Legal

GUEST ARTICLE: Transparency Vs Privacy - A Major Ruling In France

David Dorgan 3 January 2017

GUEST ARTICLE: Transparency Vs Privacy - A Major Ruling In France

A legal expert takes a closer look at a ruling in October by a French court that has major implications for the debate about disclosure of beneficial ownership.

(Editor's note: An update from the author is added to the bottom of this article, following fresh information.)

Last year, a top court in France issued a ruling relating to the issue of beneficial ownership - a vexed issue at present. There are calls from policymakers for public registers of such information, prompting pushback from an industry worried, with some justification, about the misuse of such information and threats to security. There have also been comments to the effect that public registers are not the most effective way to combat illicit money (see here). So the ruling in France recently, while it may not have made much of a splash at a time when so much attention has been focused on Brexit and the election of Donald Trump, deserves more analysis. International law firm Appleby weighs in with this commentary from David Dorgan, partner and group head of private client and trusts in Jersey. Readers wishing to respond with their views can contact the editor at tom.burroughes@wealthbriefing.com.

The Constitutional Council of France met on 20 October 2016 to consider an argument raised by Mrs Helen S, a US citizen residing in France, that the second paragraph of Article 1649 AB of the French General Tax Code (which permits public access to the French Register of Trusts) bears a disproportionate interference with the right to respect private life as guaranteed by Article 2 of the Declaration of Man and of the Citizen of 1789. In other words, public access to personal data must be justified by a public interest reason and implemented proportionately with that reason.

The Council held that the second paragraph of Article 1649 AB of the French General Tax Code was unconstitutional with immediate effect, stating that the legislator did not limit the circle of persons having access to data from the register, which represents a manifestly disproportionate interference in light of the objective against tax evasion and great economic and social delinquency. Therefore, essentially, the French Register of Trusts was unconstitutional because its access was not sufficiently restricted.

In its commentary, the Constitutional Council noted previous decisions in support, all of which clearly led to the decision to hold the disproportionate public access to the Register of Trusts unconstitutional. For example:

1, Decision No. 2013-684 DC, involving the identification of, amongst others, life insurance contracts, where the Council held that parliament should ensure the conciliation between the fight against tax evasion, which is a constitutional objective, and, secondly, respect for other constitutionally protected rights and freedoms, including the right to respect private life. The Council continued that the legislature cannot deprive legal safeguards of constitutional requirements.

2, Decision No. 2014-690 DC, involving the creation of the national register of loans to individuals, where the Council held that the legislator had not limited the number of persons allowed to consult the register and given the nature of the data recorded, and the frequency of its use, many people may have access with insufficient guarantees of protection.

Consequently, on 1 December 2016, Article 1649 AB of the French General Tax Code was modified by Ordinance no. 2016-1635 to restrict access to the Register of Trusts so that only “competent authorities” have unrestricted access. Such competent authorities include the National Financial Intelligence Unit, judicial authorities, customs authorities, tax authorities and supervisory authorities (such as the Bar Association). However, in addition, the Register of Trusts will be accessible by persons subject to the fight against money laundering and the financing of terrorism (e.g. banks, accountants, lawyers).  

The amendments to Article 1649 AB are similar to the EU’s Fourth Anti-Money Laundering Directive (4AMLD) with the requirement for registers of beneficial ownership information to be accessible by competent authorities (e.g. branches of government) and obliged entities (e.g. banks).

However, the modifications to Article 1649 AB of the French General Tax Code do not include, as far as this author can assess, access to the Register of Trusts by the public demonstrating a legitimate interest, such as 4AMLD wishes to implement.  

This decision of the French legislator to modify Article 1649 AB without a legitimate interest aspect may hopefully influence political attitudes in the EU to move away from publicly open registers subject to a legitimate interest.

Update:

On 20 December 2016, the European Council agreed its negotiating stance on the EU’s rules to prevent money laundering and terrorist financing.  In respect of access to beneficial ownership registers of companies and trusts, the European Council has confirmed its position to allow public access to such registers pursuant to a legitimate interest. 
 
The next step is for the European Parliament to discuss and agree the terms of 4AMLD.  If the European Parliament agrees, then 4AMLD will thereafter be approved by a qualified majority of the European Council whereupon EU member states must implement 4AMLD into their national laws within 12 months (albeit 4AMLD does provide longer periods to implement various provisions of the beneficial ownership registers). Given the EU’s action plan against terrorist financing, and its response to the Panama Papers in April 2016, it seems very likely that the 4AMLD will include public access to beneficial ownership registers pursuant to a legitimate interest.
 

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