The European Court of Justice’s Invalidation of Public Beneficial Ownership Registries: A Translation

One of the most important developments in the fight against corruption—and other forms of organized criminality—over the last couple of decades has been the push for greater transparency in the ownership of companies and other legal entities. An increasing number of countries now require artificial legal entities (“legal persons”) to provide information on their true beneficial owners—that is, the actual human beings (or, in the language of the law, the “natural persons”) who own or control the entity—to the government and to potential investors or potential business partners who need to conduct due diligence on those entities. Many anticorruption activists believe that there should be even greater transparency in corporate ownership, and that the information in these so-called beneficial ownership registries should be made publicly available.

These pro-transparency advocates achieved an important but partial victory back in 2015, when the European Union issued its Fourth Anti-Money Laundering (AML) Directive. The Fourth AML Directive instructed EU Member States not only to collect beneficial ownership information in a central register, but to make that information available to anyone who could demonstrate a “legitimate interest” in accessing the information. In 2018, pro-transparency advocates scored an even bigger victory when the EU issued its Fifth AML Directive. The Fifth AML Directive dropped the requirement that those requesting beneficial ownership data show a “legitimate interest”; the directive instead required Member States to make corporate beneficial ownership information publicly available, unless an individual beneficial owner could show an exceptional interest in keeping his or her ownership interest confidential.

Just last month, though, the push for corporate ownership transparency suffered a setback at the hands of the European Court of Justice (ECJ). The ECJ ruled that the provision of the Fifth AML Directive that required the provision of corporate beneficial ownership information available to any member of the general public was invalid because it violated two provisions of the European Union’s Charter on Fundamental Rights: Article 7, which states that “[e]veryone has the right to respect for his or her private and family life, home and communications,” and Article 8, which provides that “[e]veryone has the right to the protection of personal data concerning him or her,” and that “[s]uch data must be processed … on the basis of the consent of the person concerned or some other legitimate basis laid down by law.”

Many anticorruption organizations condemned the ECJ’s decision, though there appears to be some disagreement about just how consequential the ruling will turn out to be. (The ECJ issued a subsequent clarification—also released on LinkedIn—that journalists and civil society organizations concerned with money laundering, corruption, terrorist financing, and related issues would have a “legitimate interest” in accessing beneficial ownership information, and should therefore continue to have access under the terms of the now-reinstated Fourth AML Directive.) I have my own views on the underlying policy dispute—I’ve come out tentatively in favor of making corporate beneficial ownership registers public (see here and here)—but I thought I should read the ECJ opinion carefully to better understand the rationale behind the decision, and what space (if any) it leaves for moving in the direction of greater corporate ownership transparency.

I may try to weigh in on that latter question in a future post, but in this post, I want to focus on the ECJ decision, and I want to do something a bit unusual. Here’s the thing: The ECJ opinion is terrible. And I don’t mean that it’s terrible with respect to the outcome. Though I disagree with that outcome, reasonable people can debate the merits of public beneficial ownership registries, and how to balance the interest in transparency against the interest in privacy. I mean that the opinion is terrible as a matter of reasoning and craftsmanship. The writing is just godawful—full of unnecessary verbiage, awkward phrasing, circumlocution, and obfuscation. And the terrible writing obscures the shocking thinness of the legal reasoning. If I were grading this as a final exam, it would be a B-minus at best, and that’s only because of grade inflation.

It occurred to me that other people who want to better understand and evaluate this decision might find the opinion even more impenetrable than I did. So I decided to take the liberty of translating the ECJ’s decision from English into English. I didn’t bother with all the prefatory material in the first 33 paragraphs of the decision—my translation exercise focused only on paragraphs 34-88, which contains the court’s legal reasoning (such as it is). I’ve also interjected a few snarky comments throughout in italics. Again, this is my paraphrase of the court’s opinion—if you want to see the original, you can find it here. But in all seriousness, I thought it would be helpful to others to have a more readable version of the court’s opinion, so they can draw their own conclusions. And now, without further adieu, here’s my translation:

The question before the Court is whether the provision of the Fifth AML Directive that requires information on the beneficial owners of legal entities (that is, the identities of the natural persons who own or control legal entities) to be made available to the general public violates Articles 7 and 8 of the European Charter of Fundamental Rights.

The identifying information that the ALM Directive requires to be disclosed includes the name, country of residence, and month and year of birth of the beneficial owner, as well as the nature and extent of the beneficial interest held, as well as additional information that may, under conditions to be determined by national law, provide for access to additional information that enables the identification of the beneficial owner, which shall include at least the date of birth or contact details in accordance with data protection rules. Giving the general public access to this information interferes with the fundamental right to respect for private life, guaranteed in Article 7. It is irrelevant that this data relates to activities of a professional nature. In addition, making this information available to the general public constitutes the processing of personal data, thus interfering with the fundamental rights guaranteed by Article 8. Under this Court’s settled case-law, making personal data available to third parties constitutes an interference with the fundamental rights enshrined in Articles 7 and 8 of the Charter, whatever the subsequent use of the information communicated. It does not matter whether the information in question is sensitive or whether the persons concerned have been inconvenienced in any way.

As regards the seriousness of that interference, providing the public with information on the identity of the beneficial owner and the nature and extent of the beneficial interest held would enable people to ascertain the person’s wealth and the economic sectors, countries, and specific undertakings in which he or she has invested. Making beneficial ownership information publicly accessible will allow people to access this information who seek to find out about the material and financial situation of the beneficial owner for reasons unrelated to the AML Directive’s objectives. The possibility for abuse of personal data is exacerbated by the fact that, once beneficial ownership information has been made available to the general public, this information can be retained and disseminated, making it increasingly difficult or impossible for those data subjects to defend themselves effectively against abuse. Accordingly, giving the general public access to information on beneficial ownership constitutes a serious interference with the fundamental rights enshrined in Articles 7 and 8.

[OK, first comment here: Note the court’s evaluation of the seriousness of the interference with Article 7 and 8 rights is entirely speculative. They offer no evidence—and to my knowledge there is none—of beneficial ownership information ever being used in the way that the court describes. Furthermore, the court never explains why the ability to ascertain a person’s wealth or economic activities would be a serious interference with personal privacy. Of course that data would provide information of some sort, almost by definition. But it should be incumbent on the court here to explain why this invasion of privacy would be serious, as opposed to trivial. So far as I can tell the court doesn’t do this.]

The fundamental rights enshrined in Articles 7 and 8 are not absolute rights, but invasion of these rights is subject to important limitations. First, any limitation on the exercise of the rights and freedoms recognized by the Charter must be provided for by law and respect the essence of those rights and freedoms. (See Article 52(1) of the Charter, first sentence). Second, limitations on fundamental rights are permissible only if, pursuant to the principle of proportionality, these limitations are necessary and genuinely meet objectives of general interest recognized by the European Union or the need to protect the rights and freedoms of others. (See Article 52(1), second sentence). Additionally, Article 8(2) of the Charter states that personal data must be processed “for specified purposes and on the basis of the consent of the person concerned or some other legitimate basis laid down by law.”

To satisfy the requirement that any limitation on the exercise of fundamental rights must be provided for by law, the act which permits the interference with those rights must define the scope of the limitation on the exercise of the right concerned, but this limitation may be formulated in terms that are sufficiently open to be adaptable to different scenarios and to keep pace with changing circumstances. That said, the Court may interpretation the scope of the limitation in the light of the wording of the EU legislation in question as well as its general scheme and objectives.

The AML Directive’s provision on general public access to beneficial ownership information provides that this beneficial ownership information must be adequate, accurate and current; expressly lists certain information to which any member of the general public must be allowed access; and also provides for conditions under which Member States may provide for exemptions from such access. For this reason, the legality requirement is satisfied.

The information that the AML directive expressly requires to be disclosed includes data relating to the identity of the beneficial owner (name, month and year of birth, and nationality) and economic data (nature and extent of the beneficial interest held).  While this is not an exhaustive list of the data which any member of the general public must be permitted to access, the fact remains that the Directive requires only the acquisition and disclosure “adequate” information on beneficial owners and beneficial interests, which would exclude, among other things, information which is not adequately related to the purposes of the directive. It does not appear that making available to the general public information which is related to the purposes of the directive would in any way undermine the essence of the fundamental rights guaranteed in Articles 7 and 8. Additionally, the AML Directive expressly provides that the processing of personal data under that directive is subject to the General Data Protection Regulation (GDPR). Therefore, any collection, storage, and disclosure of information under the AML Directive must fully meet the GDPR’s requirements. This reinforces the conclusion that providing the general public with access to beneficial ownership information does not undermine the essence of the fundamental rights enshrined in Articles 7 and 8 of the Charter.

[OK, at this point in the opinion I was getting a bit confused, because I knew the court was going to end up invalidating provision on making the beneficial ownership data public. But here, the court concludes not only that making this information satisfies the principle of legality, but that its disclosure does not undermine the essence of the fundamental rights enshrined in Articles 7 and 8. That conclusion—which strikes me as eminently reasonable—appears to be in some tension with the earlier conclusion that making this information publicly available constitutes a serious interference with the rights guaranteed by Articles 7 and 8. I’m not sure the court offers a convincing reconciliation of this tension. But more on this anon.]

The EU’s 2015 AML Directive aims, in the words of Article 1(1) of that directive, to prevent the use of the European Union’s financial system for the purposes of money laundering and terrorist financing. Recital 4 of the directive notes that the pursuit of this objective cannot be effective unless the environment is hostile to criminals, and that enhancing the overall transparency of the economic and financial environment of the European Union could be a powerful deterrent to criminal activity. More specifically, the objective of giving the general public’s access to beneficial ownership information, according to recital 30 of the amended 2018 AML Directive, is that such access “allows greater scrutiny of information by civil society, including by the press or civil society organizations, and contributes to preserving trust in the integrity of business transactions and of the financial system,” and public access “can contribute to combating the misuse of corporate and other legal entities and legal arrangements for the purposes of money laundering or terrorist financing, both by helping investigations and through reputational effects, given that anyone who could enter into transactions is aware of the identity of the beneficial owners.” The recital further observes that access “also facilitates the timely and efficient availability of information for financial institutions as well as authorities, including authorities of third countries, involved in combating such offences” and “would also help investigations on money laundering, associated predicate offences and terrorist financing.”  Additionally, recital 31 states that “the potential increase in confidence in financial markets should be regarded as a positive side effect and not the purpose of increasing transparency, which is to create an environment less likely to be used for the purposes of money laundering and terrorist financing.” In short, by providing for the general public’s access to information on beneficial ownership, the EU legislature seeks to prevent money laundering and terrorist financing by creating greater transparency. That qualifies as an objective of general interest that can justify even serious interferences with the fundamental rights enshrined in Articles 7 and 8 of the Charter.

Insofar as the Council of the European Union also refers, in that context, expressly to the principle of transparency, this principle enables citizens to participate more closely in the decision-making process and guarantees that the administration enjoys greater legitimacy and is more effective and more accountable to the citizen in a democratic system. The principle of transparency is given concrete expression primarily in the requirements of institutional and procedural transparency covering activities of a public nature, including the use of public funds. However, such a link with public institutions is lacking where, as in the present case, the measure at issue is intended to make available to the general public data concerning the identity of private beneficial owners and the nature and extent of their beneficial interests held in companies or other legal entities. Accordingly, the principle of transparency cannot be considered an objective of general interest capable of justifying the interference with the fundamental rights guaranteed in Articles 7 and 8 that results from the general public’s access to information on beneficial ownership.

According to settled case-law, the proportionality of the measures which result in interference with the rights guaranteed in Articles 7 and 8 requires compliance not only with the requirements of appropriateness and necessity, but also with that of proportionality relative to the objective pursued. More specifically, derogations from and limitations on the protection of personal data should apply only in so far as is strictly necessary. That means that when there is a choice among several measures for meeting a legitimate objective, the government must adopt the least onerous of these measures. In addition, when pursuing a legitimate general objective, the government must properly balance the pursuit of that objective against the fundamental rights affected, in order to ensure that the disadvantages caused by that measure are not disproportionate to the aims pursued. Thus, the question whether a limitation on the rights guaranteed in Articles 7 and 8 is justified must be assessed by measuring the seriousness of the interference with those rights against the importance of the objective of general interest being advanced, in order to ensure proportionality.

Furthermore, in order to satisfy the proportionality requirement, legislation that interferes with fundamental rights must lay down clear and precise rules governing the scope and application of the measures provided for and imposing minimum safeguards, so that the data subjects have sufficient guarantees to protect their personal data against the risk of abuse. In particular, the legislation must indicate the circumstances and conditions under which a measure providing for the processing of personal data may be adopted, so as to ensure that the interference is limited to what is strictly necessary. The need for such safeguards is all the greater where personal data are made accessible to the general public, and thus to a potentially unlimited number of persons who might reveal sensitive data.

In accordance with that case-law, it is necessary to ascertain three things: first, whether the general public’s access to information on beneficial ownership is appropriate for attaining the objective of general interest pursued; second, whether the interference with the rights guaranteed in Articles 7 and 8 is limited to what is strictly necessary, in the sense that the objective could not reasonably be achieved in an equally effective manner by other means less prejudicial to those rights; and third, whether the seriousness of the interference is proportionate to the importance of the objective.

With respect to the first consideration, the general public’s access to information on beneficial ownership is appropriate for contributing to the attainment of the legitimate general objective of preventing money laundering and terrorist financing, since the increased transparency that results from such public access contributes to the creation of an environment less likely to be used for such purposes.

[Note what looks like an important concession here: Granting the general public access to beneficial ownership information advances the legitimate objective in preventing money laundering and terrorist financing—in other words, granting that broader public access makes a contribution to this objective over and above the contribution made by the more limited access provided under the Fourth AML Directive.]

With respect to the second consideration—whether providing the general public with access to beneficial ownership information is strictly necessary to advance the objective noted above—the Council and the Commission refer to the impact assessment accompanying the proposal to adopt the provision challenged here. That assessment criticized the prior version of the AML Directive, which beneficial ownership information only to those persons who could demonstrate a “legitimate interest,” because the lack of a uniform definition of “legitimate interest” had given rise to practical difficulties; the assessment therefore recommended removing that condition. Furthermore, the Parliament, the Council and the Commission cite recital 30 of the 2018 AML Directive, which states that the general public’s access to beneficial ownership information has a deterrent effect, enables greater scrutiny, and facilitates the conduct of investigations, including those carried out by the authorities of third countries, and that those consequences could not be achieved in any other way.

At the hearing, the Commission was asked whether it had considered proposing a uniform definition of “legitimate interest” in order to offset the risk that the obligation for any person or organization to demonstrate such an interest might lead to excessive limitations on access to information on beneficial ownership, owing to differences in the definition of “legitimate interest” in the Member States. In response, the Commission observed that the criterion of “legitimate interest” did not lend itself easily to a legal definition and that, while it had considered proposing a uniform definition, it had ultimately decided not to do so on the ground that the criterion, even if defined, remained difficult to apply and that its application could give rise to arbitrary decisions.

However, the fact that it may be difficult to provide a detailed definition of the circumstances and conditions under which the public may access beneficial ownership information is no reason for the EU legislature to provide for the general public to access that information. Moreover, the statements in the impact assessments and the recital do not establish that the interference with the fundamental rights at issue is strictly necessary.

Recital 30 refers expressly to how access to beneficial ownership information allows greater scrutiny of information by the press and to civil society organizations. But both the press and civil society organizations that are connected with the prevention and combating of money laundering and terrorist financing have a legitimate interest in accessing information on beneficial ownership. The same is true of the persons, also mentioned in that recital, who wish to know the identity of the beneficial owners of a company or other legal entity because they are likely to enter into transactions with them, or of the financial institutions and authorities involved in combating offences of money laundering or terrorist financing, in so far as those entities do not already have access to the information in question.

But although recital 30 does assert that the general public’s access to information on beneficial ownership “can contribute” to combating the misuse of corporate and other legal entities and that it “would also help” criminal investigations, such considerations do not demonstrate that that measure is strictly necessary to prevent money laundering and terrorist financing. Therefore, the interference with the rights guaranteed in Articles 7 and 8 of the Charter, which results from the general public’s access to information on beneficial ownership, is limited to what is strictly necessary.

[This does not make much sense to me. If public access does not make any contribution to preventing money laundering or terrorist financing, then of course such access would not justify any interference with privacy rights, or anything else. But the court seems to grant, or at least not contest, that granting the general public access to this information would contribute something to the pursuit of these legitimate goals. That is, there’s some additional increment of preventive/deterrent effect that comes from public access. So shouldn’t the question be whether the Fifth AML Directive provision is “strictly necessary” to achieve that additional increment? I mean, nobody is saying that these measures—or any measures—are strictly necessary to prevent money laundering across the board. By that standard, even the Fourth AML Directive’s provisions would fail the “strictly necessary” test, because there are tools for preventing money laundering and terrorist financing besides ownership transparency. So while I recognize that there’s a separate inquiry on proportionality—coming up in a moment—what the court has to say here about strict necessity doesn’t make much sense. I think they have in mind an idea of what in the US we would call “narrow tailoring,” but they don’t actually do the analysis.]

As for the third consideration noted above—proportionality—the Commission contends that, as is apparent from recital 34 of the 2018, the EU legislature took care to specify that the data made available to the public must be limited, clearly and exhaustively defined, and be of a general nature, so as to minimize the potential prejudice to beneficial owners. Thus, the AML Directive only requires public disclosure of such data as is strictly necessary to identify the beneficial owners and the nature and extent of their interests. The Parliament, the Council, and the Commission next assert that directive allows derogation from the public disclosure obligation in “exceptional circumstances.” In particular, “Member States may provide for an exemption from such access to all or part of the information on the beneficial ownership on a case-by-case basis” if general public’s access to that information “would expose the beneficial owner to disproportionate risk, risk of fraud, kidnapping, blackmail, extortion, harassment, violence or intimidation, or where the beneficial owner is a minor or otherwise legally incapable.” Both the Parliament and the Commission also observe that Member States may require those requesting beneficial ownership information to register online as a condition of access, and may make information relating to the requesting person, along with the legal basis for their request, available to the beneficial owner, so as to prevent the abuse of this information.

Yet the AML Directive provides that the general public is to be permitted to access “at least” the data referred to in that provision, and that Member States may provide for access to “additional information enabling the identification of the beneficial owner,” which includes “at least” the date of birth or the contact details of the beneficial owner concerned. However, it is apparent from the use of the expression “at least” that those provisions allow for data to be made available to the public which are not sufficiently defined and identifiable. Consequently, the substantive rules governing interference with the rights guaranteed in Articles 7 and 8 do not meet the requirement of clarity and precision.

[This is dumb. First of all, in context it’s clear that the “at least” has to do with the bare minimum of info required to identify the beneficial owners. Second, if this is the court’s concern, it could simply clarify that providing more info than necessary to identify the beneficial owners would be impermissible, rather than nullifying the whole thing.]

Furthermore, as regards the balancing of the seriousness of that interference against the importance of the objective of general interest of preventing money laundering and terrorist financing, although that objective is sufficiently important to justify even serious interferences with the fundamental rights enshrined in Articles 7 and 8, combating money laundering and terrorist financing is as a priority a matter for the public authorities and for entities such as credit or financial institutions which, by reason of their activities, are subject to specific obligations in that regard. For that reason, the AML Directive provides that information on beneficial ownership must be accessible, in all cases, to competent authorities and Financial Intelligence Units, without any restriction, as well as to obliged entities, within the framework of customer due diligence.

Secondly, in comparison with a regime such as that laid down in the 2015 AML Directive – which provided, in addition to access by the competent authorities and certain entities, for access by any person or organization capable of demonstrating a legitimate interest – the regime introduced by the new AML Directive, providing for the general public’s access to beneficial ownership information amounts to a considerably more serious interference with the fundamental rights guaranteed in Articles 7 and 8, without that increased interference being offset by any sufficient additional benefits, over and above those provide by the previous regime, with respect to combating money laundering and terrorist financing.

[This is the court’s most important argument. It’s at least coherent. But note the absence of any explanation or development of the key points! It’s just asserted. As noted above, the claim that the interference with Charter rights is “serious” is just asserted, based on unsubstantiated speculation about kidnapping, figuring out that people who seem to be of modest means are secretly rich, etc. The argument on the other side—that public access to ownership information contributes meaningfully to deterrence of criminal activity—is, admittedly, also an assertion and not supported in the official EU documents by much beyond speculation. But why does the court dismiss that assertion while giving credence to the assertion on the other side?]

The optional provisions allowing 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 are not, in themselves, capable of demonstrating either a proper balance between the objective pursued and the fundamental rights enshrined in Articles 7 and 8, nor do these provisions establish sufficient safeguards enabling data subjects to protect their personal data effectively against the risks of abuse.

[Again, this is just asserted! Why don’t those exemptions address the problem adequately? The court doesn’t offer an explanation. It just says so.]

The Commission’s reference to the judgment of 9 March 2017, Manni (C‑398/15, EU:C:2017:197), which concerned compulsory disclosure by companies of their representatives in legal proceedings – is irrelevant. That compulsory disclosure differs from the Fifth AML Directive’s provisions on public access to beneficial ownership information, both in their respective purposes and in their scope in terms of the personal data covered.

[I’m not going to go into any detail on this other case, but it’s worth pointing out again the thinness of the court’s reasoning. The court just says, “that case was different.” Well, of course it was. But why were these differences relevant? The fact that the purposes of the disclosures were different would seem irrelevant, since the court has conceded in this case that the purposes of the disclosure mandated by the Fifth AML Directive are legitimate. As for the terms of the personal data covered – what is the relevant distinction? Maybe there’s a plausible argument here, but the court doesn’t give it.]

In the light of the foregoing considerations, the challenged provision of the Fifth AML Directive – which provides that Member States must ensure that information on the beneficial ownership of companies and of other legal entities incorporated within their territory is accessible in all cases to any member of the general public – is invalid.

4 thoughts on “The European Court of Justice’s Invalidation of Public Beneficial Ownership Registries: A Translation

  1. Thank you for this interesting post. I couldn’t help but nitpick: The ECJ regularly publishes press releases about important cases on its website (here: https://curia.europa.eu/jcms/jcms/Jo2_7052/en/?annee=2022) which then may be relinked to other websites, such as LinkedIn. And the rulings of the Court are called decisions, judgments but not opinions, which is the term used for the contribution of the advocate-general to the proceedings.

    • Thanks for picking those nits! The person who told me about the clarification indicated that the Court had announced it on LinkedIn, and that was the only place I could find the clarification when I searched for it by text; I appreciate the clarification, and I have modified the post and the link accordingly.

      As for the other nit — again, I appreciate your clarifying how this terminology is used in the ECJ context! I don’t think it makes sense to go through the post and alter all the wording to conform to that conventional usage, since I think the meaning is clear in context, but I appreciate the information and I will be more mindful to use the correct terminology in future writing on the ECJ.

  2. It is worth noting that the ECJ largely followed the Advocate General’s Opinion on the matter. The Opinion is available here (unfortunately not in English): https://curia.europa.eu/juris/document/document.jsf?docid=252461&mode=lst&pageIndex=1&dir=&occ=first&part=1&text=&doclang=FR&cid=61411

    Advocate Generals function as a kind of institutionalised court advisors. Although they don’t participate in deliberations, their opinions are an important tool for interpreting ECJ judgments. This dual mode of judicial reasoning is discussed at length in Mitchel Lasser, Judicial Deliberations: A Comparative Analysis of Judicial Transparency and Legitimacy, OUP 2004.

    Practitioners may find the Advocate General’s detailed remarks on the seriousness (paras. 91 et seq.) and proportionality of the interference (paras. 146 et seq.) most useful.

  3. It is weird and disappointing that none of the NGOs were invited to submit amicus curiae opinions to the court. I’ve got to say, the decision was a complete surprise to me; I hadn’t even heard that such a case was examined by the court. I also didn’t get why the court examined the case as the grand chamber. It’s also a pity we can’t know how many dissents there were.

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