Update: We added a graphic, EU registers before and after the CJEU ruling.
For the last ten years, Transparency International and other civil society organisations have been advocating for more transparency in corporate ownership. For too long, we saw shady actors circumvent anti-corruption efforts through the use of anonymous companies time and time again. Across every sector and sphere of public administration, from public procurement to elections and integrity measures, the corrupt have been utilising anonymous companies to game the system and launder dirty proceeds – out of reach of authorities. We finally said enough, and decided to focus on beneficial ownership transparency to bring these anonymous owners to light.
EU Court of Justice delivers blow to beneficial ownership transparencySee our statement
Initial progress on beneficial ownership transparency
The Panama Papers helped to shed light on this problem as never before. After the scandal broke, the topic rose to the fore of the global agenda. Some countries and international bodies began to adopt measures to increase transparency in corporate ownership, specifically by establishing beneficial ownership registers.
In this the EU was a pioneer. The 4th EU Anti-Money Laundering Directive (AMLD) required all member states to establish central beneficial ownership registers with accurate, adequate and up-to-date information on the real owners of companies. While this was a valuable step in helping authorities to track down dirty money, it wasn’t enough.
Depending on where in the world you’re reading this, you may recognise names such as Andrej Babiš, Aécio Neves or Riad Salameh. Yet authorities initially failed to identify these politically exposed persons likely involved in suspicious activities in beneficial ownership registers, even when they were already under investigation in different jurisdictions. Their role and involvement only became clear once journalists and civil society gained access to registers.
Out in the open: How public beneficial ownership registers advance anti-corruption
Even though they haven’t been in place for more than a few years, there is growing evidence that public registers of beneficial ownership are important tools for advancing the fight against corruption, tax abuse and other financial crimes. Examples from the UK and the EU show that impact extends far beyond Europe.
The EU acknowledged this in the 5th EU AMLD in 2018, which recognised the importance of corporate ownership transparency. It emphasised that extending access to beneficial ownership registers to any member of the general public would help deter financial crime, and preserve trust in the integrity of business transactions and of the financial system.
Predictably, this decision made certain groups of people very unhappy: the corrupt and criminals, foremost, but also the lawyers and corporate service providers who were losing a profitable industry. Some business owners even claimed it exacerbated security risks like kidnapping; as if nobody knew they were wealthy before beneficial ownership registers became public. In reality, many of them most likely were concerned about losing a tool used to deceive suppliers, business partners or tax authorities.
Subsequently, at least three of such unhappy individuals applied to have their names excluded from the Luxembourg Business Registers, citing security risks. The register denied their request – so they went to court. Instead of assessing the materiality of the claim and how the law in the country defined exceptional circumstance or the right to exception, the courts in Luxembourg referred the cases on to the EU Court of Justice for a preliminary ruling, posing different questions than those raised by the original claimants.
EU registers before and after the CJEU ruling
Last updated: 30 November 2022
What did the court say?
This week, the EU Court of Justice (CJEU) decided on two of these cases, invalidating provisions of the EU AMLD that required member states to guarantee access to beneficial ownership registers to any member of the public. This ruling impacts not only the general public but especially specific groups of professionals who work hard to stop the flow of dirty money. Directly affected groups include:
- journalists and civil society who play an important watchdog role;
- academics who do research to improve policies and practice;
- foreign competent authorities who investigate cross-border crime; and even
- domestic authorities who don’t all have direct access, including audit institutions, procurement agencies and local government bodies.
We are already seeing the results, as Austria, Luxembourg and Netherlands have already shut down access to their registers.
Specifically, the CJEU was asked by the Luxembourg District Court to assess whether the provision of the EU AMLD extending access to beneficial ownership registers to any member of the public violated Article 7 (right to respect private life) and Article 8 (data protection) of the Charter of the European Union on Human Rights or General Data Protection Regulation (GDPR) rules. The latter was not assessed by the Court.
The decision published by the CJEU concluded that, access to beneficial ownership information by the general public does in fact violate Articles 7 and 8 of the charter, affecting the fundamental rights to respect private life and personal data. As such, the court decided to invalidate the AMLD article that ensures public access to beneficial ownership registers.
The CJEU has confirmed that these fundamental rights are not absolute prerogatives and that they should be considered in relation to their function in society. As such, limitations to these rights are allowed as long as they are necessary and meet the objectives of general interest or are needed to protect the rights and freedoms of others.
In this case, the problem is that the court found that limitations to these rights are not strictly necessary, nor do they meet the general objectives defined by EU co-legislators, which is to prevent money laundering and terrorism financing. In their analysis, the court confirmed that since the limitation of the exercise of fundamental rights is provided by the AMLD, legality is satisfied. When it comes to the general interest, the court did agree that public interest would be sufficient to justify interference, and even serious interference, with these fundamental rights. However, it failed to recognise that there is a legitimate interest in making the information available to any member of the general public.
Moreover, the decision emphasised the need to strike a balance between the general objective and the fundamental rights in question. It found that the AMLD measures included to do so (e.g., types of data disclosed to the public, registration requirements and exemptions under exceptional circumstances) are insufficient to satisfy the proportionality requirement. It noted that these are loosely defined in certain cases, lacking precision and clarity, and giving too much discretion to member states.
When it comes to the assessment of whether the restrictions to the fundamental rights are indeed strictly necessary, the court stressed that the choice of expanding access to all members of the public is not fully justified. The AMLD’s recital notes that public access “may contribute” to combatting the misuse of companies and that “it would be useful” for criminal investigations, which the court decision found too generic to demonstrate that the measure is strictly necessary.
Ultimately, the judges are of the opinion that the fight against money laundering is a matter for public authorities and obliged entities, and not for the public in general. In this regard, the court failed to see the added value in expanding access to all members of the public without the need for them to prove legitimate interest, which was the requirement under the 4th EU AMLD. This expansion, according to the judges, represents a considerably more serious infringement to fundamental rights without any clear additional benefit.
It’s critical to note that the decision did not challenge the legitimate interest provisions and, in fact, recognised that as long as there is an interest that justifies access to the information, it could be reconciled with privacy concerns.
The court also noted that the principle of transparency would apply only in relation to the public administration, and cannot be considered in this case to justify the interference with fundamental rights.
There was one positive acknowledgement in this decision. The judges recognised the role of civil society organisations and journalists in the prevention of money laundering and terrorism financing, specifically noting that they have a legitimate interest in accessing information on beneficial ownership. But, the decision did not codify this in any way. And thus, with the invalidation of public access, civil society and journalists will lose access to registers now.
Court disconnected with current challenges
Transparency International respectfully disagrees with the decision of the court, especially in light of the importance of beneficial ownership transparency in the ever-more critical fight against dirty money and cross-border corruption. With the adoption of the provision on public access, the EU recognised that competent authorities and obliged entities have failed to deter money laundering, and that the rest of the society – including media and civil society – act as watchdogs. These groups therefore have a right to access information on companies’ real owners, according to the EU AMLD.
Furthermore, as already stated in previous CJEU opinions, Article 7 of the Charter does apply to legal persons, protecting them from interference in the right to privacy, but different standards may be applied to legal persons than to natural persons. For example, purely financial information warrants less protection than intimate data, such as those previously categorised as sensitive by the European Court of Human Rights (ECtHR), including racial origin, political opinions, religious or other beliefs, and information on an individual’s health or sex life, or on any criminal convictions.
Additionally, as Transparency International has argued in our informal amicus curiae submitted in a third similar case (C-317/21 G) still pending judgement by the CJEU, it is absolutely legitimate to expect transparency around ultimate beneficiaries of companies. Legal persons were never meant to be a vehicle to hide the identity of a natural person. They are meant to make business more efficient and competitive – notably through personal liability protection and easier access to capital. If business people want to avoid public reporting obligations that come with legal structures, they can always trade in their own names.
Notably, public access to company ownership information is in line with countries’ obligations under the legally binding UN Convention against Corruption, which all 27 EU member states and the EU itself has signed on to.
Not so open Lux: Authorities in the dark over Luxembourg private investment fund beneficiaries
Luxembourg was one of the first countries to comply with the EU directive requiring member states to establish a public register. Later on, French newspaper Le Monde scraped the register and collaborated with other media organisations to analyse the data. Our investigation together with the Anti-Corruption Data Collective revealed that 80 per cent of Luxembourg-based investment funds did not declare beneficial owners at all.
This year, Russia’s invasion of Ukraine demonstrated the dangers of kleptocracy and the unmitigated flow of dirty money as never before, prompting governments around the world to tighten their anti-money laundering rules. Paradoxically, this week’s decision from CJEU takes us back years – allowing corporate secrecy and the interests of a few prevail over common good.
As we highlighted in our Tuesday statement, this is a blow to beneficial ownership transparency across the European Union and the world. Even more devastatingly, registers across the EU countries were already serving as a powerful tool for others outside of the EU, including foreign authorities.
While disappointed by the decision, we still believe in the power of information to hold individuals and companies accountable. If anything, the decision should kindle a fire under civil society and activists, decision-makers and authorities to clearly articulate why public scrutiny matters and why this needs to be addressed now. Sitting back and permitting kleptocrats and the corrupt to benefit from the good reputation of EU companies to circumvent rules, secretly purchase assets and open bank accounts is simply not an option.
We believe access to the general public can meet the standard to be strictly necessary and the objectives of general interest. We now call on EU co-legislators to clearly codify this in the 6th AMLD text – currently debated by the European Parliament and Council. In particular, the next directive should define in precise terms the information that should be made public by member states, restricting that to information about the beneficial owner as related to the company. The directive also should better define the circumstances in which beneficial owners can apply for exceptional circumstances to leave their names out of the register.
Co-legislators should also consider special access mechanisms for those with a legitimate interest, such as civil society organisations, journalists and foreign competent authorities, that ensure direct access to registers rather than case-by-case access. While legitimate access to registers was guaranteed in the 4th EU AMLD, we documented a number of challenges civil society and journalists faced in accessing the data – including frequent denials and significant redactions. Any system which is based on legitimate interest access should be built in a way that does not allow governments to block civil society and journalists from accessing it. Their watchdog role has already been recognised by the European Court of Human Rights, the CJEU now acknowledged the role of these actors in preventing money laundering, so access should be given for free. They must be able to exercise this watchdog role without constraints.
404 beneficial owner not found: Are EU public registers in place and really public?
In May 2021, Transparency International took stock of whether countries across the EU have ensured public access to their beneficial ownership registers. We found that delays and accessibility barriers undermined EU’s progress in ending kleptocratic abuse of anonymous companies.
In the immediate run, member states also have a significant role to play. While respecting the court decision, they should look for interim solutions to ensure these groups with legitimate interest, as recognised by the court, can continue to access beneficial ownership information, rather than simply shutting down access. In addition, member states should consider opening up data on the beneficial owners of companies that have a relationship with the state (through public contracts or concessions, for example). While not ideal, as it leaves important loopholes and creates unnecessary parallel government structures, this interim measure would allow access to important information and would be aligned with the decision, because it emphasised that the principle of transparency justifies an interference with the fundamental rights.
It is not the time for twiddling thumbs. EU co-legislators and member states need to demonstrate their commitment to transparency, to a clean business environment and to the fight against corruption and money laundering – and they need to do it now.