, must report their beneficial owners to the Transparency Register. The same applies if ownership of a real property is to be acquired. The reporting obligation pursuant to Art. 20 (1) sentence 2 GwG is already triggered by the transaction imposing a legal obligation under the German law of obligations (schuldrechtliches Verpflichtungsgeschäft”) which, as presented below, can have direct consequences for notarization. 

2. If shares within the meaning of Art. 1 (3) of the German Real Estate Transfer Tax Act (“GrEStG”) are merged or transferred to such association.

The second case group relates to the indirect acquisition of real estate by a foreign association. 

In this context, “acquisition” includes every contractual or statutory acquisition pursuant to Art. 1 (3) GrEStG, resulting in an acquisition of at least 90 percent of interests in an association holding real property, for example, through the additional acquisition by an existing shareholder, the transfer to a new shareholder or by accretion or legal succession. Once the 90-percent threshold is reached, the reporting obligation pursuant to Art. 20 (1) sentence 2 GwG arises. 

3. If the association holds an economic interest pursuant to Art. 1 (3a) GrEStG due to a legal transaction. 

The third case group under Art. 20 (1) sentence 2 GwG (Art. 1 (3a) GrEStG), on the other hand, mainly serves as a catch-all provision under the tax abuse avoidance regulation – also with a 90-percent threshold. Such group covers all legal transactions ultimately (by adding direct or indirect or partly direct and partly indirect participations) resulting in an economic interest in the threshold amount.

Exemptions from the reporting obligation and legal consequences in case of non-compliance

Art. 20 (1) sentence 3 GwG provides for an exemption from the reporting obligation if the association covered by the case groups under Art. 20 (1) sentence 2 GwG has already reported its beneficial owners to another register in a member state of the European Union. Even if such exemption also applies if the respective EU member state has different conditions or requirements compared to Germany, the transmission must be complete and comply with local laws. If there is any doubt, the association should, as a precautionary measure, also report the relevant information to the German Transparency Register which is also in line with the German Federal Office of Administration’s opinion.

If there is a reporting obligation pursuant to Art. 20 (1) sentence 2 GwG and if such obligation has been deliberately disregarded, Art. 56 (1) sentence 1 no. 55 in conjunction with sentence 2 GwG provides for fines of up to EUR 150,000. In the event of serious repeated or systematic violations, higher penalties may be imposed. Fines of up to EUR 100,000 can be imposed in the event of recklessness.

Furthermore, there is a risk of so-called “name and shame”, i.e., the publication of final measures, incontestable decision to impose a fine and corresponding court decisions on the website of the Federal Office of Administration or the responsible supervisory and administrative authority. Finally, in the event the notification has not (yet) been made, notaries are prohibited from notarizing transactions pursuant to Art. 10 (9) sentence 4 GwG, i.e., transactions with this association may not be notarized, which in turn can lead to increased transaction costs and time delays.