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: Continue reading

New Podcast Episode, Featuring David Barboza

A new episode of KickBack: The Global Anticorruption Podcast is now available. In this episode, I interview Pulitzer Prize winning New York Times correspondent David Barboza, best known (at least in anticorruption circles) for his investigative reporting on the vast wealth accumulated by the Chinese elite, especially his 2012 expose on the wealth held secretly by members of the family of then-Premier Wen Jiabao (see here and here). Our interview begins with a discussion of how Mr. Barboza and his colleagues were able to uncover the information they needed to substantiate this blockbuster story, and the various ways that the Chinese government attempted to block its publication. We then turn to a discussion of the broader implications of this and similar investigations, as Mr. Barboza explains why the wealth held by the families of the political elite is such a sensitive topic in China, how norms relating to the business activities of these families has changed since the end of the 1980s, and the role that Western companies played in facilitating the corrupt accumulation of hidden wealth by these elite Chinese families. At the conclusion of the interview, Mr. Barboza discusses the current anticorruption drive headed by President Xi Jinping, and whether this crackdown represents a serious effort to get at the sorts of problems that Mr. Barboza’s reporting helped to reveal, or whether the current crackdown is more of a politically motivated effort to weaken rival factions without fundamentally changing the system.

You can find this episode, along with links to previous podcast episodes, at the following locations:

KickBack is a collaborative effort between GAB and the ICRN. If you like it, please subscribe/follow, and tell all your friends! And if you have suggestions for voices you’d like to hear on the podcast, just send me a message and let me know.