European Court: Public beneficial ownership registers infringe fundamental rights

In a landmark decision, the Court of Justice of the European Union has ruled that provisions in the EU’s Anti-Money Laundering Directive that allow the general public access to beneficial ownership registries are “invalid”.

Unfettered access to information about the true owners of companies and other legal entities constitutes a “serious interference with the fundamental rights to respect for private life and to the protection of personal data,” the court said.

The information disclosed by registers enabled a potentially unlimited number of persons to find out about the material and financial situation of beneficial owners, it added.

The Cayman Islands has established a register of beneficial ownership and has been under pressure by the UK, the European Union and advocacy groups to make the information public.

Cayman agreed to a central register after UK legislation threatened to impose an order in council, effectively legislating on behalf of the islands, if Cayman and other UK Overseas Territories did not act on their own accord.

In October 2019, the Cayman Islands government committed to a public register by 2023, if the EU and the UK have introduced similar registers by then.

Transparency versus privacy

Public register advocates argue that disclosing the true owners of companies increases the transparency needed to fight financial crime, money laundering and tax evasion.

The court recognised the AML directive pursued a general interest objective that could justify interferences with the fundamental privacy and data protection rights of the Charter of Fundamental Rights of the European Union.

However, the court held that granting public access was neither limited to what is strictly necessary, nor proportionate to the objective pursued.

The directive’s provisions amounted to a considerably more serious interference with fundamental rights than the previous EU regime, which only gave access to beneficial ownership information to a person, or organisation, who could demonstrate a legitimate interest.

The court said the serious interference was not offset by any benefits in terms of fighting money laundering and terrorist financing, which could be derived from expanding access to information to the public at large.

The European Commission justified the change to its beneficial ownership regime with the difficulties in defining the circumstance and conditions under which a legitimate interest exists, for example, for journalists to access beneficial ownership data.

The court decided this was not a sufficient reason.

Requiring an online registration and to provide an exemption from public disclosure, in exceptional circumstances, did also not strike a proper balance to safeguard fundamental privacy and data protection rights, the court said.

The case was referred to the Court of Justice of the EU by a Luxembourg district court, which believed that the information disclosure to the public possibly entailed a disproportionate risk of interfering with the rights of company owners.

The court has to decide two cases brought by a company and a beneficial owner, who had unsuccessfully appealed Luxembourg’s registrar to restrict access to their information.

Cayman’s beneficial ownership reform

Last year, government launched a consultation on the reform of the beneficial ownership regime, asking whether Cayman should create a single act for beneficial ownership like other offshore jurisdictions have done.

Cayman has, since 2017, required companies, limited liability companies and limited liability partnerships to keep records of their beneficial owners and make them available to the Registrar of Companies.

Currently, the public only has access to an entity’s current directors, the registered office, the nature of its business and the date of its financial year-end.

A move to a public register will require further legislative changes and development of the underlying technology.

“This is necessary to ensure that the beneficial ownership information is available, accurate (and up-to-date) and that a framework is in place to deliver adequate corporate transparency, whilst also protecting individuals’ privacy,” the government said in its consultation document.

Such a move is now doubtful. Cayman has always predicated its commitment to establishing a public register on it becoming a global standard.

The 22 Nov. ruling by the Court of Justice is binding in all EU members states and effectively ends public access to information about company owners.

The human rights section of the Cayman Islands constitution contains similar fundamental privacy and data protection rights as the EU charter and any attempt to grant access to the wider public could be challenged in court.

New EU legislation needed

Anti-corruption campaigners Transparency International said in a statement the EU’s anti-money laundering legislation had been the most progressive so far, but the Court of Justice had erased such progress.

Roland Papp, senior policy officer of Transparency International EU, said the court had nevertheless recognised that press and civil society organisations are instrumental in preventing and combatting money laundering and therefore have a legitimate interest in accessing information on beneficial owners.

“It’s now time for the European Parliament and Council to codify this by guaranteeing access in the current 6th EU Anti-Money Laundering Directive. But that’s not enough; the new directive should also include precise provisions that reconcile public access with privacy and security concerns,” he said.