Legal development

ECJ decision on beneficial ownership registers impacts the fight against money-laundering

Insight Hero Image

    A decision of the ECJ this week has cast serious doubt on the compatibility of fundamental rights to respect for private and family life and the right to the protection of personal data, with public access rights to company beneficial ownership registers under EU AML laws. 

    The Judgment of the European Court of Justice in a Luxembourg-referred case on the lawfulness of public access to the beneficial ownership registers which are mandated under EU anti-money-laundering directives ([2022] EUECJ C-37/20 (22 November 2022)) has been widely reported.

    In accordance with Article 30 of Directive 2015/849 of the European Parliament and of the Council of 20 May 2015 on the prevention of the use of the financial system for the purposes of money laundering or terrorist financing, (more commonly known as MLD 4),  Member States were required to: (a) ensure that corporate and other legal entities incorporated within their territory obtain and hold adequate, accurate and current information on their beneficial ownership - including the details of the beneficial interests held - and (b) ensure that the information is held in a central register. A Luxembourg law was adopted in 2019 which established a Register of Beneficial Ownership.  The Register contains information on beneficial ownership, including names, nationality, date and place of birth and country of residence. An amendment to Article 30(5)(c), brought in by Directive 2018/843, means that the information is accessible to any member of the general public, including through the internet. 

    The ECJ held that granting public access to the identity and personal data of beneficial owners would infringe the right to respect for private and family life, and the right to the protection of personal data enshrined respectively in Articles 7 and 8 of the Charter of Fundamental Rights of the European Union ("the Charter").  As such, Directive 2018/843 was invalid in so far as it required information on the beneficial ownership of companies to be publicly  accessible. 

    The judgment has some striking findings: 

    • the interference with rights entailed by that measure was neither limited to what is strictly necessary, nor was it proportionate to the objectives being pursued;
    • the regime amounted to a considerably more serious interference with the fundamental rights guaranteed in Articles 7 and 8 of the Charter than the former regime (which limited access to 'competent authorities' (generally law enforcement) or any person or organisation demonstrating a legitimate interest); 
    • the increased interference was not capable of being offset by any benefits which might result from the new regime. 

    EU states are reported to have begun to take down public registers of beneficial ownership of companies in the wake of a the ECJ's ruling. 

    This has the potential to undermine the effectiveness of the EU's stated aims to prevent money laundering.  The Financial Action Task Force, along with national and supra-national enforcement authorities believe that robust and accessible registers of beneficial ownership are a key tool for increasing transparency around source and destination of funds, and the reduction of financial crime.  

    What of the UK position? 

    The decision does not bind the UK.  Post-Brexit, ECJ decisions are not binding on the UK courts, and since the Charter of Fundamental Rights of the European Union (which is also in play here) was not incorporated into UK law as part of the European Union (Withdrawal) Act 2018, it no longer directly applies to the UK. 

    However, a UK court or tribunal may have regard to anything done on or after exit day by the European Court so far as it is relevant to any matter before the court or tribunal.  

    We expect the Courts and UK government will need to consider the decision carefully for two reasons: firstly, this decision touches a matter central to government policy on the reduction of financial crime and, secondly, the right to respect for private and family life (part of the European Convention on Human Rights) is enshrined in UK legislation, as part of the Human Rights Act 1998.

    Authors: Ruby Hamid, David Capps and Neil Donovan
    The information provided is not intended to be a comprehensive review of all developments in the law and practice, or to cover all aspects of those referred to.
    Readers should take legal advice before applying it to specific issues or transactions.

    Stay ahead with our business insights, updates and podcasts

    Sign-up to select your areas of interest