Revolution in the registration of beneficial owners or a false alarm?
The Court of Justice of the European Union has muddied the legal waters by ruling that a provision of the AML Directive requiring EU Member States to provide the general public with access to the information contained in the register of beneficial owners is invalid. It took only a few days, and the public sphere was, slightly exaggerated, talking about nothing else. But what does the invalidity of part of the AML Directive actually mean? Will the public no longer have access to information on beneficial owners? And what does this mean in practice for the companies themselves: Will they remain obliged to identify their beneficial owners?
The beneficial owners of Luxembourg companies have sought through the courts to restrict access to the information recorded in the local register of beneficial owners and keep it accessible only to national authorities and credit and financial institutions. One of the beneficial owners justified this request on the grounds, inter alia, of his frequent travels to countries with unstable political regimes, high level of general criminality and the potential risks to which he is exposed as a result of public access to information about his person, such as the risk of kidnapping, violence or even death. It should also be noted that the Luxembourg register contained relatively detailed information on the beneficial owners. Whereas the Czech register of beneficial owners only includes the name and surname, year and month of birth, nationality and country of residence, the Luxembourg register also disclosed the full date of birth, birth number or even the address of the beneficial owner.
The road to the Court of Justice of the European Union
Luxembourg district court identified potential invalidity of Article 30(5)(c) of the 4th AML Directive (as amended by the 5th AML Directive), under which Member States are obliged to ensure that the information on beneficial owners is always accessible to any person in the general public and has initiated preliminary ruling proceedings before the Court of Justice of the European Union (“CJEU”).
Restrictions on public access to information are only possible under the AML Directive in exceptional circumstances provided by national law where the person registered as the beneficial owner could be exposed to disproportionate risk. It is precisely these concepts that the CJEU was asked to interpret in its preliminary ruling.
The CJEU concluded that the reviewed provision requiring Member States to allow access to the register of beneficial owners to the general public is invalid.
The CJEU determined that the general public’s access to relatively detailed information on beneficial owners constitutes a disproportionate interference with the right to respect for private and family life and the right to protection of personal data of registered persons enshrined in Articles 7 and 8 of the Charter of Fundamental Rights of the European Union.
In the view of the CJEU, the broad approach allows the public to process the published data also for reasons unrelated to the objective of the regulation in question, i.e. for example, in order to obtain information on the financial situation of the person concerned.
The CJEU did not forbid public access in general but summarised that the regulation must meet the following conditions: i) observance of the principle of legality; ii) respect for the essence of the fundamental rights guaranteed by Articles 7 and 8 of the Charter of Fundamental Rights of the European Union; iii) compliance with the objective of general interest recognised by the European Union; and iv) compliance with the appropriateness, necessity and proportionality of the interference. According to the CJEU, the AML Directive failed on the last two points.
According to the rationale of the AML Directive, the reason for the disclosure of the data was to increase the transparency of the economic and financial environment in the EU and thus to create an environment less susceptible to abuse for money laundering and terrorist financing purposes. However, according to the CJEU, the principle of transparency stemming from primary EU law is primarily aimed at activities of a public nature, including the use of public funds, and thus cannot be considered an objective of general EU interest in relation to private entities.
It can be concluded from the CJEU’s assessment that only authorised persons, i.e. persons who need to see the information in the register for some reason, should have access to such information on beneficial owners. In this connection, the CJEU disagreed with the objection that this condition may be very difficult to meet in practice, i.e. that it will be complicated to set up EU-wide access to information on beneficial owners in a way that only persons who can prove their legitimate interest can actually have access to such information.
Although the CJEU recognised that, for example, the press and civil society organisations combating money laundering and the financing of terrorism meet the legitimate interest, the CJEU considered that such broad public access as in the present case constitutes a serious infringement of fundamental rights which is not compensated by any advantages over the original, limited access. Moreover, the CJEU added that this deficiency was not remedied by the requirement to register the persons accessing the register, since this intermediate step did not in fact prevent the general public from having access to information on beneficial owners.
In view of the invalidity of the AML Directive’s provisions on the obligation to make information on beneficial owners available to the general public, there is currently no legal basis at the EU level for the public availability of information on beneficial owners. This has pushed the regulation of Anti Money Laundering and Combating the Financing of Terrorism back several years.
However, this does not automatically imply that all subsequent (local) legislation on registers of beneficial owners is invalid. Similarly, it cannot be automatically inferred from the CJEU’s ruling that legal entities are no longer obliged to identify and report their beneficial owners.
However, the (unconditional) publicity and availability of information on beneficial owners will be problematic, and, according to publicly available information, a number of EU Member States have already reacted to the CJEU’s ruling. Although barely a week has passed since its publication, the states have started to make their registers of beneficial owners inaccessible. Even though the Czech Ministry of Justice has not yet taken any steps and the Czech register of beneficial owners can be consulted without any restrictions, this may change very quickly in the coming days.
Can we thus count on accessing information on beneficial owners in the future? Probably yes, but not as easily as now – not everyone will have access to the information, but only those who need it for some reason, i.e. those with a legitimate interest. However, how the conditions for access will be set and how we will prove that we meet them is up in the air.
The CJEU’s ruling thus represents a challenge to European legislators who, if they want to ensure the greatest possible availability of information on beneficial owners at the EU level, will have to come up with a solution to ensure the public availability of information while complying with the conditions summarised in the CJEU’s ruling. It can be assumed that if the AML Directive is amended, further modification of the Czech Act on the Register of Beneficial Owners will also be necessary, even though the ink on its latest amendment, effective from 1 October 2022, has not even dried yet.