What constitutes a discrepancy?
According to the German Anti-Money Laundering Act (GwG), obliged parties must identify the ultimate beneficial owners (UBO) of their business partners as one of their customer verification obligations (so-called know-your-customer / KYC obligations). Once an obliged party discovers that the UBO information of its business partner differs from the data entered in the transparency register, it is obliged to submit a discrepancy report immediately.
A discrepancy does not only exist if:
- The company subject to transparency register obligations is not entered in the transparency register at all.
- Persons other than those identified by the obliged party are entered in the transparency register as UBOs.
- The type or scope of the beneficial ownership differs from the obliged party's own findings.
But also if:
Data on the UBO that must be entered mandatorily (e.g., citizenships) is missing in the transparency register, or if the UBO data entered in the transparency register differs from the information identified by the obliged party (e.g., name, date of birth or place of residence). This includes, without limitation, discrepancies in spelling individual details, such as an obvious omission or swapping of letters. The information contained in the respective official identification document is decisive for its accuracy.
Who must submit a discrepancy report?
Obliged parties within the meaning of the GwG are, among others, lawyers, notaries, tax consultants, insurance companies and credit institutions/banks. Failure by obliged parties to submit the required discrepancy report constitutes an administrative offense subject to a fine. In addition, certain authorities are also obliged to report discrepancies.
What happens in the event of a discrepancy report?
Once a discrepancy report is received, the Bundesanzeiger starts examining the facts, informs the affected company about the discrepancy (discrepancy report) and requests the company to clarify the discrepancy within a specific deadline (usually some days). The discrepancy report does neither specify the reason leading to the discrepancy report nor the party reporting the discrepancy. Rather, the affected company must generally prove to the Bundesanzeiger the accuracy of the entries in the transparency register on the basis of evidentiary documentation.
Recently, responses to the discrepancy report by the company must be submitted electronically only via an online feedback portal. The login details required for such portal are contained in the discrepancy report. Once the deadline set by the Bundesanzeiger expires, the login details become invalid.
Transparency register extracts of the affected company show a discrepancy note in accordance with Section 23a GwG, indicating to third parties that the company is currently undergoing a discrepancy check. The completion of proceedings involving a discrepancy report will also be noted on the transparency register extract.
The discrepancy report itself does not trigger any sanction. It primarily serves as an opportunity to check the information contained in the transparency register. However, if the affected company is unable to resolve the discrepancy, the Bundesanzeiger will forward the discrepancy report to the Federal Office of Administration for review, which may then trigger a fine.
How should affected companies react?
Discrepancy reports should not be ignored under any circumstances. They should be taken as an opportunity to:
- Carefully review the previous entries in the transparency register. If necessary, the existing entries may be corrected or updated in the context of a discrepancy report
- Review and, if necessary, update the UBO documentation (proof of compliance with their obligations under Section 20 GwG). This may take some time in the case of complex group structures
- Submit the evidence via the feedback portal
within the deadline set.
Therefore, affected companies are advised to act swiftly and forward the discrepancy report to their legal department or external legal advisors immediately upon receipt.
In general, violations of the obligation to notify the transparency register may result in high fines as well as reputational damage in the context of a so-called naming and shaming measure for non-compliant companies.
German version
