European Court blocks public access to UBO registers
In its decision of 22 November 2022 (WM and Sovim SA v Luxembourg Business Registers (joined cases C-37/20 and C-601/20), the European Court of Justice has decided that the European Directive 2015/849 that introduced the national UBO registers was not compatible with the fundamental right of the private life and the protection of personal data.
Companies, associations, foundations, trusts and other similar legal arrangements are required to identify their beneficial owners in the UBO register. For companies, that information is publicly accessible. The Court found that this obligation is invalid insofar as Member States are obliged to grant public access to the data in the UBO register.
The national UBO registers were introduced in the fifth anti-money laundering directive (i.e. directive n°2015/849 on the prevention of the use of the financial system for the purpose of money laundering or terrorist financing, as amended by directive n° 2018/843). The directive requires member states to collect and maintain certain data on the beneficial owners of companies and other legal entities established in the states. Following the release of the Panama, Pandora and Paradise Papers, and to counter money laundering.
The beneficial owner of a Luxembourg real estate company, WM, and a Luxembourg company, Sovim SA, had seized the Luxembourg tribunal d'arrondissement to request that the court restrict the unlimited access to the information in the Luxembourg UBO register. They argued that this unlimited access infringed of the protection of the private and family life, as well as the right to the protection of personal data as guaranteed in Articles 7 and 8 of the europarl.europa.eu/charter/pdf/text_en.pdf.
The court referred a preliminary question to the European Court of Justice on the interpretation of the provisions of the anti-money laundering directive in the light of the Charter of Fundamental Rights of the European Union.
The problem is that anyone can freely access the information in the UBO register online, and even store the distribute the information. For that reason, the Court has decided that access by any citizen of information about identified individuals infringes the fundamental right to the protection of their private life.
“Article 7 of the Charter guarantees everyone the right to respect for his or her private and family life, home and communications, while Article 8(1) of the Charter expressly confers on everyone the right to the protection of personal data concerning him or her”. And in accordance with the settled case-law of the Court, making personal data available to third parties is a serious interference with both the right to the protection of private life and the protection of personal data.
The objective of the UBO register, to create a hostile environment for criminals, to prevent money laundering and the financing of terrorism is an objective of public interest. Such public interest objective can justify serious infringements on the rights guaranteed by the Charter insofar as the measures taken are appropriate, strictly necessary and proportionate to achieve that objective. However, the public access to the UBO register does not meet these criteria.
“That the general public’s access to information on beneficial ownership ‘can contribute’ to combating the misuse of corporate and other legal entities and that it ‘would also help’ criminal investigations” does not demonstrate that the measure is strictly necessary to prevent money laundering and terrorist financing.
“Combating money laundering and terrorist financing is as a priority a matter for the public authorities and for entities such as credit or financial institutions which, by reason of their activities, are subject to specific (identification) obligations” under the Money Laundering Directive by virtue of their activities.
The restrictions on making beneficial ownership information publicly available, such as prior online registration and providing for exceptions to access in exceptional circumstances, are insufficient to justify such a serious infringement of these fundamental rights. There are no sufficient safeguards to enable affected beneficial owners to protect their personal data effectively from misuse.
Under the fourth anti-money laundering directive, citizens could only access the UBO register when they demonstrated a legitimate interest. However, the fifth AML directive removed this condition as far as companies are concerned because there is no uniform definition of legitimate interest, and this caused difficulties in practice. Unfortunately, this deletion resulted in a significantly heavier erosion of the fundamental rights guaranteed by the Charter.
Although the decision was made in response to the preliminary questions raised relating to the Luxembourg UBO register, this ruling is primarily addressed to the European legislator and the European Commission and consequently also has an impact on all Member States.
The Court only limits the public’s general access to the UBO register, but does not limit the UBO register itself. The tax administration and other competent authorities, as well as the entities subject to notification, will still be able to consult the UBO register on a permanent basis.
The Ministry of Finance that hosts the UBO register has announced on 24 November that “Following the judgment of 22 November 2022 of the Court of Justice of the European Union, access for members of the general public to information on beneficial owners is temporarily suspended. A solution allowing access to data in accordance with the above-mentioned judgment will be communicated shortly. Access for competent authorities and taxable entities is maintained.”
Luxembourg has temporarily suspended the operation of its UBO register because of this decision.
Dutch Finance Minister Sigrid Kaag asked the Netherlands Chamber of Commerce, which operates the Dutch UBO register, to temporarily stop its information services for the register (letter of 22 November 2022) : “Although the Dutch situation is not exactly the same as the Luxembourg situation, about which questions have been asked for a preliminary ruling, this ruling gives cause to look at the provision of information about UBOs”.