The Court of Justice of the EU (CJEU) ruled last month that full public access to company ownership registers is incompatible with fundamental rights to respect for private and family life and the right to the protection of personal data set out in the EU’s Charter of Fundamental Rights.
This is a significant decision that has had an immediate impact around the EU, with Austria, the Netherlands, Belgium, Malta and Luxembourg taking down their public registers in the days following the judgment, with more EU countries expected to follow.
The case was brought by a Luxembourg company and its beneficial owner who sought to challenge a Luxembourg law that established a publicly accessible register of beneficial ownership of companies in line with the requirements of the EU’s fifth anti-money laundering directive.
Under the law, a beneficial owner could request the registry’s administrator to restrict access to personal information in certain cases.
The beneficial owner of a number of companies requested anonymity on the basis that public disclosure of his identity would expose him to risks of fraud, kidnapping, or death. The Luxembourg registry administrator denied the owner’s request. After a local court upheld the administrator’s position, the owner appealed to the CJEU.
The CJEU ruled that the interference to the rights of the beneficial owner caused by the publicly available register was not limited to what was strictly necessary nor proportionate to the objective pursued and so was inconsistent with the EU’s Charter of Fundamental Rights.
There has always been a tension between anti-money laundering and anti-corruption provisions on one side and data protection and privacy rights on the other.
There has, over recent years, been a movement towards more publicly available information about company ownership but this judgment is a significant swing in the other direction.
Following the publication of the judgment there has been quite a bit of commentary that this will be a serious blow to anti-money laundering and anti-corruption efforts, however, the registers will all still exist, it is simply that the public will not have full access to them.
If the EU authorities are doing their job properly, then they should be able to monitor ownership to identify money laundering and corruption.
The significant impact of the judgment is that journalists and public interest groups (who have in the past been involved in exposing serious wrong doing) will no longer be able to access this information. This has understandably caused concern from groups such as Transparency International.
The impact on the UK
Post Brexit the UK no longer has to follow ECJ decisions, so it is unlikely that there will be a sudden closure of the UK public registers, and there is certainly no indication that the UK’s registers of beneficial ownership – including the newly introduced register of overseas entities - will be abandoned.
It is, however, possible that public access to UK registers may be fully or partially restricted, in due course, to bring them in line with the EU regime, not least because the UK is still party to the ECHR, upon which the decision was based.
Furthermore and notwithstanding Brexit, the UK does not want the transfer of data between the UK and the EU to be restricted because of significantly different data protection rules. If this is the position which the UK takes, then this may well be a welcome development for some publicity-adverse owners of UK companies or UK property.
The UK government has repeatedly stated that it wants the UK to be a place where legitimate businesses can thrive while keeping dirty money out of the UK.
This is possible without having public access to registers of beneficial owners, as long as Companies House, the National Crime Agency and other government bodies have the appropriate resources to analyse the data in the registers and take steps to pursue domestic and overseas criminals. At present, there is some concern that these bodies are not sufficiently resourced to carry out this role.
The opening up of the Companies House registers to the public did shine a light on inconsistencies and false entries on the register, such as fictional characters appearing as directors of UK companies, or companies being registered at residential addresses without the property owner’s consent.
The UK government is planning to address these errors by introducing changes set out in the Economic Crime and Corporate Transparency Bill, including the verification of directors’ identities and of registered offices.
Even if parts of the UK company registers do become closed to the public, it is highly likely that the government will proceed with the planned reforms to enable Companies House to act as a more effective gatekeeper and custodian of accurate data about companies, their owners and directors.