Beneficial Ownership Registers and The Recent ECJ Decision – Des Hanna
Background to beneficial ownership registers
The mandatory introduction of Beneficial Ownership registers by organisations such as the OECD and the EU must, in many ways, be applauded. The intention of the registers is to make it much more difficult for criminals and terrorist organisations to hide or launder money, by making it obligatory to disclose the true or ultimate owner of a company, which may contain the proceeds of criminal activity.
To some extent, the registers have undoubtedly made it more difficult for criminal and terrorist organisations to carry out their nefarious financial activities, but it would also be naive to believe that they are a panacea. Where there’s a will, there’s always a way.
A regular point of discussion with clients and their advisers is Beneficial Ownership registers. The UK is a common example. The PSC (People with Significant Control) register requires the ultimate controller of a UK company to record their details with Companies House.
Failure to furnish these details could result in a two-year prison sentence and/or a fine. It is not known how widely the authorities police the register or, indeed, if anyone has been prosecuted by the UK authorities since the introduction of the PSC register (in 2016) for providing incorrect information.
The vast majority of people who have financial activities in jurisdictions that require information on beneficial ownership, are not engaged in criminal activity. Many individuals, for quite legitimate reasons, however, are not comfortable providing personal information with regard to their financial activities which is then on a public register. Some individuals are so averse to these registers (because they feel their privacy is being breached) that they will take steps to avoid a certain jurisdiction, just so that their personal details aren’t publicly available.
A recent ECJ decision may have changed the landscape (at least as far as EU jurisdictions are concerned) on the position of publicly available Beneficial Owner registers.
The ECJ decision
A recent ECJ decision ( EUECJ C-37/20 Luxembourg Business Registers), has thrown into question the compatibility of fundamental rights to privacy and the right to the protection of personal data, with public access rights to company beneficial ownership registers under EU laws.
The ECJ held that granting public access to the identity and personal data of beneficial owners would infringe the right to privacy and the protection of personal data.
Consequently, the 4th Anti Money Laundering Directive – (EU) 2015/849 – was invalid as it required information on the beneficial ownership of companies to be publicly accessible.
The ECJ found that the general public’s access to information on beneficial ownership constitutes a serious interference with the fundamental rights to respect one’s private life and to the protection of personal data, as it allows unlimited access to the Beneficial Owners’ financial information.
In summary, the court found:
- the Directive, as enacted, was not limited to what was necessary nor was it proportionate, in what it achieved;
- the Directive was found to seriously interfere with the right to privacy and the protection of personal data; and
- the Directive did not create any benefits that outweighed the privacy infringement.
Anecdotal evidence suggests that certain EU states have begun to take down public registers of beneficial ownership of companies to comply with the ruling. Private registers, such as those used in Singapore (where companies are required to keep a record of certain company ownership information, but this is only accessible by regulatory authorities) will still exist, but there will be barriers as to who can access the information.
The financial action task force of the EU that was tasked with bringing into existence the beneficial ownership registers has yet to comment, but no doubt it will take action at some stage.
The decision will obviously not bind the UK (post Brexit). However, the UK will need to weigh up its own stance on Beneficial Ownership registers (i.e., the protection of its citizens’ privacy against its fight to reduce the UK being used for financial crime).
Furthermore, the British Overseas Territories and Crown Dependencies recently made commitments to establish publicly available registers of beneficial ownership. These territories will no doubt want to revisit those commitments in light of this ECJ decision.
If you have any concerns around beneficial ownership, please contact me, Des Hanna:
M: +44 (0)7941 655 579 or