However, in November last year, experts and the interested public welcomed the judgment of the Court of Justice of the European Union. In this article, we will provide you with information on the content of the judgment and outline the possible implications for the legal regulation of the registration of beneficial owners, particularly in the Slovak Republic.
Both experts and the interested public welcomed the judgment of the Court of Justice (Grand Chamber) in joined cases C‑37/20 and C‑601/20 WM (C‑37/20) and Sovim SA (C‑601/20) v Luxembourg Business Registers [two requests for a preliminary ruling, by the Tribunal d'arrondissement (Luxembourg) (District Court, Luxembourg)] of 22 November 2022 (hereinafter also referred to as the ‘Judgment’). The Judgment raised many questions concerning the current legal provisions in the individual Member States of the European Union relating, inter alia, to the registration of beneficial owners and the public's access to those registers and to the personal data of natural persons contained therein.
Introduction
First, we would like to briefly note that the issue of registering beneficial owners of entities is regulated by European law, and the relevant legal regulations of individual Member States are transpositions of European legislation governing the fight against money laundering and terrorist financing.
Directive (EU) 2015/849 of the European Parliament and of the Council of 20 May 2015 on the prevention of the use of the financial system for the purposes of money laundering or terrorist financing, amending Regulation (EU) No. 648/2012 and repealing Directive 2005/60/EC of the European Parliament and of the Council and Commission Directive 2006/70/EC (hereinafter also referred to as the “IV. AML Directive”) was (and in its amended form continues to be) the main legal instrument for preventing the misuse of the European Union's financial system for the purposes of money laundering and terrorist financing. This Directive was the IV Directive addressing the threat of money laundering.
The above-mentioned Directive, as amended, was amended by Directive (EU) 2018/843 of the European Parliament and of the Council of 30 May 2018, amending Directive (EU) 2015/849 on the prevention of the use of the financial system for the purposes of money laundering or terrorist financing and Directives 2009/138/EC and 2013/36/EU (hereinafter also referred to as the “V. AML Directive”).
In this V. AML Directive, the need for new legislation was justified, among other things, by the fact that:
- certain modern technology services are becoming increasingly popular as alternative financial systems, while remaining outside the scope of Union law or benefiting from exemptions from legal requirements whose existence can no longer be justified. In order to keep pace with emerging trends, further measures should be taken to ensure greater transparency of financial transactions, business entities and other legal entities, as well as trust and other legal arrangements with functions similar to those of trusts (hereinafter referred to as ‘similar legal arrangements’), in order to improve the existing preventive framework and to combat terrorist financing more effectively.
- Preventing money laundering and terrorist financing can only be effective in an environment that is not conducive to offenders seeking to hide their finances behind non-transparent structures. The integrity of the Union's financial system depends on the transparency of business entities and other legal entities, trusts and similar legal structures. The aim of this Directive is not only to detect and investigate money laundering, but also to prevent it from occurring. Increasing transparency could be a powerful deterrent.
- While the objectives of Directive (EU) 2015/849 should be fulfilled and any amendments to it should be consistent with the Union's ongoing action in the field of combating terrorism and its financing, such amendments should be made with due regard for the fundamental right to the protection of personal data, as well as to the respect and application of the principle of proportionality.
- Public access to information on ownership rights allows for greater scrutiny of information by civil society, including by the press or civil society organizations, and contributes to maintaining confidence in the integrity of commercial transactions and the financial system. It can contribute to the fight against the misuse of business entities and other legal entities and legal structures for money laundering or terrorist financing purposes, through investigations, as well as reputational consequences, provided that anyone who might enter into transactions with them is aware of the identity of the beneficial owner. It also facilitates the timely and effective availability of information to financial institutions and authorities, including third-country authorities involved in the fight against such crimes. Access to such information would also assist investigations into money laundering, related predicate offences and terrorist financing.
- Member States should therefore enable access to information on ownership rights in relation to business entities and other legal entities in a sufficiently comprehensive and coordinated manner through central registers containing information on ownership rights, by laying down clear rules on public access, so that third parties throughout the Union are able to identify the beneficial owners of business entities and other legal entities.
- In all cases, whether for business entities or other legal entities, as well as for the management of entrusted assets and similar legal structures, an appropriate balance should be sought between the general public interest in preventing money laundering and terrorist financing and the fundamental rights of the persons concerned. The set of data to be made available to the public should be limited, clearly and comprehensively defined and of a general nature, in order to minimize the potential harm to the ultimate beneficiaries. At the same time, the information made available to the public should not differ significantly from the data actually collected. In order to limit interference with the right to respect for private life in general, and in particular with the protection of personal data, such information should in principle relate to the status of the ultimate beneficiaries of the ownership of business entities and other legal entities and of the management of entrusted assets and similar legal structures, and should strictly relate to the economic activity in which the ultimate beneficiary is engaged,
- Enhanced public scrutiny will contribute to preventing the misuse of legal entities and legal structures, including for tax avoidance. It is therefore important that information on ownership rights remains available through national registers and the system of interconnection of registers for at least five years after the reasons for registering information on ownership rights in the case of entrusted assets or similar legal structures have ceased to exist. However, Member States should be able to provide in their legislation for the processing of ownership information, including personal data, for other purposes, where such processing is in the public interest and is a measure necessary and proportionate in a democratic society to the legitimate aim pursued.
Article 30(5) and (9) of Directive 2015/849, as it stood before the entry into force of Directive 2018/843, read as follows:
"5. Member States shall ensure that information on beneficial ownership is accessible in any case to:
(a) the competent authorities and [financial intelligence units], without restriction;
(b) obliged entities, within the framework of their customer due diligence in accordance with Chapter II;
(c) any person or organization that can demonstrate a legitimate interest.
The persons or organizations referred to in point (c) shall have access at least to the name, month and year of birth, nationality and country of residence of the beneficial owner, as well as the nature and extent of the beneficial owner's interest.
Following the above, the original paragraph has been replaced as follows:
"5. Member States shall ensure that information on beneficial ownership is accessible in all cases to:
(a) the competent authorities and FIUs, without restriction;
(b) obliged entities, within the framework of customer due diligence in accordance with Chapter II;
(c) to any member of the general public.
The persons referred to in point (c) shall be allowed access at least to the name, month and year of birth, country of residence and nationality of the beneficial owner, as well as to the nature and extent of the beneficial owner's interest.
Member States may, under conditions laid down in national law, grant access to additional information enabling the identification of the beneficial owner. That additional information shall include at least the date of birth or contact details in accordance with data protection rules.
Judgment
Following the above legislation, the European Court of Justice ruled in its judgment that Section V of the Directive is invalid Directive to the extent that it amended the Anti-Money Laundering Directive in the sense that Member States must ensure that information on beneficial owners and other legal entities registered in their territory is in any case accessible to any member of the general public.
- In its judgment, the Court of Justice first of all found that the public access to information on beneficial owners provided for by the amended anti-money laundering directive constitutes a serious interference with the fundamental rights to respect for private life and to the protection of personal data which are enshrined in Articles 7 and 8 of the Charter of Fundamental Rights of the European Union (hereinafter referred to as the “Charter”), in so far as the data contain information on identified natural persons, namely the beneficial owners of business entities and other legal entities registered in the territory of the Member States, access by any member of the general public to such data has an impact on the fundamental right to respect for private life. (Furthermore, making such data available to the general public constitutes processing of personal data).
- As regards the seriousness of that interference, the Court stated that, to the extent that the information made available to the general public relates to the identity of the ultimate beneficial owner, as well as to the nature and extent of his actual holdings in business entities or other legal entities, it is likely that it will enable the profiling of certain personal identification data, the financial situation of the person concerned, as well as the specific economic sectors, countries and undertakings in which that person has invested.
- Secondly, in examining the justification for the interference at issue, the Court noted, first, that in the present case, the principle of legality is respected. It should be noted that the restriction on the exercise of the fundamental rights referred to above, which results from the public's access to information on the end users of benefits, is laid down by a legislative act, namely the amended anti-money laundering directive.
- Secondly, it specifies that the interference in question does not undermine the essence of the fundamental rights guaranteed by Articles 7 and 8 of the Charter. Although it is true that the amended anti-money laundering directive does not contain an exhaustive list of data to which the general public must be granted access and that Member States may grant access to additional information, this does not alter the fact that only appropriate information on beneficial owners and shareholdings may be obtained, stored and, consequently, potentially made available to the public, which excludes, in particular, information that has no reasonable connection with the objectives of the amended anti-money laundering directive.
- Thirdly, the Court emphasised that, by regulating the public's access to information on beneficial owners, the EU legislature seeks to prevent money laundering and terrorist financing by creating, through increased transparency, an environment in which it is less likely it will be used for those purposes, which is an objective of general interest capable of justifying interference, even serious, in fundamental rights enshrined in Articles 7 and 8 of the Charter.
- Fourth, in examining the nature of the interference at issue in terms of its suitability, necessity and proportionality, the Court found that it is true that public access to information on the beneficial owners may contribute to the achievement of that objective.
- However, it considers that that interference cannot be regarded as limited to what is strictly necessary. On the one hand, the strict necessity of that interference cannot be established on the basis of the fact that the criterion of ‘legitimate interest’, which, according to the Anti-Money Laundering Directive as amended by Directive 2018/843, was to be available to anyone wishing to have access to information on the beneficial owners, was difficult to apply and that its application could lead to arbitrary decisions. The possible existence of difficulties in precisely defining the conditions and circumstances in which the public may have access to information on beneficial owners cannot justify the Union legislature providing for access to that information by the general public.
- Furthermore, the explanations provided in Directive 2018/843 also fail to demonstrate the strict necessity of the measure at issue. In so far as, according to those explanations, the aim of granting the general public access to information on the final beneficiaries is to enable greater control of that information by civil society, in particular by the press or civil society organizations, the Court has held that both the press and civil society organizations involved in the prevention and combating of money laundering and terrorist financing have a legitimate interest in accessing the information concerned.
- Furthermore, the interference in question is also not proportionate. In that regard, the Court found that the substantive rules governing that interference do not satisfy the requirements of clarity and precision. The amended anti-money laundering directive provides for access by any member of the general public to ‘at least’ the data referred to therein and allows Member States access to additional information including ‘at least’ the date of birth or contact details of the beneficial owner concerned. By using the term ‘at least’, that directive makes it possible to make available to the public data that is not sufficiently defined or identifiable.
- Furthermore, as regards the balance between the severity of that interference and the importance of the objective of general interest pursued, the Court acknowledged that that objective, given its importance, is capable of justifying interference, even serious, in fundamental rights enshrined in Articles 7 and 8 of the Charter.
Following this judgment and the findings and conclusions set out therein, some countries have already restricted or modified access to data in their (e.g. commercial) registers on the ultimate beneficial owners for the general public, e.g. in the Republic of Austria, the Kingdom of Luxembourg and the Kingdom of the Netherlands. Further adjustments or restrictions can also be expected in other countries.
Legal regulation in the Slovak Republic
In the Slovak Republic, the legal regulation of the obligation to register the beneficial owner of a specific entity in the relevant register and the scope of data to be recorded on the beneficial owner is contained in particular in:
a) Act No. 530/2003 Coll. on the Commercial Register and on amendments to certain acts (hereinafter also referred to as the “Commercial Register Act”),
b) Act No. 272/2015 Coll. on the Register of Legal Entities, Entrepreneurs and Public Authorities (hereinafter also referred to as the “RPO Act”),
c) in Act No. 315/2016 Coll. on the Register of Public Sector Partners and on Amendments to Certain Acts (hereinafter also referred to as the “RPVS Act”),
d) in legal regulations governing the status of foundations, non-investment funds and non-profit organizations providing generally beneficial services,
Ad a)
Pursuant to Section 3 of the OR Act, the identification data of the beneficial owner shall be entered in the commercial register for legal entities to the extent of first name, surname, birth number or date of birth if no birth number has been assigned, permanent address or other address, nationality and type and number of identity document and data which establish the status of the ultimate beneficiary pursuant to a special regulation, which is the AML Act. The data on the ultimate beneficiary entered in the Commercial Register are not publicly accessible, nor are they published on the Commercial Register website www.orsr.sk, in the Commercial Gazette, nor are they visible on extracts from the Commercial Register.
Ad b)
Pursuant to Section 7a(4) of the RPO Act, publicly accessible data on the beneficial owner entered in the register of legal entities (hereinafter also referred to as the “RPO”) are name, surname, date of birth, nationality, address of residence and data establishing the status of the ultimate beneficiary, which are published free of charge by the Statistical Office of the Slovak Republic on its website. The Statistical Office of the Slovak Republic also provides data on the ultimate beneficiaries from the RPO in electronic form and by automated means to the obligated entity under the AML Act. The Statistical Office of the Slovak Republic participates in the implementation of the AML Act in the performance of its tasks under the law. The Statistical Office of the Slovak Republic is required to keep up-to-date identification data on the final beneficiaries in the RPO, entrepreneurs and public authorities, and to provide this data to public authorities and obligated entities when performing basic customer due diligence. Access for the above-mentioned obliged entities can be granted upon request, which is available after logging in with an eID on behalf of the obliged entity via the Central Public Administration Portal www.slovensko.sk or the Statistical Office of the Slovak Republic portal.
Ad c)
The establishment of the Public Sector Partner Register (hereinafter also referred to as “RPVS”) was introduced by the RPVS Act. This Act regulates the establishment of the RPVS, the data entered in the register, the procedure for entering data in the register, the entry of changes to the data entered and the deletion of data entered, the verification of data entered in the register and the penalties for breach of the obligations laid down in this Act.
The RPVS is a public administration information system that contains data pursuant to Section 4 of the RPVS Act and is administered and operated by the Ministry of Justice of the Slovak Republic. The registering authority is the District Court in Žilina. The register is available on the website of the Ministry of Justice of the Slovak Republic. The register is part of the Central Information System of the Judiciary.
Public sector partners (and persons pursuant to Section 17 of the RPVS Act – voluntarily registered entities) are entered in the RPVS together with the data of the public sector partner specified in Section 4 of the RPVS Act. One of these details is information on the ultimate beneficiaries of the public sector partner, including their first name, surname, permanent address, date of birth, nationality and whether the ultimate beneficiary is a public official performing a function in the Slovak Republic.
However, the RPVS publishes data on the final beneficiaries of public sector partners and thus on entities that enter into financial relations with the public sector within the meaning of the RPVS Act. Anyone from the general public therefore has access to data on ultimate beneficiaries through public access to the RPVS without having to demonstrate any legitimate interest.
Conclusions:
In view of the November 2022 judgment, it will be interesting to see how the conditions for the disclosure of data on ultimate beneficiaries in the above-mentioned registers and the legislation governing the scope of disclosure of such data on ultimate beneficiaries will be amended, if at all. The legislator has not yet changed access to any of these registers in accordance with the Judgment, nor has it adjusted the scope of data disclosed on beneficial owners, nor has it adapted the legislation to the new Judgment.
At the same time, we believe that Slovak legislation has its own specific features that do not allow full and unrestricted access for everyone, i.e. the general public, to the registration data on beneficial owners in the above-mentioned registers, and it can therefore be concluded that a change in legislation may not be absolutely necessary or necessary in all the aforementioned legal provisions.
At this point, it should be reiterated that the European Court of Justice only assessed the unrestricted accessibility of data on beneficial owners to the public, i.e. to anyone from the general public. It is precisely this access by the general public that is considered disproportionate and unbalanced interference with the fundamental rights of natural persons who are registered as final beneficiaries, and according to the Judgment, such a provision is not necessary to achieve the objective pursued by the Directive.
As regards data in the SR Commercial Register, since data on ultimate beneficiaries are not accessible to the general public, the legal regulation within the meaning of the Judgment does not need to be amended.
As regards the RPO Act, if, for example, online registration were introduced to allow access to such data or access for a fee, we consider that such an amendment could be in line with the findings of the Judgment.
As regards the RPVS Act, this legal regulation already provides for mechanisms and institutions (which are used in practice) that can demonstrate, for example, data protection (information on the address of the final beneficiary) and thus ensure its protection within the meaning of Section 4(6) of the RPVS Act not to disclose certain data on the final beneficiaries of benefits in certain specific situations. 6 of the RPVS Act, not to disclose certain data on the final beneficiaries in certain specific situations. Specifically, Section 4(6) of the RPVS Act provides that "instead of the address of the permanent residence of the final beneficiary, the authorized person may provide the address or place of business of the public sector partner if it proves that there are objectively justified circumstances under which the disclosure of the permanent address of the final beneficiary could endanger his or her safety or interfere with his or her rights to protection of personality, or endanger the safety or interfere with the rights to protection of personality of persons close to him or her. The circumstances under which the authorized person did not provide the address of the permanent residence of the ultimate beneficiary shall be stated in a solemn declaration attached to the application for registration. At the same time, the amendment to the RPVS Act does not apply to all entities, but only to public sector partners, i.e. entities which receive funds from the public sector within the meaning of the RPVS Act, and it is therefore clear that, as regards the justification for interference with the fundamental rights to respect for private life and to the protection of personal data enshrined in Articles 7 and 8 of the Charter, the principle of legality is emphasized.
At the same time, the judgment stated that, in the case of the use of public funds (as in the case of RPVS), the principle of transparency, which allows for better participation of citizens in the decision-making process and guarantees greater legitimacy, which can be given concrete expression in particular by requirements of institutional and procedural transparency relating to activities of a public nature, including the use of public funds (as in the case of the RPVS), such a link does not have to exist if the aim of the measure in question is to make available to the general public information on the identity of the ultimate beneficiaries, as well as the nature and extent of their holdings in undertakings or other legal entities, as was the case in the case at hand.
It will apparently be necessary to wait for the Slovak court's decision on whether the disclosure of the data in question about a specific person constitutes an interference with the right to respect for private and family life of the individual, the protection of which is guaranteed by Articles 7 and 8 of the Charter of Fundamental Rights of the European Union. Slovak courts are obliged to protect the rights of individuals guaranteed by European law and not to apply national legislation that is contrary to, for example, Directive V. Similarly, international treaties on human rights and freedoms (including the Charter) take precedence over the laws of the Slovak Republic, including the above-mentioned laws regulating the disclosure of data on the ultimate beneficiaries, in accordance with the Constitution of the Slovak Republic.
At the same time, it is necessary to monitor the impact on the transparency of ownership relations in general and other possibilities for the public, including, for example, non-governmental organizations, to exercise control over certain entities and the related fight against money laundering.
