The Court of Justice of the European Union (“CJEU”) has ruled this week that measures in the EU’s Fifth Anti-Money Laundering Directive (“5AMLD”), requiring its Members to give the public unlimited access to their registers of companies’ beneficial owners, are invalid. The decision was reached (on 22 November 2022) in two joint cases (C-37/20 and C-601/20: Luxembourg Business Registers and Sovim Anti-money-laundering directive) brought by a Luxembourg company and one of its beneficial owners against the relevant Luxembourg authorities.
On the grounds of privacy and data protection, the CJEU judged that the 5AMLD measures are “neither limited to what is strictly necessary nor proportionate to the objective pursued”. In their judgment, they made it clear that “the general public’s access to information on beneficial ownership constitutes a serious interference with the fundamental rights to respect for private life and to the protection of personal data”.
The decision represents a welcome award in favour of privacy, when the balance has otherwise been tipping heavily in favour of transparency over the last decade, both in the EU and the UK. The CJEU concluded that Member States must put appropriate safeguards in place to protect privacy, in accordance with Articles 7 and 8 of the Charter of Fundamental Rights of the European Union. These measures were already present in 4AMLD (the Directive that prompted the UK to bring in the first rendition of the Trusts Register (“TRS”)), which required national registers to be accessible only to members of the public who could show a legitimate interest. This legitimate interest standard has been retained for trusts under 5AMLD and was introduced into the UK’s TRS, as discussed below.
What, if anything, does this mean for the UK’s beneficial ownership registers?
As the UK is not an EU Member State, it is not generally subject to the jurisdiction or decisions of the CJEU. Whilst some Member States are taking immediate action, such as Luxembourg who has taken its register offline, and the Netherlands who have suspended public access to its own register; this decision does not have any direct impact on the UK’s TRS or Register of Overseas Entities (“ROE”).
As mentioned above, the TRS was brought into effect through the UK’s implementation of the EU’s 4AMLD (through the UK’s 2017 Money Laundering Regulations). 5AMLD entered into force on 9 July 2018. Despite Brexit, the UK government was keen to implement the Directive “to ensure the UK’s AML regime is up to date, effective and proportionate”. This led to the TRS capturing a wider scope of trusts (including non-resident trusts which acquire UK land – see our briefing note) from 6 October 2020, with access being expanded, although not made public, from 1 September this year. It would appear that the current approach of the UK Trusts Register is consistent with the CJEU’s decision. HMRC and law enforcement agencies have access, as do those who can successfully demonstrate to the Commissioners a legitimate interest in the beneficial ownership of a trust, based on there being a suspicion of money laundering/terrorist financing.
The ROE by contrast, was not the result of a requirement to implement EU Directives. Instead, the Economic Crime (Transparency and Enforcement) Act 2022 (“the Act”), was rushed through Parliament in a matter of weeks. Whilst the original draft legislation concerning a public register for overseas entities was published to little fanfare in July 2018, the Act was expedited this year in response to the crisis in Ukraine, and concerns over hidden Russian wealth.
At present we must wait and see how the UK government reacts to the CJEU’s decision. Despite their being no legal impact of the decision in the UK, there has to date been a concerted effort to keep UK AML measures consistent with the EU. Whilst overseas entities owning UK real estate should still continue to register on the ROE ahead of the 31 January 2023 deadline, there is some hope that the public disclosure of the personal information will be tempered down in due course.