Beneficial ownership registers: might they cease to be public?
The 31 January 2023 deadline for registration on the Register of Overseas Entities (ROE) is almost upon us. The new laws came into force on 1 August 2022, having been rushed through Parliament, leading to a mad scramble amongst fiduciary service providers to comply.
Like much rushed through legislation the rules are confusingly written in many places, seeming to apply to situations which one would not expect, while not, arguably, applying to some situations that one would think they would be targeting. The confusion was fuelled further by possible changes being announced even while advice was being written and the first registrations taking place. A Bill proposing amendments is currently at report stage (and may be amended). New guidance was published as late as 12 January 2023. Different advisers have been interpreting the rules in very different ways.
While we were all grappling to get to grips with the rules, it so happened that, on 22 November 2022, the Court of Justice of the European Union (CJEU – formerly known as the European Court of Justice) made a landmark ruling in relation to beneficial ownership registers. The CJEU held that while the requirement for entities to register and provide beneficial ownership information was a reasonable and proportionate method to prevent money laundering and terrorist financing, the requirement to make such registers generally available to the public was not. It was an unjustified breach of data protection and privacy laws, set out in the EU General Data Protection Regulation (EU GDPR) and the European Charter of Fundamental Rights (the Charter).
In its judgment, the CJEU considered the EU Directive which led to the creation of beneficial ownership registers in EU Member States. The original version of this Directive, in 2015, had required beneficial ownership information to be collected and made available to competent authorities, and certain others, and ‘any person or organisation that can demonstrate a legitimate interest’.
The definition of ‘legitimate interest’ proved difficult, however, and for this reason the Directive was amended in 2018, with the requirement being dropped altogether. The amended version of the Directive therefore provided that the information was to be open to ‘any member of the general public’.
In hearing two sets of proceedings on this, the CJEU needed to balance the crime prevention aim of the Directive on beneficial ownership registers with the right to privacy set out in the Charter and the EU GDPR. It noted that, in its amended form, the Directive had no controls at all on who could access the information, and why. A person could access information which would generally be considered private, without the need to provide a reason for why they needed it, or to register themselves.
The CJEU considered that in order to uphold the GDPR and the right to privacy in the Charter, the ‘legitimate interest’ safeguard, in the original draft of the Directive, should be reinstated. The fact that a concept was difficult to define was no reason to abandon it altogether. It therefore held that the amendment was unlawful, and that public access to beneficial ownership information should be restricted to members of the public who could demonstrate a legitimate interest.
The ruling was welcomed by many but criticised by pro-transparency organisations who argued that competent authorities could allow financial criminals to slip through the net, so it was important to allow the press to investigate in order to expose them. While this argument has some merit, it is interesting to note that the CJEU did not rule out the press being able to access beneficial ownership information even if they were required to demonstrate ‘legitimate interest’. So, just because the general public cannot access private information on the registers, it does not mean that journalists will never be able to investigate financial wrongdoing.
Following the ruling, a number of European countries, including Germany, Belgium, the Netherlands and Austria, swiftly ceased public access to their beneficial ownership registers. Earlier this month, the governments of Guernsey, the Isle of Man and Jersey jointly announced that they were delaying the implementation of public access to their own beneficial ownership registers, in order to take legal advice.
The question is whether the UK will follow suit. The UK is, of course, no longer a member of the EU, and the CJEU ruling is not directly relevant to it. The UK is no longer subject to the Charter, or the EU’s version of the GDPR. Transparency pressure groups currently clamour more loudly in the media than do privacy ones, and the UK has so far not flinched in the light of the CJEU ruling. It has ploughed on with the ROE, with unrestricted public access, as if the ruling had never been made.
Despite this, the CJEU judgment should, in principle, be seen as highly persuasive on the UK. The UK Government gave assurances that there would be no reduction of rights as a result of withdrawing from the Charter, and the UK’s version of the GDPR is based on the EU’s version. This could form the basis of a challenge to the unrestricted public access laws in relation to the ROE. Even more importantly, the UK needs to be seen as competitive, perhaps more than ever given the economic climate and Brexit. Having laws that are significantly more onerous and intrusive than those of our competitors is not going to help.
Aligning ourselves with EU countries in key matters such as privacy may, in due course, be seen as critical. Beneficial ownership registers are here to stay, but perhaps unfettered public access to them is not.