For the purposes of preventing money laundering and funding of terrorism, European Union (hereinafter, “EU”) law requires Member States to keep a register containing information on the beneficial owners of companies and other entities incorporated within their jurisdiction. Essentially, beneficial owners are the natural person(s) who ultimately own or control the company or entity.
In 2018, the EU legislator aimed to improve the general transparency in relation to the prevention of money laundering and funding of terrorism. In this regard, a number of amendments were adopted through the enactment of Directive (EU) 2018/843[1] (hereinafter, the “5AMLD”). Of particular relevance here is Article 30(5) of this Directive, which now reads as follows:
Member States shall ensure that the information on the beneficial ownership is accessible in all cases to:
(a) competent authorities and FIUs [2], without any restriction;
(b) obliged entities, within the framework of customer due diligence…;
(c) any member of the general public. (added emphasis)
Through this amendment, information on beneficial ownership has now become accessible to anyone and everyone, without the previous requirement of having to “demonstrate a legitimate interest”, and this with the aim of broadening public access in order to aid in the combating of misuse of corporate entities for the purposes of money laundering and funding of terrorism.
Judgement of the Court in Joined Cases C-37/20 and C-601/20 [3]
The EU Court of Justice (hereinafter, the “CJEU”), through a preliminary ruling, has now had the opportunity to take a stand on whether a balance exists between, on the one hand, the requirement of transparency in beneficial ownership information and, on the other hand, the right to privacy and to protect personal data.
What is a Preliminary Ruling?
Before delving into the merits of the judgement, it is essential to remark that a preliminary ruling is not an appeal procedure and it is not up to the parties to invoke it, but rather it is the national court who invokes it in order to ask the CJEU for interpretative help on a legal matter.
In this regard, the CJEU would not concern itself with the facts of the case, but rather, it deals with the abstract point of law without ultimately ruling on the validity of national law.[4] In fact, in Amministrazione delle Finanze v. San Giorgio [5], it was argued that in preliminary references the CJEU “clarifies and defines where necessary the meaning and scope of that rule as it must be or ought to have been understood and applied from the time of its coming into force.”
The Merits of the Joined Cases
Going into the crux of the above-mentioned Joined Cases, in 2019, in line with the 5AMLD, a Luxembourg law established a Register of Beneficial Owners wherein information on the beneficial owners of companies or other entities was to be recorded and kept. Some of this information is accessible to the general public, including via the Web. In this context, the Tribunal d’Arrondissement de Luxembourg was faced with two cases brought by two beneficial owners of Luxembourg companies requesting to limit the public’s access to any information in relation to them, which request had been rejected by the Luxembourg Business Registers.
They argued, inter alia, that the disclosure of such information would entail a disproportionate risk of infringement of their fundamental rights. In the context of these arguments, the Tribunal referred a series of questions to the CJEU for a preliminary ruling on the validity and interpretation of certain provisions of the 5AMLD taking into account the fundamental rights enshrined in Articles 7 [6] and 8 [7] of the EU Charter of Fundamental Rights (hereinafter, the “Charter”).
In a nutshell, the CJEU ruled that the new Article 30(5)(c) of the 5AMLD is invalid as it constitutes an interference with the fundamental rights to privacy and to the protection of personal data. This interference is mainly caused due to the fact that the publicly available information would allow an unlimited number of people to obtain personal information on the beneficial owners, which could ultimately give rise to potential abuse.
The CJEU further argued that even though the purpose of this amendment constitutes an objective of general interest that can essentially justify interference with the fundamental rights in line with Article 52(1) of the Charter, “the interference with the rights guaranteed by the Charter entailed by that measure is neither limited to what is strictly necessary nor proportionate to the objective pursued”[8]. Therefore, the CJEU found that the principle of proportionality is not being complied with.
Effects of the Preliminary Ruling
Because of this ruling, even though in principle such a ruling would only have binding effects on the referring court and would not create new authority but merely clarifies the law, public access to the UBO register has been suspended in several Member States, including Malta as announced by the Malta Business Registry on the 25th of November, 2022.
[1] Directive (EU) 2018/843 of The European Parliament and of The Council of 30 May 2018 amending Directive (EU) 2015/849 on the prevention of the use of the financial system for the purposes of money laundering or terrorist financing, and amending Directives 2009/138/EC and 2013/36/EU
[2] Financial Intelligence Units
[3] WM (C‑37/20), Sovim SA (C‑601/20) v. Luxembourg Business Registers, 22 November 2022
[4] NV Algemene Transport- en Expeditie Onderneming van Gend & Loos v. Netherlands Inland Revenue Administration (C-26/62), 5 February 1963
[5] C-199/82, 9 November 1983
[6] The right to respect for private and family life
[7] The right to the protection of personal data
[8] Judgment of the Court in Joined Cases C-37/20 | Luxembourg Business Registers and C-601/20 | Sovim (Press Release No 188/22)
About the Authors
This update has been authored by Dr Luana Agius, Junior Regulated Industries Advisor, and Dr Franklin Cachia, Director - Tax & Regulated Industries. For additional information kindly contact us on [email protected].
