In a landmark judgment dated 22 November 2022, the Court of Justice of the European Union (CJEU) ruled that “the general public’s access to information on beneficial ownership constitutes a serious interference with the fundamental rights to respect for private life and to the protection of personal data”. The decision was widely commented by the transparency and the privacy communities.
Registered beneficial owners of two Luxembourg-based companies requested to limit access by any member of the general public to their data, because the disclosure of that data would entail an infringement of their fundamental rights.
The CJEU decided that the provision of Art. 30 of the 4th Anti Money Laundering Directive (as amended) (4AMLD) under which EU member states are required to make the Beneficial Owners Registers (BORs) fully accessible to any member of the general public is in breach of the EU fundamental rights to respect for private life and to the protection of personal data.
The CJEU stressed that the information disclosed in the BORs enables a potentially unlimited number of persons to find out about the material and financial situation of the beneficial owner, and that once the data has been made available to the public, it can never be recalled.
The CJEU also took view that by seeking to prevent money laundering and terrorist financing, the 4AMLD is pursuing an objective of general interest capable of justifying even serious interferences with the fundamental rights, and that the general public’s access to information on beneficial ownership is appropriate for contributing to the attainment of that objective.
In essence, the decision addressed the question of balancing transparency requirements for the purpose of prevention of money laundering and terrorist financing with respect for fundamental rights.
Almost immediately, EU member states, including Luxembourg, Austria, Belgium, the Netherlands and Malta have started blocking access to their BORs, and the ruling could have major implications for the BORs throughout the EU and more are expected to follow. Sweden, Estonia, Germany and Ireland have public databases.
The decision may also have implications for the British Overseas Territories and Crown Dependencies which have committed to make BORs public in the nearest future.
It is expected that many requests to limit access to information on beneficial ownership available at the BORs and actions against rejections of these requests will be initiated.
The European Commission issued a statement that it “stands ready to work with the legislators to ensure full compliance with the judgement” which indicates potential amendments to the legislation in the EU. Transparency International suggests that “the European law makers and executive bodies should now counter the Court’s decision by guaranteeing access in the current 6th EU Anti-Money Laundering Directive, which should also include precise provisions that reconcile public access with privacy and security concerns.” This could mean a return to the 4AMLD provision, where the general public had to demonstrate the existence of legitimate interest in order to access the data or a new definition of safeguards to ensure the balance between the objective of general interest and fundamental rights. The UK, in the meantime, is working on increasing transparency and strengthening registration requirements for its BOR—the Companies House. In response to a long-running criticism regarding the accuracy of information held on the Companies House, the second Economic Crime and Corporate Transparency Bill is currently going through the Parliament and is expected to obtain Royal Assent by next spring. It sets out extensive provisions intended to improve financial information on the register and enhances powers to effectively verify the data it holds. The ECJU’s decision is not binding in the UK and no comments whether it will have any influence on the financial crime legislation have been made so far; however, it is expected that the UK Government will have to consider the decision carefully as the reduction of financial crime has been central to its policy.
Similarly, the U.S. FinCEN has recently issued a final rule establishing a beneficial ownership information reporting requirement for most entities created or registered in the United States which goes into effect in January 2024.
The ruling is likely to have an impact on the regulated sector. If the access to information will continue to be restricted (by EU countries taking down their BORs or by successful requests to limit access to information), it will become harder for the firms to comply with the KYC identification and verification requirements. As alternative sources of information will have to be sought, some of the processes such as customer onboarding may be delayed.
While the decision is celebrated by the privacy campaigners, it received a lot of criticism from transparency advocates. Maíra Martini of Transparency International said: “We have seen time and time again, from the Czech Republic and Denmark to Turkmenistan, how public access to registers helps uncover shady dealings. At a time when the need to track down dirty money is so plainly apparent, the court’s decision takes us back years.” The Financial Action Task Force’s revision to Recommendation 24 in March this year also highlighted the importance of robust and accessible registers of beneficial ownership as they are crucial for transparency around the source and destination of funds which plays an important role in strengthening the global response to tackling concealment of beneficial ownership of legal persons.
Does the decision mean the end of a common global effort to combat financial crime? We have to continue to watch the consequences of the ECJU’s ruling and see for ourselves.
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