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The Court of Justice of the European Union (CJEU) has issued an opinion that public beneficial ownership databases do not comply with the right to privacy, following a complaint from a Luxembourg company.
The CJEU has concluded in a new ruling that the provision in the EU’s 4th Anti-Money Laundering Directive (4th AMLD) that makes information about beneficial owners public is invalid and contradicts the European right to a private life.
The case was sent to the CJEU from a Luxembourg court after challenges to the Luxembourg Business Registers, which disputed the compatibility of this provision with the right to privacy.
Public beneficial ownership registers have been championed as a method of tracking corrupt or illicit finances, as well as offering transparency on identifying the actual owner of an entity.
“The commission takes note of the judgment delivered today by the Court of Justice on the provisions on public access to beneficial ownership information for corporate and other legal entities in preventing money laundering and terrorist financing,” said a European Commission official when approached by VIXIO.
The commission will now thoroughly analyse the implications of the judgment to assess what amendments are required to the EU framework as a result of it, with the official stating that it stands ready to work with the co-legislators to ensure full compliance with the judgment.
The decision has sent shockwaves through the AML community, with one person sarcastically stating on LinkedIn that it is the UK’s first Brexit benefit that it will not have to comply with the ruling.
"This is an important and significant decision in the EU and beyond,” said Roland Papp, senior policy officer at Transparency International EU.
The EU has been the trendsetter, and other countries have been moving in this direction, he pointed out, adding that Jersey, for example, had said that it would decide on its own public register once this ruling was made.
"This has become a more gradual way of having more and more transparency, and now has been set back," Papp said. “Law enforcement doesn't have the capacity and this is especially the case with cross-border cases.”
For example, authorities previously were able to rely on open registers but now will need to go through a more bureaucratic procedure. “This will take time and make the situation more complicated."
"It is a bit early to tell how we can find a way to maintain public access,” said Papp. “What is important is that the judgment recognises that civil society has a very important role to play. That is, I think, a way out, to better define what is a legitimate interest."
In paragraph 74 of the CJEU’s judgment, for example, it is stated that “the general public’s access to beneficial ownership information allows greater scrutiny of information by civil society”.
Here, the court also references the role of the press and civil society organisations: “It should be found that both the press and civil society organisations that are connected with the prevention, and combating of money laundering and terrorist financing have a legitimate interest in accessing information on beneficial ownership.”
Despite the rules, many registers in practice are already not publicly accessible, Papp pointed out.
“Many had administrative burdens, like Belgium, which meant you had to register with a national ID. Other countries, meanwhile, have fees which are a burden for people such as researchers."
The ruling has already prompted a response from EU member states.
A spokesperson for Luxembourg’s Ministry of Justice told VIXIO that “the judgment must obviously be the subject of a more detailed analysis”.
The spokesperson appeared to indicate that the problem did not relate to Luxembourg’s register, but rather the EU’s rules as a whole.
“The partial invalidation decision therefore relates to the provision of the directive itself and not to its transposition into Luxembourg law, as Luxembourg legislation is in conformity with the directive,” said the spokesperson.
“It is, however, clear that Luxembourg will comply with this provision,” the spokesperson said, noting that the problem arises in the same terms at the level of all the member states which have transposed the said directive.
Meanwhile, the Dutch minister of finance has issued a letter to the House of Representatives with respect to the public’s access to information from the ultimate beneficial owners (UBO) register.
Here, the ministry emphasises that the ruling may have consequences for the operation of the Dutch UBO register, but it does not directly affect the entities' obligation to register UBOs in the first place.
