Public registers in Luxembourg, the Netherlands, Austria as well as other EU countries set up under EU laws to fight money-laundering and tax evasion remain temporarily closed as legal specialists agreed that the ruling effectively shut down a key aspect of the EU’s fifth anti-money laundering directive. National governments as well as the EU are still considering next steps.
The ball now is in the court of the European Commission and national governments after the EU court last Tuesday forced them to change course, ruling that current anti-money laundering practices that force company owners to disclose personal data in public registers are invalid, as they go against the fundamental rights.
Elvinger Hoss Prussen, a major Luxembourg law firm, late on Monday claimed credit for the ruling, releasing a statement to say that it was proud to have “triggered this landmark preliminary ruling” of invalidating the EU’s fifth anti-money laundering directive’s premise of creating a public right of access to national UBO registers.
Pierre Schleimer, partner at Allen & Overy, told Investment Officer that the ruling came as no surprise. “To me, actually, the decision of the court was actually really obvious,” he said, explaining that Court of Justice said it needed to verify whether what was being done through the the directive was strictly necessary and proportionate. “They came to the conclusion that no, it is not, because it’s really too broad, just opening it to the general public without any true restrictions linked to the objective will not do.”
UBO data can enable profiles to be drawn up
“It is important to note that the CJEU recognises that the information in the UBO registers can enable a profile to be drawn up concerning certain personal identifying data, the state of the person’s wealth and the economic sectors, countries and specific undertakings in which he or she has invested,” Elvinger’s Pierre Elvinger said. “In the vast majority of cases, UBO data concern investments in legitimate structures absent any context of money laundering or terrorist financing.”
Elvinger explained that his firm’s involvement in the case stemmed from the “very strict conditions” under which an exemption from public disclosure could be obtained.
The Luxembourg case leading to the high-impact EU courts ruling was initially brought to court on behalf of Patrick Hansen, CEO of Luxaviation, a private jet firm with several wealthy Russian clients, according to a report in the Luxembourg Times. The case was later joined by other firms, also reported to be linked to Russian businessmen. The Luxembourg press report said the plaintiffs had argued that disclosure in a public register put them at risk of kidnapping, among others, when travelling to Africa and less developed countries.
Russian or not, investors and asset owners across Europe had been concerned that public disclosure of their personal date could put them at risk. In the Netherlands, a representative of a wealthy family recently described the UBO register as “the new dish on the menu of organised crime, helping them check out the wealth of private individuals.”
Transparency ‘does not justify limits’ on rights
Elvinger Hoss Prussen counsel Katrien Veranneman supported the court view that the principle of transparency does not justify a limitation of fundamental rights. “The proportionality of the public access regime has to be checked against the objective of the AML directives, which is the prevention of money laundering and terrorist financing by creating an environment less likely to be used for those purposes.”
Veranneman endorsed the court’s view that “there is no necessary link between access to the public at large to UBO data and that prevention effort.”
Following the EU court ruling the Luxembourg Ministry of Justice decided to shut down access to the registry. This move led to outrage from organisations representing civil society and journalists. It has been pointed out that Luxembourg’s UBO register has been used to promote Luxembourg’s desire to show that it has turned a corner on past unsavoury financial practices.
Reverting to 2015 seen as one option
Allen & Overy’s Schleimer said he believes one possible next step will be to return to the 2015 version of the directive. This still required companies to report their ultimate beneficial owners to the registers. The registers then were not open for the general public, although NGO’s and journalists meeting certain requirements would have access to the data.
“The problem is, of course, that currently, certainly on the European level, there are no harmonised rules of how that should happen, actually,” said Schleimer. “And I think that definitely this calls for clear action from the European Commission, more or less on a harmonised approach.”
Asked how the EU authorities could have gotten their 2018 directive so wrong, Schleimer mentioned that there had been “huge political pressure to come up with a perfectly open solution.”
Justice ministry seeking solution
Speaking at Luxembourg’s Parliamentary Committee on Justice following the EU court ruling, justice minister Sam Tanson told MEPs that the grand duchy is “working on a technical and legal solution to quickly guarantee access to the register”.
That access would be professionals referred to in a 2004 Luxembourg law on the fight against money laundering and terrorist financing, “as well as for press and civil society organisations with a link to the prevention and fight against money laundering and terrorist financing and which have a legitimate interest in accessing information on beneficial owners.”
Luxembourg’s justice ministry also plans to reach out to the European Commission “to discuss the consequences of the ruling and to see whether solutions are being considered at European level.”