EU Court rolls back beneficial ownership rules in a blow to transparency

The European Court of Justice rules against public access to registers that list the ultimate beneficial owners of companies

The European Court of Justice has dealt a blow to transparency rules by decreeing that public access to the beneficial ownership of companies is invalid
The European Court of Justice has dealt a blow to transparency rules by decreeing that public access to the beneficial ownership of companies is invalid

A transparency rule to give the public access to the beneficial ownership of companies has been ruled to be invalid by the European Court of Justice.  

The Court said the access to the BO register for companies whose ultimate beneficial owners were hidden by trusts or nominees, was an interference that was “neither limited to what is strictly necessary nor proportionate to the objective pursued.” 

Malta operates a BO registry that gives access to undisclosed UBOs at the rate of €5 for each company. 

The 2019 anti-secrecy regulations were enacted by EU countries in recent years as a direct response to the financial improprieties disclosed by the Panama Papers, the Pandora Papers, and other similar leaks of financial data. 

The case concerns the Luxembourgish business register, which like other registries can restrict access to such information in cases when UBOs request it not to be public.

In two cases, a company and its beneficial owner had unsuccessfully requested LBR to restrict the general public’s access to information concerning them. The matter was referred to the ECJ, requesting a ruling on how to interpret the EU’s anti-money laundering directive and its provisions in the light of the Charter of Fundamental Rights of the European Union. 

The Court ruled that the general public’s access to information on beneficial ownership constituted a serious interference with the fundamental rights to respect for private life and to the protection of personal data. 

“Indeed, the information disclosed enables a potentially unlimited number of persons to find out about the material and financial situation of a beneficial owner,” the ECJ said. 

“Furthermore, the potential consequences for the data subjects resulting from possible abuse of their personal data are exacerbated by the fact that, once those data have been made available to the general public, they can not only be freely consulted, but also retained and disseminated.” 

The rules are intended at preventing money laundering and terrorist financing by creating, by means of increased transparency, an environment less likely to be used for those purposes.  

But the ECJ now believes that interference is disproportionate, while not resulting in any benefits in terms of combating money laundering and terrorist financing. Under current regulations, the court claimed, disclosing such information allows a potentially endless number of people to learn about a beneficial owner’s material and financial status. 

Tax equity and transparency activists argue that “beneficial ownership” may be a tool for the wealthy, but also criminals and tax cheats to disguise ownership of entities they use to hide their wealth from authorities. 

“By requiring corporations and offshore entities to publicly disclose who truly owns them, public beneficial ownership laws are designed to prevent their owners from escaping the rule of law, which can mean preventing billionaires from evading tax as well as preventing sanctioned oligarchs, organized crime and human traffickers from laundering money and financing illegal activity,” said the London-based Tax Justice Network advocacy group. 

Tax Justice Network also said the ruling occurred in the midst of EU deliberations about strengthening measures to fight dirty money entering the EU from Russia. “With public access to registers across the EU now revoked, dirty money will likely surge back into the EU,” the organisation warned. 

The global anti-graft watchdog Transparency International also believes that the EU Court of Justice’s ruling has set back the battle against cross-border corruption for years. 

“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,” Maíra Martini, corrupt money flows expert at Transparency International, told OCCRP (Organised Crime and Corruption Reporting Project). 

Roland Papp, senior policy officer of Transparency International EU, thinks European lawmaking and executive bodies can counter the Court’s decision by “guaranteeing access in the current 6th EU Anti-Money Laundering Directive,” which should also include “precise provisions that reconcile public access with privacy and security concerns.”