Members of the European Union haven't given up on the cause of public registers of beneficial ownership, and want all kinds of organisations, as well as journalists, to have access. While transparency is welcome in many ways, there's a danger that legitimate privacy could be at risk.

Many of the problems arising in our industry come from clashes between seemingly hard-to-reconcile demands, such as pressures for maximal investment returns on one side, and avoidance of fossil fuels. And one clash that’s been around for as long as I’ve covered financial news is the insistence on maximum transparency, against people's right to privacy. 

In November 2022 the Court of Justice of the European Union (CJEU) 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, according to the court. The ruling was slammed by organisations such as ratings agency Moody’s, for example, and stirred a fair degree of comment in the media. Unsurprisingly, we journalists love the idea of being able to rummage around troves of data and find out who is the beneficial owner of this or that company, trust and fund. But there are dangers, and even the most fired up reporter needs to recognise that boundaries exist for a reason. (See a related video interview I did recently with Mischcon de Reya senior lawyer, Filippo Noseda.)

In late March, Members of the European Parliament approved “stricter rules to close existing gaps in combating money laundering, terrorist financing and evasion of sanctions in the EU.” In one important paragraph, the document said: “Information on beneficial ownership held in national central registers should be available digitally, in an EU official language plus English, and include current and historical information for a defined period. The entity in charge of the central register will have the right to request from corporate and legal entities any information necessary to identify and verify their beneficial owners.”

In this crucial paragraph, the MEPs’ note said: “Following the latest Court of Justice ruling, MEPs decided that persons with legitimate interest, such as journalists, reporters, any other medias, civil society organisations, higher education institutions, should be able to access the register, including the interconnected central registers. Their access right will be valid for at least two and a half years. Member states will automatically renew access but also revoke it or suspend if it is abused.”

There is a lot to chew on here. For example, the term “legitimate interest” begs the question of who decides what that is? Who count as “civil society organisations”? Does that include political parties, churches, charities, think tanks, campaign groups, sports teams, etc? And I note that the final sentence said member states can revoke all this access if it is abused. What counts as “abuse”? For instance, if a group of journalists dumps a cache of data into the public domain in the hope that something nasty comes out, without focusing on the “public interest” cases, is that “abuse”? 

Of course, it is not clear whether the MEPs’ proposals will become law, but this shows how determined politicians are in some jurisdictions to keep pushing the transparency point. 

Why is this potentially dangerous if not handled right? Well, as I sometimes say to those who ask my views on this, imagine if governments – pleading the “public interest” – created public databases of our health records, including information about how likely or not we succumb to various illness and diseases. The furore would be enormous. The recent arguments about “vaccine passports” gave a taste of how far, or not, the public will be prepared to go when it comes on these issues. And yet when money arises, it appears that a lot of commentators are fine with information being put into the public square. Well, that appears to be at least the case if the data is about “the rich,” however defined. (It is striking how attitudes change when one is on the receiving end of this.)

There are some public policy issues to get out of the way. I think that when politicians, civil servants and policymakers who draw up laws and impose taxes are concerned, their own beneficial ownership status ought to be in the public domain, subject to safeguards on it being in the public interest. For example, a journalist like myself ought to be able to submit a Freedom of Information request asking for such information about, say, the governor of the Bank of England, chairman of the SEC, or the folk who run the OECD, Financial Action Task Force, and various other important bodies. A politician who takes to the hustings to bash “the one per cent” and call for wealth taxes or whatever must be willing to put his or her own data into the public realm. That seems reasonable. I suspect that much of the anger generated by the various “papers” leaks of recent years, such as the Panama Papers, was down to how some of those who appeared to hold assets in offshore locations were politicians, or those who had a public role. They could be rightly accused of being hypocrites.

Even so, there are reasons why there need to be proper processes in place. And there needs to be far more focus on what those processes should be than has been the case so far. I should not be able to log onto a register and do a blanket trawl and see what comes up. People who use offshore centres aren’t all villains dodging the taxman. A good number of them fear their own governments’ criminality, and the threats from gangs. In the past, various groups who tended to be singled out for persecution and for the “crime” of being enterprising (European Jews, Indians in East Africa, ethnic Chinese in Southeast Asia, etc) have used offshore hubs to keep certain assets safe. All too often, transparency campaigners give the impression that these arguments no longer apply in liberal democracies, or are just special pleading. It is tempting to state that “only the guilty have anything to fear” from this or that demand that everything be published, but this seems naïve, even malicious. 

That setting the boundaries of privacy is difficult cannot be denied. In an age of social media, many of us share details about ourselves, and have to some extent given away more than our ancestors would have considered wise. Amid security scares, states demand more information about us – a trend that has become more severe since the September 11 attacks on the US. But even here, there are limits. The Ed Snowden leaks about the US National Security Agency a decade ago was surely a big reminder that privacy is a right, not just an excuse for bad behaviour. 

Clearly, access to beneficial ownership data is necessary in holding the powerful to account, and that includes, for example, the ownership stakes of businessmen and women, large institutions that control firms, and political leaders and officials. (Already, when an asset manager owns more than a certain percentage of a firm's stock, that must be disclosed, for example.)  And handled with due process in mind, there’s plenty of reason why journalists and other bodies can show legitimate reasons to find information out and hold the powerful to account. What, however, is not acceptable is to open the doors so wide that financial privacy is trampled upon. If that happens, it will not just be the “rich” who realise what’s been lost.

To respond with comments, email me at tom.burroughes@wealthbriefing.com