Compliance

Moody's Slams European Court's Beneficial Ownership Move

Editorial Staff 29 November 2022

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Giving the general public access to data on who are beneficial owners of companies and other entities has been deemed a step too far by the Court of Justice of the EU. A firm looking at such issues claims that the court's move will make it harder to thwart illicit money.

Last week, the Court of Justice of the European Union's (CJEU) move to slap down public registers of beneficial ownership prompted criticism from a subsidiary of Moody’s, one of the “big three” credit ratings agencies.

In a judgment, the CJEU said that 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.

“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.)

While some lawyers are pleased that a protection for financial privacy has been upheld, other players are unhappy. 

“Finding the right balance between the right to privacy and public access to information is undeniably a delicate balance. While we recognise the difficulty in finding that balance, the decision by the ECJ will have wide-ranging ramifications for anti-money laundering regulations across the EU. Greater transparency, more informed decisions, and fair access to information open the door to shared progress,” Ted Datta, senior director – head of financial crime compliance practice, Europe & Africa, at Moody’s Analytics, said in a note.

“The decision by the ECJ was not wholly unexpected however, it still comes as a disappointment. Over recent years significant progress has been achieved in democratising access to information through transparency initiatives. This has made the never-ending fight against dirty money much more effective. Those seeking to identify ultimate beneficial owners (UBO) and take on criminal financial activity will now face more hurdles and feel disheartened,” Datta continued. The fight against dirty money has evolved recently to expand beyond just money laundering. 2022 has seen sanctions evasion become a significant area of financial crime compliance. The ECJ’s decision could impact the ability to root out individuals evading international sanctions. Financial compliance solutions' companies must continue to build close relationships with public registers, to be able to decode supply networks and identify illicit bodies.”

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. Commentators are concerned that in the 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.

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