European Court of Justice Rules Against Enhanced Transparency of UBO Registers
Since 2015, the EU/EEA member states had to implement the 4th and the 5th Anti-Money Laundering Directive ("AMLD") providing for the introduction of an Ultimate Beneficial Ownership Register ("UBO-register"). The basic idea is simple and convincing: while the law allows for entities to own other entities, criminals and terrorists should not be able to use the corporate veil to hide their business and wash their dirty money clean. Therefore, advisors, service providers and banks shall gather information not only on the legal owner, but also on the natural person in whose interest an entity exists and operates – the Ultimate Beneficial Owner. Naturally, Liechtenstein, being an EEA member state, complies with these international standards. So far, so good.
However, fuelled by the success of international investigative consortiums and ground-breaking leaks, the 5th AMLD introduced a new idea: all this data on UBOs shall be accessible for the general public in order to create and foster an environment less likely to be used for money laundering and financing terrorism. It was thought that money laundering would be less likely if the general public was able to keep an eye on who owns which entity. Concerns regarding data protection were brushed aside for the greater good.
According to the European Commission and the EU legislator, the envisaged goal could not be achieved with more moderate measures, such as proof of legitimate interest before access to the UBO register is granted. The Commission argued that it would be to difficult to define criteria for such legitimate interest.
Now, upon the request of a Luxembourg court, the Court of Justice of the European Union ("ECJ") reviewed Art 30 (5) letter (c) of the current version of the AMLD in the light of the fundamental right to data protection. The ECJ in its judgment C-37/20 of 22 November 2022 noted that the data of the affected persons is being shared for the general public to view. Once this data is provided to the general public, the affected persons cannot influence or defend themselves against abuse of this data, as it cannot only be accessed but also be saved and shared with others. Against this background, the ECJ held that:
It is in the public interest to combat money laundering and terrorist financing. In this sense, it is an effective way to collect data on UBOs and to make this data accessible for the general public. While these provisions clearly interfere with the fundamental rights of the respect for private life and the protection of personal data (Art 7 and 8 EU Charter of Fundamental Rights), it is nonetheless an appropriate measure to reach the goal of preventing money laundering and terrorist financing.
However, interferences with fundamental rights are still only justified if they are proportionate and necessary. Both these conditions are not met in case of the general access to UBO-data.
The Commission's argument that providing a definition for a legitimate interest was too difficult, is not a sufficient reason to give the general public access to the data. Other balancing measures, such as linking access to a registration process or the payment of a fee were not sufficient to offset the negative impacts on the fundamental rights of the affected persons.
Against this background, the provision that the UBO register is accessible in all cases to any member of the general public is invalid.
The decision of the ECJ has indirect effect on the situation in Liechtenstein. While it needs to be translated into the EEA legal framework (acquis), this judgment will certainly be heard in Liechtenstein as well. Requests of UBOs to restrict their data from access by the general public will certainly be successful.
For further information, please contact Dr Philipp Konzett, LL.M. (EUI).