Until last week, anyone wanting to know the ultimate owner of an EU-based company could consult databases held by member states. This public access has helped expose myriad abuses, including by a Czech prime minister and a Lebanese central bank governor. But, in a ruling last week in a case centred on privacy and data protection, the Court of Justice of the EU has in effect shut such registers to public view.
Transparency campaigners described Tuesday’s decision as a surprising and drastic regression in efforts to tackle money laundering and the abuse of shell companies. The move is likely to have a wider chilling effect, they added. Privacy lawyers, in contrast, hailed the ruling as protection against the abuse of individuals’ rights. Why did the court rule against public registers? Brussels introduced public registers of who really owns companies in the EU in 2018 anti-money laundering rules hailed as a way to lift the lid on secretive shell structures used for economic crime. The bloc asked member states to set up beneficial ownership registers with up-to-date information.
The new rules led to appeals in Luxembourg, one of the first countries to introduce a public database, from companies and individuals whom the business register had refused to exempt from the publication of their details. As a result of those appeals, the Luxembourg court asked the CJEU to consider whether public databases were a violation of privacy rights, personal data and the general data protection regulation.
The court looked at two cases and found the existing rules were too loosely framed, granting overly wide access to information without properly justifying the interference into people’s rights to privacy. The ruling invalidated the provision in the 2018 laws that introduced public registers.
The ruling was a win for those who said privacy should be more carefully balanced with transparency. Mishcon lawyer Filippo Noseda, who represented five appellants, said: “The CJEU has recognised that in a democratic society, competing interests need to be weighed against each other in any given case, without prejudices or preconceptions about motives.” But others were much less positive.
Maíra Martini, corrupt money flows expert at non-governmental organisation Transparency International, said: “At a time when the need to track down dirty money is so plainly apparent, the court’s decision takes us back years.” Which countries have public databases? Will they all have to close? It is now up to the European Commission and European parliament to amend legislation to reflect the court’s decision — something that is likely to take months. But, fearful of legal reprisals if they do not act, governments are already removing public access to their registers.
By Friday, three days after the ruling, Austria, the Netherlands, Belgium and Luxembourg had taken down their databases, and more are expected to follow. Thom Townsend, executive director of non-profit group OpenOwnership, said: “If countries don’t [act] it’s reasonable to expect businesses to ask for the registers or their details to be removed.” Lawyers have already started filing motions, he added. The European Commission said it was “thoroughly analysing the implications of this judgment in order to assess what types of amendments are needed to the EU framework as a result” and “discussing with co-legislators to ensure full compliance”.
Since the 2018 directive came into force implementation has been patchy. But countries including Sweden, Estonia, Germany, Austria and Ireland had put in place public databases. Outside the EU, the UK was among the first in the world to introduce its own public register at Companies House, the corporate registry, in 2016, although the information is not verified. And this week Nigeria launched its own public database. Campaigners from TI and Open Ownership are concerned that the EU’s decision could have a “chilling effect” on efforts to launch databases in other areas.
“Public registers across Europe acted as an incentive to other countries,” Martini said. “But now we’re going back to an era of corporate secrecy.” Can anyone still see the registers? In theory, those with a “legitimate interest” should be able to apply to see the information, but it is not clear how. The court said the press and civil society groups had a role to play in the “prevention and combating of money laundering and terrorist financing”, and had a “legitimate interest” in accessing the information. But it refused to define legitimate interest or set out the hurdles that those groups would have to jump to prove themselves. Campaigners are hoping to persuade the commission and European parliament to codify protections for foreign authorities and civil society groups, among others, to access the information in forthcoming anti-money laundering rules.
In the meantime, member states will have to process requests from those with legitimate concerns, which could be costly and administratively burdensome. Could this ruling have wider ramifications? Transparency campaigners argue that in the short term the new rules will increase opacity on who really owns European companies and increase the potential for the abuse of shell companies. For example, TI used the Czech Republic’s corporate database in 2018 to uncover the fact that the country’s prime minister, Andrej Babiš, had breached European conflict-of-interest rules over his continued ties to his former business, Agrofert. Babiš denied wrongdoing but a European Commission probe found he had fallen foul of the rules.
Recommended FT SeriesTech Champions Applying AI to the war on financial crime The decision will also put up roadblocks to law enforcement agencies, they said. Although authorities do have other ways to access the data, they have benefited from the easy access that public registers provide.
Journalists and civil society group have also tracked politically exposed individuals charged with wrongdoing through public registers, according to TI. Those include Lebanon’s central bank governor Riad Salameh, who was charged with money laundering in March. KPMG’s EU Tax centre said the ruling could also have a wider impact on legislation, such as the new Public Country-by-Country Directive, which requires large multinational companies to disclose publicly more on the income tax they pay.
The centre said in a post this week it would be interesting to see “how the CJEU would interpret the compatibility of the Charter” with some of its provisions.
Source : FinancialTimes
