The CJEU's judgement on beneficial ownership has given a setback to anti-money laundering operations
Determining the real owner of a company may become more difficult after Europe's highest court found that automatic access to beneficial ownership registers violated the right to privacy.
The Court of Justice of the European Union (CJEU) overturned a section of the 5th EU Anti-Money Laundering Directive (AMLD5) that provided public access to information on companies' true owners in a ruling issued on November 22.
A Luxembourg court referred the case to the CJEU after a Luxembourgish firm and its beneficial owner sought to restrict public access to the Luxembourg Business Registers, which store corporate information.
The Luxembourg court wanted to know whether the provisions of the AMLD5 were in violation with the European Union's Charter of Fundamental Rights, which outlines the rights of EU citizens to privacy and other freedoms.
The CJEU determined that the general public's access to information on beneficial ownership constituted a "serious interference" with the fundamental rights to privacy and data protection. According to the AMLD5, access to information was "neither strictly essential nor appropriate to the goal pursued."
The AMLD4, which was repealed in 2018, restricted access to registers of beneficial ownership to members of the public who could demonstrate a "legitimate interest" in accessing the information.
The CJEU stated in its judgement that just because the concept of what constitutes a "legitimate interest" is difficult to define in detail, it should not imply that any member of the public has an automatic right to access information.
Following the decision, EU member states began barring access to their beneficial ownership registers.
“Access to beneficial ownership data is vital to identifying—and stopping—corruption and dirty money,” said Maíra Martini, corrupt money flows expert at anti-corruption campaign group Transparency International, in a statement. “The more people who are able to access such information, the more opportunity to connect the dots.
“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 decision, according to Nigel Brown, partner at law firm Gateley, is a "unwelcome surprise" that separates the European Union from the United Kingdom and makes it more difficult for lawyers, accountants, and compliance specialists to guarantee they are following different legal interpretations.
“The U.K.’s second Economic Crime Bill, for example, seeks greater transparency by requiring information on corporate entities and their owners to be made public, thus enabling both regulators and law enforcement agencies to obtain and share information on entities that may be involved in money laundering activities,” he said. “The CJEU is unhelpful given the U.K.’s current direction.”
According to Ted Datta, head of financial crime compliance practise, Europe and Africa, at risk consultancy Moody's Analytics, the "disappointing" verdict will have far-reaching consequences for AML standards across the European Union.
“Over recent years, significant progress has been achieved in democratizing access to information through transparency initiatives, which has made the never-ending fight against dirty money much more effective,” said Datta. “Those seeking to identify ultimate beneficial owners and take on criminal financial activity will now face more hurdles and feel disheartened.”
By fLEXI tEAM