The German Federal Ministry of Finance (“BMF”) has prepared and circulated to certain interest groups a first draft bill on the national implementation of the Fifth Anti-Money Laundering Directive (Directive (EU) 2018/843 – “5MLD”).
The draft bill provides for various changes to German regulatory acts such as the German Money Laundering Act (Geldwäschegesetz – “GwG”) or the German Banking Act (Kreditwesengesetz – “KWG”). These changes transpose into national law the rules set out in 5MLD, but also provide for other regulatory changes not directly required by the Directive.
5MLD requires Member States to bring into force the laws, regulations and administrative provisions necessary to comply with the Directive by 10 January 2020 at the latest. Based on the draft circulated by the BMF, the bill is intended to enter into force on 1 January 2020.
The draft bill provides for comprehensive and diverse amendments; also, the bill may still be subject to change in the course of the legislative procedure. However, the following aspects of the draft bill are worth noting:
New definition of “financial undertakings”
One significant amendment contained in the draft bill is the new definition of “financial undertakings” (Finanzunternehmen) for the purposes of the GwG. Only so-called “obliged entities” that are exhaustively listed in the GwG are obliged to comply with the anti-money laundering requirements set out in this Act. One of the categories listed in the GwG are “financial undertakings”. For the definition of such category, the GwG currently refers to provisions of the KWG. However, such reference leads to uncertainties with respect to non-financial sector undertakings.
Therefore, it is highly welcome that the draft bill now provides for an autonomous definition of “financial undertakings” in the GwG. Inter alia, the draft bill states that “financial undertakings within the meaning of the GwG are undertakings whose main business is to acquire, hold or sell participations, except for pure industry holding companies (reine Industrieholdings) […]”. The fact that such industry holdings are not to be considered as obliged entities would lead to more legal certainty for clients in the non-financial sector.
Regulation of virtual currencies
In connection with 5MLD, the draft bill introduces significant amendments relating to crypto assets. The 5MLD requires Member States to cover virtual currency exchange platforms (“VCEP”) and custodian wallet providers (“CWP”) that hold, store and transfer virtual currencies as “obliged entities” subject to anti-money laundering requirements.
The draft bill, however, goes beyond the scope of the Directive. It extends the general definition of “financial instruments” in the German Banking Act to also cover “crypto assets” (Kryptowerte) and introduces the new regulated financial service of “crypto custodian business” (Kryptoverwahrgeschäft). Thus, the draft bill not only affects the personal scope of the anti-money laundering-related duties, but also clarifies and extends the scope of the regulatory licensing requirements.
So far, the German regulator (“BaFin”) has qualified virtual currencies such as Bitcoins as financial instruments within the meaning of German law so that the activities of a VCEP are likely to trigger a licensing requirement from the perspective of BaFin. However, a recent decision of a criminal court put into question such interpretation; the court denied that operating a VCEP in relation to Bitcoins triggers a licensing requirement. The draft bill now provides for a clarification of the scope of the licensing requirements for the existing financial services relating to financial instruments and also includes an additional regulated financial service.
Access to the Transparency Register
As required by 5MLD, the draft bill provides for wider access to the beneficial ownership information in the German Transparency Register (Transparenzregister). In the current version of the GwG, access to the Transparency Register is only granted to certain public authorities, to other obliged entities for the purposes of customer due diligence and to anyone that argues to have a legitimate interest in the inspection. The draft bill grants access to the Transparency Register to “any member of the general public” – without the need to refer to such legitimate interest.
In line with 5MLD, the draft bill further introduces a new reporting requirement of obliged entities regarding any discrepancies they find between the beneficial ownership information available in the Transparency Register and the information available to them. Whenever entering into a new business relationship with a corporate or other legal entity, an obliged entity must now also collect proof of the registration of the beneficial ownership information in the Transparency Register by such entity.
The draft bill has not yet been officially published. However, it may have significant implications even beyond the scope of 5MLD. Thus, German financial institutions and companies will need to closely monitor the legislative developments in order to understand if and to which extent they need to amend their internal compliance programs.