EU Court Limits Access to Information on Beneficial Owners of EU Companies
The Situation: The European Union's Fourth Anti-Money Laundering ("AML") Directive (Directive (EU) 2015/849 of May 20, 2015) granted broad access to information relating to the beneficial owners of companies with registered offices in an EU Member State, provided users could demonstrate a "legitimate interest" in the information. The Fifth AML Directive removed that requirement, however, thereby granting unconditional access to such information.
The Development: On November 22, 2022, the Court of Justice of the European Union ("CJEU") invalidated the general public's unconditional access to information relating to the beneficial owners of EU-registered companies.
Looking Ahead: To gain access to information contained in the register relating to beneficial owners of companies with registered offices in the European Union, a member of the general public once again must have a "legitimate interest" in the information, likely involving the prevention of and fight against money laundering and the financing of terrorism.
Fourth Anti-Money Laundering Directive Creates Beneficial Owner Register
The Fourth Anti-Money Laundering Directive provided for the creation by EU Member States of a register of the beneficial owners of companies and other legal entities incorporated in their territory. "Beneficial owner," in the case of a company, is defined as the natural person or persons directly or indirectly owning more than 25% of the capital or voting rights (each Member State may reduce this percentage).
The information contained in the register (identity, nationality, country of residence, and extent of effective interests held) was accessible to competent authorities, financial intelligence units, and entities subject to customer due diligence (mainly credit and financial institutions). However, any person or organization also could access the information, provided that they were able to demonstrate a "legitimate interest" in accessing this information.
Fifth Anti-Money Laundering Directive Removes "Legitimate Interest" Requirement
The Fifth AML Directive (Directive (EU) 2018/843 of May 30, 2018) granted the general public the ability to access information related to beneficial owners without any particular conditions or requirements. This Directive removed the "legitimate interest" requirement, which until then had to be demonstrated by any member of the general public wishing to access this information. The Directive justified this development because it:
- Preserved confidence in the integrity of commercial transactions and the financial system;
- Facilitated the investigation of money laundering, associated predicate offenses, and the financing of terrorism; and
- Deterred the misuse of legal entities and arrangements, including for the purposes of tax evasion.
CJEU Invalidates the General Public's Unconditional Access to Beneficial Ownership Registers
The CJEU, in a judgment of November 22, 2022 (cases C-32/20 and C-601/20), invalidated the general public's access to the register of beneficial owners without specific conditions for two main reasons: (i) the pursuit of transparency in business dealings cannot be considered as an objective of general interest; and (ii) granting access to the general public is not proportionate to the Directive's goal.
In its judgment, the CJEU initially stated that the prevention of money laundering and financing of terrorism does indeed constitute an "objective of general interest likely to justify interference" with the fundamental rights provided for by the Charter of Fundamental Rights of the EU (2012/C 326/02, article 7—respect for private and family life, and article 8—protection of personal data).
However, the CJEU then specified that the "principle of transparency," as derived from the Treaty on European Union and the Treaty on the Functioning of the European Union, "cannot be considered, as such, as an objective of general interest likely to justify the interference" in question. In this regard, the CJEU observed that it is not up to the general public to combat money laundering and the financing of terrorism. Instead, such a fight is "[incumbent] primarily on public authorities, as well as on entities such as credit institutions or financial institutions, which, because of their activities, are subject to specific obligations in this area."
The CJEU also found that the requirement of proportionality of an interference can be satisfied only when it is limited to what is strictly necessary. The CJEU determined in this case that access by the general public to the register of beneficial owners, without the public's having to demonstrate a legitimate interest, constitutes a disproportionate interference.
In addition, the CJEU concluded that the European Commission's justification for removing the "legitimate interest" requirement—that it was a concept difficult to define legally—was faulty. For the CJEU, "the possible existence of difficulties in precisely defining the cases and the conditions under which the public can access information on beneficial owners cannot justify the Union legislator providing access to the general public to such information." The CJEU clarified that the press and civil society organizations with a link to the prevention of and battle against money laundering and the financing of terrorism have a legitimate interest in accessing information on beneficial owners, as do financial institutions and authorities involved in combatting these offenses.
Three Key Takeaways
- The CJEU has determined that the goal of transparency in business dealings cannot justify an interference with the fundamental rights of natural persons, and the proportionality criterion is not met by allowing the general public to access information relating to beneficial owners without having to demonstrate a "legitimate interest" in the information.
- The CJEU decision does not, however, call into question the right of financial institutions, in particular, to access beneficial ownership information in order to enable them to fulfill their obligations in terms of knowing customers and their owners.
- In a press release dated January 23, 2023, the French Minister for the Economy, Finance and Industrial and Digital Sovereignty indicated his intention to maintain the general public's access to data from the register of beneficial owners pending an analysis of the implications of the CJEU's decision.
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