Balancing Act: Transparency and Privacy in Beneficial Ownership
1. Introduction: CJEU Decision on AMLD5 Provisions
The recent decision by the Court of Justice of the European Union (CJEU) on November 22, 2022, has reverberated through the financial and regulatory landscapes, specifically invalidating the provisions of the EU Anti-Money Laundering Directive (AMLD5, 2018) and their impact on public access to beneficial ownership registers.
2. Background: AMLD5 and Luxembourg's Implementation
The AMLD5, enacted in 2018, mandated Member States to establish beneficial ownership registers to enhance transparency and combat money laundering. In line with this directive, Luxembourg enacted a law in 2019, establishing a Register of Beneficial Ownership, part of which was made accessible to the public.
3. CJEU's Findings on Privacy and Data Protection
The CJEU's ruling centered on the contention that the AMLD5 provisions, specifically those granting unrestricted public access, infringe upon the privacy and data protection rights of beneficial owners. The court argued that such access poses significant risks to private life and the safeguarding of personal data.
4. Proportionality and Necessity Concerns
Despite the anti-money laundering objectives, the CJEU found fault with the AMLD5 provisions, deeming them neither strictly necessary nor proportionate. The court criticized the lack of clearly defined circumstances for legitimate interest, highlighting the need for a more balanced approach between public access and fundamental rights protection.
5. Restriction on Public Access
The CJEU's decision implies a significant restriction on public access to beneficial ownership information. This move prioritizes the protection of fundamental rights over the transparency objectives of the AMLD5, signaling a recalibration in the balance between anti-money laundering efforts and individual privacy.
6. The Immediate Impact on UBO Registers
The CJEU decision swiftly triggered the closure of beneficial ownership registers in Luxembourg and the Netherlands on November 23 2022, just one day after the ruling. Other EU countries, in alignment with the BeNeLux nations, promptly took similar actions to comply with the fundamental rights outlined in the Charter.
Several EU member states, including Austria, and Ireland, opted for temporary suspensions of general access to their Ultimate Beneficial Ownership (UBO) databases. In contrast, France reinstated public access, a move applauded by transparency activists.
Most recently, as of the 9th of October 2023, all companies and other legal entities established in Italy must communicate data and information on their UBO(s) to the competent Companies’ Registry.
7. Romanian Status Quo
In accordance with Law No 129/2019 on the prevention and combating of money laundering and terrorist financing, the National Trade Register Office must keep the Central Beneficial Ownership Register, which lists the beneficial owners of legal persons who must apply to be recorded in the Trade Register.
Access to the Romanian Central Beneficial Ownership Register is granted:
- to authorities with supervisory and control powers, to judicial bodies, in accordance with Law No 135/2010 on the Code of Criminal Procedure, and to the Trade Register Office, without alerting the affected person;
- to reporting entities when applying Know Your Customer (“KYC”) measures;
- to any interested natural or legal person (for a fee).
8. Ramifications on International Financial Crime Efforts
The decision's ripple effect is significant, impacting organizations involved in tackling international financial crime and sanctions compliance. Financial institutions, non-financial entities, investors, corporates, journalists, and civil society organizations lose a crucial tool, hindering their ability to efficiently conduct UBO checks.
9. Dissatisfaction with Lack of Alternatives
While acknowledging the CJEU's reasoning, there's clear dissatisfaction among financial crime specialists due to the absence of an efficient alternative for accessing UBO information. This deficiency impedes efforts to identify key stakeholders, assess corruption risks, and uncover complex corporate ownership structures.
UBO registries were vital for conducting enhanced due diligence, especially in assessing corruption, sanctions, political exposure, and other financial crime risks. Beyond these immediate use cases, investigators found UBO registries invaluable in unraveling intricate corporate ownership structures, providing leads and contextual information for multijurisdictional cases.
Without UBO registries, the process of deciphering corporate structures becomes time-consuming and costly. Investigative efforts now require local expertise, language skills, and knowledge of diverse regulatory landscapes. Online company databases, while existing, often lack completeness and accuracy, emphasizing the need for access to specialists with local knowledge.
10.Conclusion
In summary, the recent CJEU decision hinted at potential access for journalists, civil society groups, and due diligence professionals based on a "legitimate interest." However, lawmakers have yet to agree on a clear definition or alternative for this term. As discussions unfold between the Council of the European Union and the European Parliament regarding a unified AML/CFT rulebook, the need for and definition of "legitimate interest" in accessing beneficial ownership information is expected to be a key focus. This underscores the ongoing challenge of finding a balance between transparency and privacy in evolving anti-money laundering regulations.