CJEU rules on EU’s anti-money laundering directive

Out-Law News | 30 Nov 2022 | 3:08 pm | 3 min. read

A ruling by the Court of Justice of the European Union (CJEU) has recognised the need to balance anti-money laundering and terrorist financing measures with privacy rights, an expert has said.

The Court said that a rule that said the public should be able to identify the beneficial owners of EU companies was invalid.

According to the Court, the public’s access to information on beneficial ownership, provided for in the EU’s anti-money laundering directive, constituted a serious interference with the fundamental rights to respect for private life and to the protection of personal data, enshrined in the Charter of Fundamental Rights of the European Union.

David Hamilton of Pinsent Masons said the ruling had “drawn ire” from some non-profit organisations which worried that it could set back the fight against cross-border corruption by years. “It remains to be seen whether such prophesies come to pass. It is certainly true to say that while unrestricted public access to beneficial ownership registers can be a means of deterring financial crime by enabling a broader cohort of people to follow the money, potentially conflicting data protection laws mean that the extent of such rights must be considered very carefully to avoid disproportionate interference with privacy rights,” he said.

Hamilton predicted that more restrictions could be placed on corporate and financial registers in the wake of the CJEU ruling. He said: “Regulators will now likely have to limit access to those with a demonstrably legitimate interest as it was the case under the EU’s fourth Anti-Money Laundering Directive (4MLD). The decision does not close the door to access, but it does sound a note of caution regarding the general direction of travel in corporate transparency.”

The case heard by the CJEU came after a Luxembourg company and its beneficial owner both launched legal challenges against a 2019 Luxembourg law that established a Register of Beneficial Ownership in accordance with the EU’s fifth anti-money laundering directive (5MLD). The law requires businesses to enter and retain information on their beneficial owners in the register while making a significant proportion of that information accessible to the general public online. Although beneficial owners can ask the administrator of the register to restrict access to information in certain cases, such requests have been rejected in the overwhelming majority of cases.

The Luxembourg District Court heard how the beneficial owner had previously unsuccessfully requested to restrict the general public’s access to information concerning them,. It ruled that the disclosure of the information was capable of entailing a disproportionate risk of interference with the fundamental rights of the owner. The Court referred a series of questions to the CJEU for a preliminary ruling concerning the interpretation of the relevant provisions in 5MLD and their validity in the light of the Charter.

The CJEU found that the information disclosed enables a potentially unlimited number of people to find out about the material and financial situation of a beneficial owner. It held that 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 public, they can not only be freely consulted, but also retained and disseminated.

The Court ruled, however, that the EU’s attempts to prevent money laundering and terrorist financing through increased transparency justified even serious interference with the fundamental rights enshrined in Articles 7 and 8 of the Charter, and that the public’s access to information on beneficial ownership was an appropriate part of the bloc’s efforts. Despite this, the CJEU found that the interference entailed by the disputed measure was not limited to what was strictly necessary, nor proportionate to the objective pursued.

Andrew Sackey of Pinsent Masons said the decision could have a major impact on the move towards increased transparency in beneficial ownership pushed for by governments, regulators and supranational bodies. “5MLD introduced extended reporting requirements for trustees of certain express trusts, with the UK trust registration service (TRS) maintained by HM Revenue and Customs. The UK government has also rolled out a new Register of Overseas Entities, maintained by Companies House, for entities incorporated or otherwise formed abroad who want to purchase, sell or transfer property or land in the UK. The requirement to register also applies retrospectively,” Sackey said.

He added: “The TRS is not a public register and only those who can demonstrate a legitimate interest in accessing beneficial ownership information will be able to do so. Conversely, the Register of Overseas Entities is a public resource with the government confirming that ‘most of the information given to Companies House about overseas entities, beneficial owners and managing officers will be publicly available’. However, home addresses, full dates of birth, email addresses and, if relevant, information about trusts, will not be shown. There is therefore already some acknowledgement that not all beneficial ownership information should be disseminated beyond those with a proven need to know.”

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