Public beneficial ownership records are declared unconstitutional by the Court of Justice of the EU

In a major decision, the Court of Justice of the European Union declared today that the Fourth Anti-Money Laundering Directive's (4AMLD) provisions for a public beneficial ownership database are "invalid."

The Court declared that such provisions requiring the public to have access to information on the beneficial ownership of corporations and other legal entities are unconstitutional.

According to the Court, this kind of access to beneficial ownership data seriously interferes "with the fundamental rights to respect for private life and to the protection of personal data."

According to the 4AMLD, EU Member States must put into effect national law requirements mandating businesses and other legal entities to collect and maintain sufficient, accurate, and up-to-date information on their beneficial owners in their own beneficial ownership register.

Additionally, each EU Member State is required by the directive to maintain this information in a central registry.

A 2019 law in Luxembourg created the country's Register of Beneficial Ownership and stipulates a number of details about the beneficial owners of registered organizations that must be kept in that register.

The general public has access to some of this data. In certain circumstances, the law also permits a beneficial owner to ask the Luxembourg Business Registers (LBR) to limit access to such information.

In this instance, a corporation and its beneficial owners filed two proceedings with the Luxembourg District Court asking the LBR to impose restrictions on who can access information about them.

The Court then referred a number of inquiries to the Court of Justice of the EU for an expedited decision regarding the interpretation of certain provisions of the AML directive and its legality under the European Union's Charter of Fundamental Rights.

Such register enables a “potentially unlimited number of persons to find out about the material and financial situation of a beneficial owner," the Court decided.

"Furthermore, the potential consequences for the data subjects resulting from the possible abuse of their personal data are exacerbated by the fact that, once those data have been made available to the general public, they can not only be freely consulted, but also retained and disseminated," according to the Court.

The EU legislation, according to the Court, aims to prevent money laundering by enhancing transparency, and it pursues a goal of "general interest" that can excuse even significant violations of basic rights.

The Court held that the provisions allowing for data to be made available to the public that are "not sufficiently defined and identifiable" as well as the interference are not "limited to what is strictly necessary nor proportionate to the objective pursued."

"The regime introduced by the anti-money laundering directive amounts to a considerably more serious interference with the fundamental rights guaranteed by Articles 7 and 8 of the Charter than the former regime," which allowed access to people with legitimate interest.

The Court ruled that there is "no reason for the EU legislature to provide for the general public to access the information in question" since it may be difficult to establish a "detailed definition" of the conditions under which such a legitimate interest arises.

"Optional provisions which allow Member States to make information on beneficial ownership available on condition of online registration and to provide in exceptional circumstances, for an exemption from access to that information by the general public, respectively, are not, in themselves, capable of demonstrating either a proper balance between the objective of general interest pursued and the fundamental rights enshrined in Articles 7 and 8 of the Charter, or the existence of sufficient safeguards enabling data subjects to protect their personal data effectively against the risks of abuse," according to the Court.

By fLEXI tEAM