Surprise ruling by European Court of Justice strikes down public beneficial ownership registers

The decision was announced by the Luxembourg-based court on Tuesday, and within hours, a number of European countries, including Luxembourg and the Netherlands, were reported to have begun to take down such public registers in response to the ruling, even as campaigners in favor of such registers as a means of fighting tax evasion and economic crimes were expressing their shock and dismay.

In a statement, the CJEU said it found that “the general public’s access to information" that the public beneficial ownership registers have been facilitating constituted "a serious interference with the fundamental rights to respect for private life and to the protection of personal data.”

While it acknowleged that the intention of the EU's beneficial ownership legislation – "to prevent money-laundering and terrorist financing by creating, by means of increased transparency, an environment less likely to be used for those purposes" – the court said that it considered that "the interference entailed by [the existing beneficial ownership legislation] is neither limited to what is strictly necessary nor proportionate to the objective pursued."

Noseda: 'Victory for data
protection and rule of law'

Among those who were pleased with the ruling was Filippo Noseda, a London-based partner with the Mishcon de Reya law firm, which was among the parties that originally brought the matter before the court (as reported here in December, 2020).

Noseda, pictured left, is well-known in many U.S. expatriate circles for his efforts to challenge the way the U.S. Foreign Account Tax Compliance Act is said to violate the data protection rights of Americans who live abroad.

 "Today’s judgment represents a victory for data protection and the rule of law, in an extremely politicised context," Noseda said, in a statement posted on the Mishcon de Reya website within hours of the ruling on Tuesday. 

“Our research shows that the European Commission believed that providing indiscriminate access to sensible personal information on the ownership of companies to the public at large, in the age of the GDPR [General Data Protection Regulation, a 2016 EU law that has been a model for similar legislation around the world] was disproportionate and unacceptable,

"However, the Commission went along with proponents of public registers to assuage the demands of [non-governmental organizations] following the publication of the Paradise Papers at the end of 2017.

“Nobody should engage in money laundering or terrorism financing. However, the fight against crime must be conducted [in a way that respects] the fundamental rights of compliant citizens.

"...When it comes to beneficial ownership of companies and bank accounts, high-profile public campaigns run by highly organised and single-minded transparency campaigners have succeeded in stymying the debate about ends and means, and the principle of proportionality, which is at the core of the rule of law.

"[But] today’s judgment confirms that transparency campaigners were wrong in pursuing a single-minded approach, and that public society needs a balanced debate over issues that raise data protection implications.”

Echoing other commentators, Noseda noted that the CJEU's judgment was likely to impact the way beneficial ownership regulations in other countries and jurisdictions outside of the EU, including the UK, are dealt with going forward. 

As reported here last month, the U.S. Treasury Department's Financial Crimes Enforcement Network (FinCEN) has been in the process of finalizing the wording and other details of America's first-ever beneficial ownership information-reporting regime, which is currently set to come into force on Jan. 1, 2024. 

Under the proposed U.S. BOI regulations, most corporations, limited liability companies and other entities doing business in the U.S. would be obliged to report information on those who ultimately own or control them, and where necessary, update this information within 30 days.  

'Return to the dark ages
of dirty money'

Tax justice campaigners, perhaps not surprisingly, took a darker view of the CJEU ruling, with the London-based Tax Justice Network issuing a release that bore the headline "EU court returns EU to dark ages of dirty money."

It said the ruling would "immediately trigger a transparency blackout across the bloc," and noted that it came "in the middle of EU discussions on tightening measures to clamp down on dirty money entering the EU from Russia."

 Andres Knobel, the TJN's lead researcher on beneficial ownership, noted that the "power of public access to beneficial ownership information" had been made "abundantly clear" by such ground-breaking recent research projects as The Panama Papers and Pandora Papers.

"Authorities have always had the means to privately collect beneficial ownership information one way or another," he went on, "but it wasn’t until that information became public, at first through leaks, and later through the law, that we finally started to see governments get serios about holding tax abusers and money launders accountable.”

Transparency International, another non-profit organization that campaigns on behalf of anti-corruption and tax avoidance measures, also issued a statement on Tuesday. 

"Access to beneficial ownership data is vital to identifying – and stopping – corruption and dirty money," the organization's corrupt money flows expert, Maíra Martini, said.

"The more people who are able to access such information, the more opportunity to connect the dots.

"We have seen time and time again, from the Czech Republic and Denmark to Turkmenistan, how public access to registers helps uncover shady dealings.

"At a time when the need to track down dirty money is so plainly apparent, the court’s decision takes us back years.”

On the bright side, Martini added that "not all appears lost. The court did recognise that civil society and the media have a legitimate interest in accessing such information, given their role in the fight against money laundering."

Related: UN seen in line for global tax role

Tuesday's news of the CJEU's ruling on public beneficial ownership registers came the day before the United Nations General Assembly, meeting in New York, adopted a resolution that mandates the UN to take a global role in tax issues.

The resolution, which had been expected, is predicted by some to be likely to kick off a power struggle of sorts between the UN, the Organisation for Economic Co-operation and Development, and such other bodies as the European Commission.

Tax Justice Network chief executive Alex Cobham said his organization "commend[ed] UN members on their bold action, to move rulemaking on global tax into the daylight of democracy," and said the move would "open the way for intergovernmental discussions on the negotiation of a UN tax convention and a global tax body," which the TJN approved of.