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Germany’s newly mandated beneficial ownership register for all companies, including multinationals, could be made available to the general public following lawmakers’ approval of key changes to a bill facilitating adoption of the EU anti money-laundering and tax-avoidance directives.
Attorneys say the March 31 move by the upper-house of Parliament, the Bundesrat, struck a fair compromise between transparency and business interests—financial lenders would now be able to use the new beneficial ownership register to vet clients, an application that was unclear in previous drafts.
Financial institutions would also be able to operate without fear of reprisal if information in the register about a potential client turns out to be incorrect, an upside for business.
“If you make it public and everyone can see it, then why ask more from the financial institutions than what everyone else is asked to believe? I think that’s a fair compromise” said Oliver von Schweinitz, a partner specializing in tax law with GGV law firm in Hamburg, told Bloomberg BNA in an April 4 telephone interview.
But others believe the changes could have serious privacy implications for families that own businesses. In Germany, these businesses, known as the “Mittelstand” are the backbone of the country’s economy, the largest in Europe. As most are not publicly held, they previously didn’t have the same reporting requirements as larger firms.
“Federal authorities should be responsible for combating money laundering, not the public,” Stefan Heidbreder, the director of Germany’s Foundation of Family Businesses, told Bloomberg BNA in an April 5 email. “That could lead to hasty judgments by the public.”
The bill was adopted by the Cabinet Feb. 22. The bill with the Bundesrat’s changes has been delivered to the lower house of Parliament, the Bundestag, where it will be discussed by the Bundestag’s Finance Committee later this month.
According to the bill, both houses of Parliament must agree to all changes and pass the bill before June 26 in compliance with the EU’s directive.
The Fourth EU Anti-Money Laundering Directive (EU 2015/849), originally adopted by the European Parliament and Council May 20, 2015, calls on member states’ financial authorities and credit institutions to better surveil and reprimand suspect firms and their third-party lenders.
Per the stipulations of the directive, Germany would need to establish an electronic registry of all business owners and operators, known as the beneficial ownership register—this is key to stanching the flow of money laundered to terror organizations, according to the bill.
The original bill only granted internal authorities access to the registry, with exceptions for a select few journalists and NGOs deemed legitimate by the Ministry of Finance.
The Bundesrat, however, demanded that the general public also be granted access.
“Only in this way could money laundering and terrorism be effectively combated,” the Bundesrat wrote March 31 in a statement.
The Ministry of Finance considered such a measure while drafting the bill, but constrained the scope of access at the last minute, fearing that doing so could lead to privacy violations, attorneys told Bloomberg BNA.
Specifically, mid-sized and family-run businesses, which make up the bulk of the German economy, fear that granting the public access to the registry could make it easier for wrongdoers to find sensitive information about individual business owners and their families.
“Information in the registry that allows users to determine the residence of company owners could mean an increased danger to the affected persons and their families,” said Heidbreder.
The Bundesrat addressed these concerns by stressing that users can only search for information using a company name. Still, there’s a chance that private information on small-business owners could still be found through their association with their companies, attorneys said.
“I don’t know if the technical requirements are sufficient to allow somebody of prominence to hide their whereabouts because the registry would still be available in the public realm,” said Von Schweinitz.
Despite privacy concerns, attorneys still welcome the Bundesrat’s add-ons. Public access to the registry will allow for more business transparency, while protecting financial institutions from being wrongfully implicated by shady business practices.
“This will be better for business because financial institutions have always said that they wanted to have access,” said Von Schweinitz. “The register itself may be a problem because it creates more bureaucracy. But once you have it, why not make it public?”
To contact the reporter on this story: Jabeen Bhatti in Berlin at firstname.lastname@example.org
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The Bundesrat's changes to the bill, in German: https://www.bundesrat.de/SharedDocs/drucksachen/2017/0101-0200/182-17(B).pdf?__blob=publicationFile&v=1
The Cabinet's original draft, in German: https://www.bundesrat.de/SharedDocs/drucksachen/2017/0101-0200/182-17.pdf?__blob=publicationFile&v=5
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