Public Beneficial Ownership: Can the European Court of Human Rights save financial transparency?
On 22 November 2022, the Sovim judgment of the European Court of Justice of the European Union (ECJ) struck down the requirement, set up by the European Union (EU) Directive 2018/843 of 30 May 2018, that ultimate beneficial ownership registries should be accessible to members of the general public. Ultimate beneficial ownership refers to the person who owns or controls a customer, or on whose behalf a transaction is conducted. The public nature of these registries is key in civil society’s efforts to track illicit financial flows. For example, journalists have used these registries in many ways: in the OpenLux investigation to uncover hidden Luxembourg companies used by figures of the Italian mafia to hide money; to unmask Serbian political insiders doing business with criminals; and to reveal the activities of children of Russian oligarchs hiding vast real estate holdings.
The ECJ ruled that making such information public exposes final beneficial owners to a risk of profiling, infringing on their right to privacy. It further stressed that the implementation of the anti-money laundering policy is predominantly the duty of public authorities and obliged entities. The Court failed to recognise the added value of making ultimate beneficial ownership registries accessible to the general public, weighing that it amounted to a “considerably more serious interference” on the beneficiaries’ right to privacy.
This judgment, which has been criticised by most civil society organisations fighting money-laundering and tax evasion (see statements by Transparency International and the Tax Justice Network), is a serious setback to achieving financial transparency in the EU. Disturbingly, it leaves civil society with limited capacity to identify and further expose money laundering and tax evasion schemes. Ultimate beneficial ownership registries are now only accessible to organisations who have a “legitimate interest” to access them.
While the Sovim judgment recalled that civil society organisations working on money laundering issues have in principle a legitimate interest in having access to the data stored in the registers. This is by no means sufficient as all non-governmental organisations (NGOs), but also academics, essayists, and bloggers, play a prominent role in exposing the adverse effects of money laundering and tax evasion on public goods and the public’s well-being.
We contend that modelling the notion of “legitimate interest” on the case-law of the European Court of Human Rights (EctHR) might be effective in giving agency back to civil society organisations involved in exposing illicit financial flows.
In the Magyar Helsinki judgment of 2016, the EctHR stated that all organisations and individuals who request public information in order to “open a public debate” have a right to obtain such information provided they play a role of “public watchdog”. This includes, in the court’s view, not only journalists and media outlets, but also all NGOs, academics, essayists, as well as bloggers and influencers active on social networks, irrespective of whether they work on money-laundering issues, or not.
There is no doubt that all “public watchdogs” have a well-grounded right to access ultimate beneficial ownership information, especially since, in the eyes of the Court, the debate on taxation and money laundering issues is of public importance. Indeed, in the recent Grand Chamber judgment “Halet v. Luxembourg”, the Court recalled, in a sharp contrast with the ECJ, the utter importance of the debate on “tax avoidance, tax exemption and tax evasion”.
In light of this case-law, we contend that the European legislator should amend the current anti-money laundering framework to provide that persons and organisations playing the role of “public watchdogs” have full, unfettered, right of access to the registries’ data. Ultimately, there is little doubt that civil society will be able to successfully leverage EctHR’s case-law to make sure registries are accessible to all “public watchdogs” should states implement restrictive conditions of access.
By Jean-Philippe Foegle, Advocacy and Litigation Officer, Sherpa