In Joined Cases C-37/20 and C-601/20, the Court of Justice of the European Union (CJEU) ruled that Article 1(15)(c) of the Directive 2018/843 (5th AML/CFT Directive) is invalid. The issue at stake was access to the registers of beneficial ownership by the general public in Member States. Under the provisions of the AML/CFT Directive, the public should be able to access the registry of the beneficial ownership.[1] The provision states that Member States should have exceptions to this rule when such access would expose the beneficial owner to the risk of fraud, kidnapping, blackmail, violence, or intimidation, or where the beneficial owner is a minor or otherwise incapable. The preliminary questions were submitted by the Luxembourg District Court related to two similar cases. The first case was between WM and Luxembourg Business Registers (LBR) (Case C-37/20) and the second between Sovim SA and LBR (Case C-601/20), concerning LBR’s refusal to prevent the general public’s access to information concerning first, WM’s status as the beneficial owner of a real estate company and, secondly, Sovim’s beneficial owner.
Under the 5th AML/CFT Directive, the enhancement of transparency was seen as a powerful deterrent. For this reason, public access to beneficial ownership information was authorized which would allow greater scrutiny of information by civil society, including by the press or civil society organisations and that would contribute to preserve trust in the integrity of business transactions and of the financial system. The free public access to the registry of beneficial owners was seen as a move towards more transparency which will be significant to the fight against money laundering. Civil society organisations and persons working on the field were advocating several years on that direction. The need to protect the financial markets, the society and the financial interests of the EU justified the public access of anyone interested to see the registry of beneficial owners.
The CJEU had to strike a balance between the need for transparency and protection of the financial markets, and the protection of personal data and the right to privacy. By referring to Articles 7 and 8 of the Charter of Fundamental Rights, 2000 (CFR), the CJEU found that making personal data available to third parties constitute an interference with the fundamental rights (CFR – respect for private and family life, and protection of personal data). Moreover, the potential consequences for the data subjects resulting from possible abuse of their personal data are exacerbated by the fact that, once those data have been made available to the general public, they can not only be freely consulted, but also retained and disseminated and that, in the event of such successive processing, it becomes increasingly difficult, or even illusory, for those data subjects to defend themselves effectively against abuse (para 43). For these reasons, the CJEU found that the general public’s access to information on beneficial ownership constitutes a serious interference with the fundamental rights as enshrined in Articles 7 and 8 CFR (para 44).
In addition, the CJEU found that the principle of transparency, as it results from Articles 1 and 10 of the Treaty on European Union 2012, and from Article 15 Treaty on the Functioning of the European Union 2009, cannot be considered, as such, an objective of general interest capable of justifying the interference with the fundamental rights of privacy as found in Articles 7 and 8 CFR, which results from the general public’s access to information on beneficial ownership (para 62). Furthermore, the CJEU found that proportionality is not respected when balancing the objective of general interest pursued (with the public access to the registries) and the right to privacy and protection of personal data. The CJEU concluded that the relevant provisions of the 5th AML/CFT Directive are invalid as they do not respect the rights to privacy as found in Articles 7 and 8 CFR.
This judgment can be considered as a back step in the fight against money laundering as it limits the access to registries of beneficial ownership databases which are a powerful tool to deter potential money launderers. While it is understood that the CJEU desires to protect the relevant rights to privacy as stipulated by the CFR, it fails to consider other relevant right – the right to freedom of expression and information (Article 11 CFR). EU citizens, civil society organisations and journalists should have the liberty to be informed about beneficial ownerships as it has been proven that their work has uncovered several financial scandals in Europe (e.g., Panama Papers, Paradise Papers). Beneficial ownership database is also a valuable tool for obliged entities for due diligence and risk-based reporting (STRs/SARs). By giving a restricted access to such databases, criminals will have better opportunity to hide their proceeds of crime, create sophisticated corporate structures and ultimately escape justice.
In addition, the CJEU failed to consider that the exceptions already found in the provisions of the AML/CFT Directive were adequate to protect those in risk. The fact that these exceptional circumstances were clear and precise should have been enough to respect the principle of proportionality. Secrecy in the banking and financial sector has been proved to be a major obstacle for investigations and enforcement of relevant laws. The present judgment will certainly have direct effects in the money laundering arena. Several countries have already blocked public access to their registries, creating a situation that is not ideal. As the negotiations for new AML legal framework at the EU level are ongoing, the European Commission should come with a new proposal to overcome the issue at stake.
[1] Member States shall ensure that the information on the beneficial ownership is accessible in all cases to:
(a) competent authorities and FIUs, without any restriction;
(b) obliged entities, within the framework of customer due diligence in accordance with Chapter II; and
(c) any member of the general public.
Authors: Dimitris Kafteranis and Umut Turksen
