Court of Justice of the European Union rules anti-money laundering directive provision invalid

In The Press 23 November 2022 Experience: Banking and finance

A landmark decision handed down by the Court of Justice of the European Union (the ‘Court’) yesterday, is set to dramatically change the direction of travel in EU countries with regards to transparency around the beneficial owners of companies and other legal entities.

The decision concerned the so-called 5th Money Laundering Directive dealing with the prevention of the use of the financial system for the purposes of money laundering or terrorist financing. The Directive imposes on Member States an obligation to ensure that information about the beneficial owners of corporate and other legal entities which are incorporated in their territory is held in a central register which is ‘accessible in all cases to any member of the general public’. This requirement was introduced in 2018 by the Directive and goes much further than the former regime under the 4th Money Laundering Directive which required access to be provided only to those ‘capable of demonstrating a legitimate interest’ (in addition to relevant authorities).

The Court on referral by the Luxembourg District Court considered whether this requirement to make beneficial ownership information freely accessible to the general public conflicts with the Charter of Fundamental Rights of the European Union (the ‘Charter’). In the Court’s view, it does, and as a result it declared the relevant provision of the Directive invalid. As a result of the decision, by yesterday’s late afternoon a number of European regimes of beneficial ownership were taken offline.

In the Court’s opinion, the general public’s access to information on beneficial ownership was a serious interference with the fundamental rights to respect for private life and the right to the protection of personal data, which are rights specifically protected by Articles 7 and 8 of the Charter. ‘The Court underlined that ‘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.’

The specific legal issue here was that this provision of access to the general public – while it may pursue an objective of general interest (the prevention of money laundering and terrorist financing) and be appropriate to the attainment of that objective – is neither limited to what is strictly necessary nor proportionate. The new requirement for the general public to have access to the register, rather than just those with a legitimate interest, was an increased interference with Charter rights which was not, in the Court’s view, justified by any additional actual benefits in terms of combating money laundering and terrorist financing.

As noted above, Member States have already started taking beneficial ownership registers offline in light of the Court’s decision yesterday. The objectives of transparency and disclosure regimes are often at odds with individual rights and interests but it is often believed that such laws only move in the direction of ever-increasing transparency. The Court’s decision yesterday shows that, in the EU at least, the fundamental rights to a private life and the protection of personal data have begun to re-exert themselves. It will now be interesting to see how such a sea change will affect jurisdictions beyond the EU’s shores, and what changes, if any, may be made to the existing concept of ‘legitimate interest’.

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