The Court of Justice of the EU has stated that it is invalid to use public registers of beneficial ownership as a weapon against money laundering because of the risks of threats to financial privacy. The judgment, which could have big implications for the industry, highlights boundaries between legitimate privacy and illegitimate secrecy.

The Court of Justice of the European Union (CJEU) has issued a judgment against public registers of beneficial ownership – a move hailed as an important protection of financial privacy.

A provision of EU anti-money laundering regulations stating that the public should have access to beneficial ownership data on corporate and other legal entities is invalid, the court said in a 22 November statement. “According to the court, the general public’s access to information on beneficial ownership constitutes a serious interference with the fundamental rights to respect for private life and to the protection of personal data, enshrined in Articles 7 and 8 of the Charter, respectively,” the CJEU said. (This refers to the Charter of Fundamental Rights of the European Union.)

Besides being a victory for pro-privacy lawyers acting for EU-based clients, the court’s judgment raises questions over whether it will affect the UK now that the country is out of the European Union.

“Today's [22 November] judgment marks another great day for the rule of law,” Filippo Noseda, partner, Mishcon de Reya, said in a statement. Noseda and colleagues have fought over several years to rein in what they say are governments’ intrusions into legitimate financial privacy. Noseda has, for example, campaigned to constrain information transfers between governments in connection with the US FATCA legislation.

“Today's judgment echoes a 2016 judgment from the French Constitutional Court concerning public trust registers,” Noseda said. 

“I know that some people will feel differently, and that various revelations (Panama Papers, etc.) required full transparency. However, the European Court of Justice understood that in a democratic state, authorities must catch criminals whilst protecting the fundamental rights of compliant citizens,” Noseda said. 

The legal battles in the EU highlight how the world's wealth management sector faces a delicate balance between protecting legitimate financial privacy (and guarding HNW clients from physical and cyber threats against their safety, etc) and illegitimate secrecy. Over the past two decades, governments, via organisations such as the Organisation for Economic Co-operation and Development, have sought to tighten controls to stamp out tax evasion and money laundering. A concern has been that in their zeal for change, important principles concerning privacy and due process of law are being forgotten. On a more practical level, the case for public registers of beneficial ownership as a way to thwart wrongdoers has been criticised as ineffective.

The wider impact
Noseda added that the CJEU’s judgment directly affects clients’ cases against the allegedly disproportionate nature of FATCA (currently before the English High Court) and against the disproportionate nature of the Common Reporting Standard (before the Austrian Supreme Court). (CRS is the term for a network of automatic exchange of information agreements between governments seeking to stamp out tax evasion.)

The ruling applied to a Luxembourg law adopted in 2019 that created a public register of beneficial ownership. Some of that information is accessible to the public, through the internet. That law also made it possible for BOs to ask for Luxembourg Business Registers, the administrator of the register, to restrict access to such information in certain cases.

The CJEU was asked to rule on a case brought before the Luxembourg District Court in which a Luxembourg company and by the beneficial owner of such a company, respectively, had unsuccessfully asked LBR to restrict information access.

The Luxembourg court considered that disclosing such information would raise a “disproportionate risk” of harming the “fundamental rights of the beneficial owners concerned.” As a result, the case was referred to the CJEU for a preliminary ruling over how to interpret provisions of EU anti-money laundering rules and how they apply to the Charter of Fundamental Rights of the European Union.

Earlier this week, the court said such public registers stepped over the line.

Some lawyers have argued that public registers are a disproportionate way of putting EU anti-money laundering rules into force. 

Where is the UK now?

Mishcon de Reya's Noseda said the court's ruling also puts a spotlight on the UK. 

The UK was the first country to introduce public registers in 2016 and the UK government may use Brexit to deny that there is a link between the CJEU judgment and registered of beneficial ownership registers and similar moves, he said in an email to this news service. This will also affect the Crown Dependencies and Overseas Territories (Jersey, Guernsey, Cayman Islands, British Virgin Islands, and others) who many in the industry think were strong-armed by the UK government to commit to the introduction of public registers, he said.

Noseda pointed out that Canada also announced the introduction of public registers by 2023 and Switzerland is working on the introduction of central registers.

One point of contention is that the UK government is seeking to distance itself from the European Convention of Human Rights – for instance over immigration controls. Noseda said that a debate on the correct balance between the objective of transparency and fundamental rights needs to take place in the UK and across the Commonwealth.