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Germany’s final draft legislation for a beneficial ownership register identifying legal owners of companies is under fire for not matching EU law and being too weak due to loopholes that could allow the true identities of company owners to remain hidden.
The lower house of the German Parliament May 18 passed the legislation that would transpose the newest European anti-money laundering guidelines into German law and increase penalties for violations. The bill now includes dozens of new incremental amendments, including one that would set stricter punishments for convicted money launderers.
The final draft of the law, approved a day earlier by the Bundestag’s Finance Committee, requires owners and operators of all German enterprises to identify themselves in an electronic beneficial ownership registry—even in offshore scenarios, a measure that directly contradicts the stipulations of the European directive the German bill seeks to implement.
“It’s a scandalous failure of the law in tackling money laundering through the disclosure of corporate legal entities and structures,” Markus Meinzer, a senior analyst with the U.K.-based Tax Justice Network, told Bloomberg BNA in an email interview May 18 after passage by the Bundestag. At least one part of the bill “is in clear breach of the Directive and is likely to attract an infringement procedure by the European Commission.”
Only investigative units and other organizations deemed to have legitimate interest in the personal information of companies’ beneficial owners will be granted access to the transparency registry, according to the bill.
The Fourth EU Anti-Money Laundering Directive was adopted by the European Parliament and Council in May 2015 and mandates member states’ adherence to stricter guidelines in seeking out and prosecuting high-risk companies and lenders suspected of money laundering and terrorist financing.
But attorneys told Bloomberg BNA that while stricter sentencing for violators somewhat moves anti-money laundering protections in the right direction, the finalized draft didn’t adopt resolutions to address serious flaws in identifying beneficial ownership and constraints on public access to the new electronic registry.
The fact that these changes weren’t made stands in direct violation of the European directive the bill is supposed to implement, they said. “That’s a clear error of transposition,” Meinzer told Bloomberg BNA in a May 17 interview.
Germany’s bill to implement the directive touted plans for a beneficial-ownership registry and a bolstered finance authority as “effective instruments” needed to hone investigative resources to go after wrongdoers, Finance Minister Wolfgang Schaueble said in a Feb. 22 statement.
Analysts and legislators told Bloomberg BNA the bill will ultimately fail to meet its aims in part because it denies public access to the beneficial ownership registry and includes a vague definition of beneficial ownership that will stymie efforts to pinpoint companies’ true owners and operators.
“There’s benefit to register the beneficial owners,” Andreas Frank, an independent anti-money laundering consultant based in southern Germany, who advises the Bundestag, told Bloomberg BNA in a May 17 interview. “But as long as we have possibilities to hide the beneficial owner, what is it good for?”
German legislators told Bloomberg BNA that the adoption of other proposed amendments voted down by the governing coalition of Christian and Social Democrats could have closed holes in the law that make it possible for firms to veil their true owners and profiteers, despite the proposed obligations of the transparency registry.
“The federal government is slamming the breaks on the fight against money laundering,” Richard Pitterle, a legislator in the Bundestag with the opposition Left Party, told Bloomberg BNA in a May 18 email.
Analysts believe three amendments proposed by the Left Party would have fixed issues with the bill that violate European law.
“Money launderers of the world are laughing in the face” of the government over a law “passed in the last minute” that’s unlawful within the context of the directive, he added.
The German bill will now go for a final vote in the upper house of the German Parliament, the Bundesrat. If passed, it must be signed by the German president before becoming law.
According to stipulations of the European directive, all member states in the European Union must transpose the directive into national law before June 26, at which time the European Commission will begin analyzing the respective pieces of legislation for compliance with the directive, a spokeswoman for the commission told Bloomberg BNA May 18.
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