Information on beneficial owners – important CJEU judgment

On 22 November, the Court of Justice of the European Union (CJEU) ruled that the provision of information on the beneficial owners of corporate entities incorporated within the Member States’ territory interferes with the provisions of the Charter of Fundamental Rights, which should be treated pari passu with EU primary legislation.

On 22 November 2022, the CJEU issued a judgment in joined cases C-37/20 and C-601/20, in which it ruled whether the provisions of Article 30(5) and (9) of Directive (EU) 2015/849 of the European Parliament and of the Council of 20 May 2015 on the prevention of the use of the financial system for the purposes of money laundering or terrorist financing (“AML Directive”), amended by Directive (EU) 2018/843 of the European Parliament and of the Council of 30 May 2018, are compatible with EU law, and more specifically the fundamental rights to respect for private and family life and the right to the protection of personal data guaranteed respectively in Articles 7 and 8 of the Charter of Fundamental Rights of the European Union (‘the Charter’).

AML Directive – provisions on making information available

By way introduction it should be noted that under the AML Directive, EU Member States are obliged to ensure that corporate and legal entities established in their territory are obliged to obtain and have adequate, accurate and current information about their beneficial owners, including detailed information on beneficial interest held or the nature of the control exercised. To this end, EU Member States are required to keep a central register in which such information is stored.

The provision of Article 30(5) of the AML Directive provides that Member States should ensure that the information on the beneficial owners is accessible in all circumstances to:

1. competent authorities and Financial Intelligence Units, without any restriction,
2. obliged entities,
3. any member of the public, where such persons should be permitted to access the name and surname, the month and year of birth and the country of residence and nationality of the beneficial owner as well as information on beneficial interest held or the nature of the control exercised.

On the other hand, Article 30(9) of Directive 2015/849 provides for an exemption to access all or part of the information on the beneficial owners, where such access would expose the beneficial owner to the disproportional risk, risk of fraud, kidnapping, blackmail, violence or intimidation, or where the beneficial owner is a minor or otherwise incapable.

The case before the CJEU concerned a Luxembourg company and a natural person identified as the beneficial owner of that company, who asked the Luxembourg Business Registers (LBR), to restrict access to such information in certain circumstances.

The Luxembourg court before which the case was pending had doubts as to the compatibility with law of the Dutch laws implementing Directive 2015/849 and whether disclosure of such information could result in a disproportionate risk of infringement of the fundamental rights of the beneficial owners. That court therefore decided to refer questions to the CJEU for a preliminary ruling.

CJEU judgment – key findings

Having considered the case, the CJEU in its judgment pointed to the following.

Firstly, the CJEU held that provisions of the AML Directive ensuring that information on the beneficial owners of corporate entities and other legal entities established in the territory of the Member States should be in all circumstances made available to any member of the public constitutes an interference with the Charter.

In arguing its opinion, the CJEU pointed to a serious interference with the fundamental rights to respect for private life and the protection of personal data, which are expressly guaranteed in Articles 7 and 8 of the Charter. The CJEU also added that disclosing to any member of the public very sensitive information about the material and financial situation of a natural person, whom the beneficial owner is, is dangerous and may result in misuse of such information.

Another argument invoked by the CJEU is the higher risk of using sensitive data about the beneficial owner for improper purposes than using them for the objectives for which it was decided to make them public i.e. preventing money laundering and terrorist financing.

While the Court found that these objectives pursue the general interest, the Court held, however, that the interference entailed by that measure, i.e. disclosing information to any member of the public, is neither limited to what is strictly necessary nor proportionate to the objective pursued. Such interference was less serious under the former EU regime, which provided for public access by any person or organisation capable of demonstrating a legitimate interest (as well as access by the competent state authorities).

In the course of the proceedings, the European Commission argued that even if it were considered that the provisions of the AML Directive interfere with the provisions of the Charter, such interference is capable of being offset by benefits in the form of combating money laundering and terrorist financing.

The Court did not share the Commission’s arguments, citing, in particular, difficulties to provide a detailed definition of the circumstances and conditions under which such a legitimate interest exists. The Court also added that the optional provisions that allow Member States to:

·         make information on beneficial owners available on condition of online registration, and

·        provide, in exceptional circumstances, for an exemption from access to that information by the general public,

are not, in themselves, capable of demonstrating (i) either a proper balance between the objective pursued and the fundamental rights enshrined in Articles 7 and 8 of the Charter, or (ii) the existence of sufficient safeguards enabling data subjects to protect their personal data effectively against the risks of abuse.

It is also important to recall that the Charter has legally binding force since the entry into force of the Treaty of Lisbon on 13 December 2007 and should therefore be treated pari passu with EU primary legislation. The provisions of Directives cannot therefore contradict the provisions of the Charter.

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