The European Court of Justice (ECJ) ruled on 23 November 2022 that the requirement for member states to operate a register of beneficial ownership of companies accessible to the public is invalid. The decision states that such a requirement constituted a serious interference with the fundamental rights to respect for private life and the protection of personal data.
Lavinia Randall examines the impact of this ruling.
What are beneficial ownership registers?
From around the mid-2010s, there were calls for governments to obtain information about the individuals who own or control companies and partnerships (known as “beneficial owners”). Campaigners argued that this would increase transparency and make it more difficult for individuals involved in money laundering, terrorist financing and tax evasion to shelter behind the anonymity provided by a company or limited partnership.
In May 2015, the EU adopted a directive requiring EU member states to introduce central registers of beneficial ownership of companies. The directive provided that access to the registers would be limited to public authorities and any person who could demonstrate a “legitimate interest” in the fight against money laundering and terrorist financing, such as investigative journalists.
The UK was one of the first countries to introduce such a register in 2016, known as the register of People with Significant Control (PSC). The UK took a greater step towards transparency than the EU envisaged by not limiting access to the PSC register, instead making it available to the public, free of charge, via the Companies House website.
By the time the EU adopted a more detailed regulation requiring all member states to maintain registers, the political landscape had changed somewhat. In particular, the publication of the Panama Papers in April 2016 exposed over 11 million files containing financial information relating to hundreds of thousands of offshore entities and wealthy, and in some cases, high-profile individuals. This heightened calls for greater transparency in relation to beneficial ownership. The EU removed from the final version of the regulation the requirement for individuals to demonstrate a legitimate interest in order to access registers of beneficial ownership.
Concerns were raised at the time, including by the European Data Protection Supervisor, about the implications of removing the legitimate interest requirement in light of EU rules on data protection.
EU member states started implementing public registers of beneficial ownership, including Luxembourg in 2019. Appeals were lodged in Luxembourg in 2020 challenging the requirement to provide information on beneficial ownership for publication on a public register on the grounds that it contravened individuals’ rights to privacy and proper data protection. The court in Luxembourg asked the ECJ to consider the question of the compatibility of the Luxembourg register with the fundamental right to privacy and data protection.
The ECJ’s judgment in November 2022 found that publicly accessible registers containing the personal details of beneficial owners of companies constitute a “serious interference with the fundamental rights of respect for private life and the protection of personal data”. It noted that the information contained on registers “enables a potentially unlimited number of persons to find out about the material and financial situation of a beneficial owner” and referred to the risk of abuse of the personal data. The ECJ also concluded that public access to a register of beneficial ownership is “neither limited to what is strictly necessary nor proportionate to the objective” of preventing crime.
The judgment does not require member states to cease collecting information on beneficial ownership as the court found that the EU’s objective of preventing money laundering and terrorist financing was sound. It seems likely that there is now an added objective of enabling compliance with the sanctions adopted following the invasion of Ukraine, which prevent dealing with assets beneficially owned by certain Russian individuals. However, it is anticipated that the EU will modify the relevant regulation so that access to this information will become more limited.
What now for the UK and offshore jurisdictions?
The UK has left the EU, so the ECJ judgment is not binding on it. The judgment was based on rights to private and family life and the protection of personal data found in Articles 7 and 8 of the EU Charter of Fundamental Rights (EUCFR), which also no longer applies to the UK. However, those rights are also contained in the European Convention of Human Rights, of which the UK is still a member, and are also part of UK domestic law via the Human Rights Act 1998. The UK government could therefore face arguments from its residents that the requirements of the UK PSC register are contrary to the rights to privacy protected in the Human Rights Act, using similar arguments to those considered by the ECJ.
The UK risks becoming an unattractive destination for investment if it moves out of step with the EU by continuing to make its PSC register open to the public. The UK might also have regard to the position adopted by the US, which has introduced a requirement to file reports on beneficial ownership effective from 2024, but the information will only be available to authorised recipients rather than to the public.
As part of an international campaign to make registers of beneficial ownership a global norm, in 2020, the UK government secured agreement from eight British Overseas Territories to introduce publicly accessible registers of beneficial ownership by 2023. Many of those territories already require companies registered in the jurisdiction to keep records of their beneficial owners. For example, the Cayman Islands has since 2017 required companies to record this information and make it available to the Registrar of Companies. It may be that those territories now reconsider whether to take the next step of making beneficial ownership information publicly available while they wait to see how the UK reacts to the landmark ECJ judgment.
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