EU Court Limits Access To Information On Beneficial Owners Of EU Companies – Money Laundering

In Short

The Situation: The European Union’s Fourth
Anti-Money Laundering (“AML”) Directive (Directive (EU)
2015/849 of May 20, 2015) granted broad access to information
relating to the beneficial owners of companies with registered
offices in an EU Member State, provided users could demonstrate a
“legitimate interest” in the information. The Fifth AML
Directive removed that requirement, however, thereby granting
unconditional access to such information.

The Development: On November 22, 2022, the
Court of Justice of the European Union (“CJEU”)
invalidated the general public’s unconditional access to
information relating to the beneficial owners of EU-registered
companies.

Looking Ahead: To gain access to information
contained in the register relating to beneficial owners of
companies with registered offices in the European Union, a member
of the general public once again must have a “legitimate
interest” in the information, likely involving the prevention
of and fight against money laundering and the financing of
terrorism.

Fourth Anti-Money Laundering Directive Creates Beneficial Owner
Register

The Fourth Anti-Money Laundering Directive provided for the
creation by EU Member States of a register of the beneficial owners
of companies and other legal entities incorporated in their
territory. “Beneficial owner,” in the case of a company,
is defined as the natural person or persons directly or indirectly
owning more than 25% of the capital or voting rights (each Member
State may reduce this percentage).

The information contained in the register (identity,
nationality, country of residence, and extent of effective
interests held) was accessible to competent authorities, financial
intelligence units, and entities subject to customer due diligence
(mainly credit and financial institutions). However, any person or
organization also could access the information, provided that they
were able to demonstrate a “legitimate interest” in
accessing this information.

Fifth Anti-Money Laundering Directive Removes “Legitimate
Interest” Requirement

The Fifth AML Directive (Directive (EU) 2018/843 of May 30,
2018) granted the general public the ability to access information
related to beneficial owners without any particular
conditions or requirements. This Directive removed the
“legitimate interest” requirement, which until then had
to be demonstrated by any member of the general public wishing to
access this information. The Directive justified this development
because it:

• Preserved confidence in the integrity of commercial
  transactions and the financial system;




• Facilitated the investigation of money laundering, associated
  predicate offenses, and the financing of terrorism; and




• Deterred the misuse of legal entities and arrangements,
  including for the purposes of tax evasion.

CJEU Invalidates the General Public’s Unconditional Access
to Beneficial Ownership Registers

The CJEU, in a judgment of November 22, 2022 (cases C-32/20 and
C-601/20), invalidated the general public’s access to the
register of beneficial owners without specific conditions for two
main reasons: (i) the pursuit of transparency in business dealings
cannot be considered as an objective of general interest; and (ii)
granting access to the general public is not proportionate to the
Directive’s goal.

In its judgment, the CJEU initially stated that the prevention
of money laundering and financing of terrorism does indeed
constitute an “objective of general interest likely to justify
interference” with the fundamental rights provided for by the
Charter of Fundamental Rights of the EU (2012/C 326/02, article
7-respect for private and family life, and article 8-protection of
personal data).

However, the CJEU then specified that the “principle of
transparency,” as derived from the Treaty on European Union
and the Treaty on the Functioning of the European Union,
“cannot be considered, as such, as an objective of general
interest likely to justify the interference” in question. In
this regard, the CJEU observed that it is not up to the general
public to combat money laundering and the financing of terrorism.
Instead, such a fight is “[incumbent] primarily on public
authorities, as well as on entities such as credit institutions or
financial institutions, which, because of their activities, are
subject to specific obligations in this area.”

The CJEU also found that the requirement of proportionality of
an interference can be satisfied only when it is limited to what is
strictly necessary. The CJEU determined in this case that access by
the general public to the register of beneficial owners, without
the public’s having to demonstrate a legitimate interest,
constitutes a disproportionate interference.

In addition, the CJEU concluded that the European
Commission’s justification for removing the “legitimate
interest” requirement-that it was a concept difficult to
define legally-was faulty. For the CJEU, “the possible
existence of difficulties in precisely defining the cases and the
conditions under which the public can access information on
beneficial owners cannot justify the Union legislator providing
access to the general public to such information.” The CJEU
clarified that the press and civil society organizations with a
link to the prevention of and battle against money laundering and
the financing of terrorism have a legitimate interest in accessing
information on beneficial owners, as do financial institutions and
authorities involved in combatting these offenses.

Three Key Takeaways

1. The CJEU has determined that the goal of transparency in
   business dealings cannot justify an interference with the
   fundamental rights of natural persons, and the proportionality
   criterion is not met by allowing the general public to access
   information relating to beneficial owners without having to
   demonstrate a “legitimate interest” in the
   information.




2. The CJEU decision does not, however, call into question the
   right of financial institutions, in particular, to access
   beneficial ownership information in order to enable them to fulfill
   their obligations in terms of knowing customers and their
   owners.




3. In a press release dated January 23, 2023, the French Minister
   for the Economy, Finance and Industrial and Digital Sovereignty
   indicated his intention to maintain the general public’s access
   to data from the register of beneficial owners pending an analysis
   of the implications of the CJEU’s decision.

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