In the past couple of weeks there has been considerable media attention following a European Court of Justice (CJEU) decision that sought to find a balance between the rights of the ultimate beneficial owners of companies and the interests of Society.
The 5th Anti-Money laundering amending Directive (2018/843) included a provision, namely Article 1(15)(c) of Directive 2018/843, which provided that member states shall ensure that information on the beneficial ownership is accessible in all cases to any member of the general public. It provided that members of the public shall be permitted to access at least the name, the month and year of birth and the country of residence and nationality of the beneficial owner as well as the nature and extent of the beneficial interest held.
Member states could, under conditions to be determined in national law, provide for access to additional information enabling the identification of the beneficial owner. That additional information would include at least the date of birth or contact details in accordance with data protection rules.
The CJEU decision in the joined cases WM (C‑37/20), Sovim SA (C‑601/20) dealt precisely with this aforementioned Article in the 5th AMLD.
WM was the executive officer and beneficial owner of YO (a real estate company). WM brought an action before the Luxembourg District Court claiming that as a consequence of Luxembourg law, the beneficial owner of YO was at risk of kidnapping, susceptible to violence, and death.
WM also argued that this law limited his travels to countries with unstable political regimes and that the court should restrict access to his personal information.
The Luxembourg District Court stayed proceedings and referred the matter to the Court of Justice for a preliminary ruling.
Sovim (Case 601/2020), another Luxembourg-based company, requested that the information regarding its beneficial owners contained in the Register of Beneficial Owners (RBOs) be restricted only to certain authorities. It argued that a general carte blanche public access to information on UBO’s encroaches upon the right to respect for private and family life, as well as the right to the protection of personal data as stated in Articles 7 and 8 of the Charter of fundamental Rights of the European Union.
Faced with these similar arguments, the Luxembourg court also referred this case to the CJEU.
Considerations before the court
In a nutshell, the Court of Justice of the European Union was asked to determine if public access to the data held in the Register of Beneficial Owners is compatible with the provisions of the European Union Charter of Fundamental Human Rights and the provisions of the GDPR legislation.
Was unrestricted public access to the data in the Register of Beneficial Owners necessary to achieve the aims of the 5th Anti-Money Laundering Directive 2015/849 (concerning the prevention of the use of the financial system for the purposes of money laundering or terrorist financing)?
According to established court rulings, any measures that interfere with the rights laid out in articles 7 (respect for private and family life) and 8 (protection of personal data) of the Charter of Fundamental Rights of the European Union must satisfy the requirements of appropriateness, necessity, and proportionality in relation to the objectives they are trying to achieve.
To ensure that the interference is minimised, clear and precise rules must be laid out on the scope and application of the measure, as well as minimum safeguards to protect personal data against abuse.
Furthermore, to satisfy the proportionality requirement, it must be ascertained whether the measures are appropriate, necessary, and not disproportionate to the objectives they are trying to achieve.
During the negotiations of the 5th AMLD the European Parliament, Council and Commission held that allowing public access to information on beneficial ownership is necessary in order to prevent money laundering and terrorist financing.
The Commission, Parliament, and Council argued that access to information on beneficial ownership should be limited to only data necessary to identify the beneficial owner and their interests. Access to this information can be derogated from in certain circumstances in order to protect the beneficial owner from potential harm.
It was also argued that, member states may require online registration in order to access this information, and may make information about the requester available to the beneficial owner in order to prevent abuse.
Minimum threshold of data disclosure
The law in question stipulated the minimum threshold of data disclosure regarding beneficial owners to members of the public.
However, the use of the expression ‘at least’ suggests that those provisions allowing for data to be made available to the public are not sufficiently defined and identifiable.
Thus, the rules interfering with the rights guaranteed in Articles 7 and 8 of the Charter do not meet the requirement of clarity and precision. It states that, although combating money laundering and terrorist financing is an important objective, it is primarily a task for public authorities and entities subject to specific obligations in that regard, such as credit or financial institutions.
The court held that the EU legislature should not provide for the general public to access information on beneficial ownership as there is difficulty in providing a detailed definition of the circumstances and conditions under which the public may access information.
It is assumed that the press, civil society organisations, and those who may enter into transactions with the beneficial owners of a company have a legitimate interest in accessing beneficial ownership information, however, the general public's access to such information is not strictly necessary to prevent money laundering.
The CJEU held that the information made available in the RBO may allow a profile to be assembled which could reveal the state of a person's wealth and their investments. It was argued that such information should only be released with the consent of the person concerned or according to a legitimate basis provided by the law.
Public access interferes with right to private life
Indeed, the European Court of Justice (CJEU) found that public access to information on beneficial ownership, as provided in Article 30(5) of EU Directive 2015/849, interferes with the rights guaranteed in Articles 7 and 8 of the Charter of Fundamental Rights of the EuropeanUnion, which protect the right to respect for private life and the processing of personal data respectively.
The rights of these individuals (Ultimate Beneficial Owner/s) should be respected and protected. Any interference with the rights of individuals must be limited to what is strictly necessary and the proper balance between the general interest and the fundamental rights must be considered when allowing access to beneficial ownership information.
Consequently, the court held that provisions allowing for online registration and exemptions in exceptional circumstances are not enough to ensure a balance between the public interest and personal data protection.
On this basis the Court of Justice of the European Union (CJEU) invalidated a provision of the 5th EUAnti-Money Laundering Directive, namely, Article 1(15)(c) of Directive 2018/843 in so far as it amended point (c) of the first subparagraph of Article 30(5) of Directive 2015/849, that guaranteed public access to information on companies’ real owners.
Dr Clive Gerada is an associate at Azzopardi Borg and Associates, Advocates.