The Court of Justice of the European Union ruled Tuesday that unfettered public access to beneficial ownership information violates “fundamental rights,” potentially thwarting efforts by the bloc to combat the use of legal entities in financial crimes for years to come.
To tackle criminal abuse of legal entities, the EU’s Fifth Anti-Money Laundering Directive, which took effect in January 2020, requires the bloc’s 27 nations to establish public registers showing the true owners of companies domiciled in their jurisdictions. Several nations, including France and Luxembourg, maintain full-fledged public registers, while others, such as Hungary and Spain, are still in the process of setting them up.
But in an 11-page decision, the grand chamber of the Court of Justice, the bloc’s highest authority in matters of EU law, ruled that giving the general public access to the names and other identifying details of owners constitutes a “serious interference” with their right to privacy and protection of their personal data under the EU Charter on Fundamental Rights.
“In today’s judgment, the Court … holds that, in the light of the charter, the provision of the anti-money-laundering directive whereby member states must ensure that the information on the beneficial ownership of corporate and other legal entities incorporated within their territory is accessible in all cases to any member of the general public is invalid,” the court said in a statement accompanying the ruling.
Tuesday’s intervention by the court marks the latest instance in which European officials have been told to hit pause on AML reforms and reconsider their effect on privacy and data protection, and throws a major aspect of the EU’s broader campaign against money laundering, terrorist financing, corruption and other financial crimes into disarray.
EU nations will probably respond to the decision by walling off their ownership registries from the public temporarily, if not indefinitely, said Maira Martini, a policy analyst with Transparency International in Berlin.
“The decision is a blow to beneficial ownership transparency in Europe and abroad,” Martini said. “At a time when the need to track down dirty money is so plainly apparent, the court’s decision takes us back years.”
The Luxembourg District Court asked the Court of Justice to rule on the proportionality of public beneficial-ownership registers in 2020 after a local real estate company, Sovim SA, and the owner of another local firm, known only as “WM,” unsuccessfully petitioned the Luxembourg Business Registry to restrict access to their personal details.
The value of public access by that point had arguably already become apparent: in February 2021, Le Monde and other news outlets analyzed and used information scraped from Luxembourg’s registry to reveal that dozens of fraudsters, oligarchs and corrupt officials used legal entities formed in the Grand Duchy to move funds.
But public access grants “a potentially unlimited number of persons” insight into the “material and financial situation” of a company’s owners, and opens up the possibility of their personal information not only being “freely consulted, but also retained and disseminated,” the Court of Justice ruled.
While acknowledging the EU’s goal of combating financial crime via public registers, the EU court found that they interfere with the fundamental rights of owners by not limiting access to “what is strictly necessary nor proportionate to the objective pursued.”
They amount to a “considerably more serious interference” than registers that only national authorities have permission to access, according to the 15-judge panel, regardless of “any benefits” against illicit finance that public access may or may not yield.
The Fifth AML Directive allows EU nations to restrict access to ownership information in “exceptional circumstances” and require those seeking to obtain such data to set up online accounts, but the judges determined that those safeguards do not sufficiently protect owners of legal entities from misuse of their personal details.
Tuesday’s ruling may not close the book on public access entirely, however.
“The court disapproves of the broad grounds for public access as they are currently written,” said Andries Doets, an attorney with the Eurius law firm in Luxembourg. “How to solve this problem remains an open question—it probably requires emergency legislation at the EU and national level.”
National governments could foreseeably maintain public registers by restricting access to more entries, and in more circumstances, Doets said.
A spokesperson for the European Commission, which functions as the EU’s executive branch and authored the Fifth AML Directive, told moneylaundering.com in an email that officials would assess the impact of the judgment and work with lawmakers and the European Council to ensure full compliance with it.
Contact Koos Couvée at firstname.lastname@example.org
|Topics :||Anti-money laundering , Know Your Customer|
|Document Date:||November 22, 2022|