Last November, experts and the general public alike 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 also outline the possible implications for the legal framework governing the registration of ultimate beneficial owners, particularly here in the Slovak Republic.
Both experts and the general 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 submitted by the Tribunal d’arrondissement (Luxembourg) on November 22, 2022 (hereinafter also referred to as the “Judgment”). The Judgment has raised numerous questions regarding the current legal frameworks in individual Member States of the European Union concerning, among other things, in particular the registration of ultimate beneficial owners and public access to such registers and to the personal data on natural persons contained therein.
Introduction
To begin with, we briefly note that the issue of beneficial ownership registers is regulated under European law, and the relevant legislation of individual member states transposes European legal provisions governing the fight against money launderingand the financing of terrorism.
Directive (EU) 2015/849 of May 20, 2015, on the prevention of the use of the financial system for the purposes of money laundering or terrorist financing, amending Regulation (EU) (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 “4th AML Directive”) constituted (and, in its amended form, constitutes) 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 fourth directive addressing the threat of money laundering.
The aforementioned Directive, in the version cited, 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 “5th AML Directive”).
In this 5th 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 being subject to exemptions from legal requirements whose continued existence can no longer be justified. To keep pace with emerging trends, further measures should be adopted to ensure greater transparency of financial transactions, business entities, and other legal entities, as well as trusts and legal structures with a structure or functions similar to those of a trust (hereinafter “similar legal structures”), with the aim of improving the existing preventive framework and combating terrorist financing more effectively.
- The prevention of money laundering and terrorist financing can only be effective in an environment that does not accommodate perpetrators seeking to hide their finances through 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 serve as a powerful deterrent.
- While the objectives of Directive (EU) 2015/849 should be met and any amendments thereto should be consistent with the Union’s ongoing efforts to combat 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 for the observance 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 helps maintain 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 structures for the purposes of money laundering or terrorist financing, both through investigative assistance and reputational consequences, provided that anyone who might conduct transactions with them knows the identity of the ultimate beneficial owner. It also facilitates the timely and effective availability of information to financial institutions and authorities, including third-country authorities involved in combating such crimes. Access to such information would also assist investigations into money laundering, related predicate offenses, and terrorist financing.
- Member States should therefore provide access to information on beneficial ownership of business entities and other legal entities in a sufficiently comprehensive and coordinated manner through central registers which contain information on beneficial ownership, by establishing 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 involving business entities or other legal entities, as well as in the case of trust arrangements and similar legal structures, a proper balance should be sought, in particular, 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 potential harm to the ultimate beneficial owners. At the same time, the information made available to the public should not differ substantially from the data currently collected. In order to limit interference with the right to respect for private life in general, and in particular the protection of personal data, such information should, in principle, relate to the status of beneficial owners arising from ownership of business entities and other legal entities, as well as from the management of trust assets and similar legal structures, and should strictly concern the area of economic activity in which the beneficial owner operates,
- Increased public scrutiny will help prevent the misuse of legal entities and legal structures, including tax evasion. It is therefore important that information on ownership rights remain accessible through national registers and the system for the interconnection of registers for at least five years after the grounds for registering information on beneficial ownership in the case of a trust or similar legal arrangement have ceased to exist. Member States should, however, be able to provide in law for the processing of information on ownership rights, including personal data, for other purposes, provided that such processing meets a public interest objective and, in a democratic society, is a measure that is necessary and proportionate to the legitimate aim pursued.
Article 30(5) and (9) of Directive 2015/849, as in force prior to the entry into force of Directive 2018/843, read as follows:
“5. Member States shall ensure that information on beneficial ownership is accessible in all cases to:
a) competent authorities and [financial intelligence units], without restriction;
b) obliged entities, in the context of 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 subparagraph (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 any case:
a) to competent authorities and FIUs, without restriction;
b) to 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 subparagraph (c) shall be granted access at least to the first name, month, and year of birth, the country of residence and nationality of the beneficial owner, as well as the nature and extent of the beneficial owner’s holding.
Member States may, under conditions determined by national law, grant access to additional information enabling the identification of the beneficial owner. Such additional information shall include at least the date of birth or contact details, in accordance with data protection rules.”
Judgment
Following the aforementioned legal provisions, the European Court of Justice held in its Judgment that Directive V was invalid 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 event, accessible to any member of the general public.
- In its judgment, the Court of Justice first noted that public access to information on beneficial owners, as 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 the “Charter”), insofar as the data contain information on identified natural persons, specifically regarding the ultimate 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 that data affects the fundamental right to respect for private life. (Furthermore, making them available to the general public constitutes the processing of personal data).
As regards the seriousness of this interference, the Court stated that, to the extent to which the information made available to the general public concerns the identity of the ultimate beneficial owner, as well as the nature and extent of his or her actual holdings in business entities or other legal entities, it is likely that they will enable the profiling of certain personal identification data, the financial situation of the data subject, as well as specific economic sectors, countries, and companies in which that person has invested. - Secondly, in its review of the justification for the interference at issue, the Court of Justice first noted that the principle of legality is respected in the present case. It must be noted that the restriction on the exercise of the aforementioned fundamental rights, resulting from public access to information on beneficial owners, is established by a legislative act, specifically the amended Anti-Money Laundering Directive.
Second, it clarifies 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 the data to which any member of the general public must be granted access, and that Member States may grant access to additional information, that does not alter the fact that only relevant 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 to the objectives of the amended Anti-Money Laundering Directive. - Third, the Court emphasized that, by regulating public 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 that such information will be used for those purposes, which constitutes an objective of general interest capable of justifying interventions, even serious ones, in the fundamental rights enshrined in Articles 7 and 8 of the Charter.
- Fourth, in the context of examining the necessary, and proportionate nature of the interference at issue, the Court of Justice noted that it is true that public access to information on the ultimate beneficiaries may contribute to the achievement of that objective.
However, it considers that this 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, under the Anti-Money Laundering Directive as it stood prior to its amendment by Directive 2018/843, was to be available to anyone wishing to access information on 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 under which the public may have access to information on beneficial owners cannot justify the EU legislator to grant the general public access to that information. - Furthermore, the explanations set out in Directive 2018/843 also fail to demonstrate the strict necessity of the intervention in question. To the extent that, according to those explanations, public access to information on beneficial owners is intended to enable greater scrutiny of information by civil society, in particular by the press or civil society organizations, the Court stated that both the press as well as civil society organizations involved in the prevention and combating of money laundering and terrorist financing, have a legitimate interest in accessing the information in question.
- Furthermore, the interference in question is also not proportionate. In this regard, the Court of Justice found that the substantive rules governing this interference do not meet the requirement 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 specified therein, and allows Member States to provide access to additional information that includes “at least” the date of birth or contact details of the beneficial owner concerned. By using the term “at least,” this directive allows for the disclosure to the public of data that is neither sufficiently defined nor identifiable.
- Furthermore, as regards the balancing of the seriousness of that interference against the importance of the objective of general interest pursued, the Court of Justice has recognized that this objective, given its importance, may justify interventions, even significant ones, into the fundamental rights enshrined in Articles 7 and 8 of the Charter.
Following this Judgment and the findings and conclusions set forth therein, some countries have already restricted or modified public access to data in their (e.g., commercial) registers regarding ultimate beneficial owners — for example, in the Republic of Austria, the Grand Duchy of Luxembourg, or the Kingdom of the Netherlands. Further amendments or restrictions can also be expected in other countries.
Legal Framework in the Slovak Republic
In the Slovak Republic, the legal framework governing the obligation to enter or register the beneficial owner of a specific entity in the relevant register, as well as the scope of data to be recorded regarding the beneficial owner, is set forth primarily 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 “RLE 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 “Act on the RPSP”),
d) in legal regulations governing the status of foundations, non-investment funds, and non-profit organizations providing services of general interest,
Re a)
Pursuant to Section 3 of the Commercial Register Act, the following identification data regarding the ultimate beneficial owner of a legal entity shall be entered in the Commercial Register: first name, last name, birth number, or date of birth if a birth number has not been assigned, permanent residence address or other residence address, nationality, and type and number of identity document, as well as data establishing the status of beneficial owner pursuant to a special regulation, namely the AML Act. Information on the beneficial owner entered in the Commercial Register is not publicly accessible, nor is it published on the Commercial Register website www.orsr.sk, in the Commercial Gazette, and this information is also not visible on extracts from the Commercial Register.
Re b)
Pursuant to Section 7a(4) of the Act on the Register of Legal Entities (hereinafter also referred to as the “RLE”), the publicly accessible information regarding the beneficial owner recorded in the Register of Legal Entities (hereinafter also referred to as the “RLE”) includes the first name, last name, date of birth, nationality, residential address, and information establishing the status of beneficial owner, and the Statistical Office of the Slovak Republic publishes this information free of charge on its website. The Statistical Office of the Slovak Republic also provides data on beneficial owners from the RPO in electronic form and by automated means to obligated entities under the AML Act. The Statistical Office of the Slovak Republic participates in the implementation of the AML Act as part of fulfilling the tasks established by law. The Statistical Office of the Slovak Republic is required to continuously maintain up-to-date identification data on beneficial owners in the RPO, as well as on entrepreneurs and public authorities, and simultaneously provide this data to public authorities and obligated entities when performing customer due diligence. Access for the aforementioned obligated entities may be established upon request, which is available after logging in via eID on behalf of the obligated entity through the Central Public Administration Portal www.slovensko.sk or the Statistical Office of the Slovak Republic portal.
Re c)
The establishment of the Public Sector Partners Register (hereinafter also referred to as “RPVS”) was introduced by the RPVS Act. This Act governs the establishment of the RPVS, the data entered into the register, the procedure for entering data into the register, the recording of changes to entered data and the deletion of entered data, the verification of data entered into the register, and penalties for violations of the obligations established by 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 accessible on the website of the Ministry of Justice of the Slovak Republic. The register is part of the Central Judicial Information System.
Public sector partners (and persons under Section 17 of the RPVS Act—voluntarily registered entities) are entered into the RPVS along with the public sector partner data specified in Section 4 of the RPVS Act. One of these pieces of information is data on the ultimate beneficiaries of the public sector partner, including first name, last name, permanent address, date of birth, nationality, and whether the ultimate beneficial owner is a public official performing a function in the Slovak Republic.
However, the RPVS publishes data on the ultimate beneficial owners of public sector partners and thus on entities that enter into financial relationships with the public sector within the meaning of the RPVS Act. Anyone from the general public thus has access to data on beneficial owners based on public access to the RPVS without having to demonstrate any legitimate interest.
Conclusions:
In light of the November 2022 ruling, it will be interesting to see how the conditions for disclosing data on ultimate beneficial owners in the aforementioned registers and the legislation governing the scope of such disclosures will be amended, if at all. To date, the legislature has not, in accordance with the Judgment, changed access to any of these registers, nor has it adjusted the scope of published beneficial owner data, 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 for full and unrestricted access to everyone—i.e., the general public—to the registration data on ultimate beneficial owners in the aforementioned registers; consequently, it may be concluded that amending the legislation may not be entirely necessary or required in all of the aforementioned legal provisions.
At this point, it is necessary to reiterate that the European Court of Justice assessed only 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 a disproportionate and unbalanced interference with the fundamental rights of natural persons who are registered as beneficial owners, and, according to the Judgment, such a provision is not necessary to achieve the objective pursued by the Directive.
With regard to data in the Slovak Commercial Register, since data on beneficial owners are not accessible to the general public, the legal regulation within the meaning of the Judgment does not need to be amended.
As for the Act on the Register of Business Entities, if, for example, online registration were introduced to allow access to this data or access for a fee, we believe that such an amendment could be in accordance with the findings set forth in the Judgment.
As for the RPVS Act, this legislation already provides mechanisms and institutions (which are used in practice) through which, for example, data protection (information on the address of the ultimate beneficial owner) and thus ensure its protection, specifically by not disclosing certain information about ultimate beneficial owners under specific circumstances, pursuant to Section 4(6) of the RPVS Act. Specifically, Section 4(6) of the RPVS Act provides that “instead of the permanent residence address of the ultimate beneficiary, an authorized person may provide the registered office or place of business of the public sector partner if they demonstrate that there are objectively justified circumstances under which providing the permanent residence address of the ultimate beneficiary could endanger their safety or infringe upon their rights to privacy, or endanger the safety or infringe upon the rights to privacy of their close relatives. The circumstances under which the authorized person did not provide the permanent residence address of the ultimate beneficial owner shall be stated in an affidavit 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 and thus entities that receive funds from the public sector within the meaning of the RPVS Act; therefore, it is also evident that with regard to the justification for the 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, the principle of legality is emphasized here.
At the same time, the Judgment noted that where public funds are involved (as is the case with the RPVS), the principle of transparency, which enables greater citizen participation in the decision-making process and ensures greater legitimacy—a principle that can be concretized primarily through requirements for institutional and procedural transparency applicable to activities of a public nature— including the use of public funds (as is the case with the RPVS), such a link need not exist where the objective of the measure in question is to make available to the general public information concerning the identity of the ultimate beneficial owners, as well as the nature and extent of their holdings in business entities or other legal entities — as was the case in the matter at hand.
It will likely be necessary to await the decision of the Slovak court on whether whether the publication of the relevant data concerning a specific individual constitutes an interference with the right to respect for private and family life, the protection of which is guaranteed precisely by Articles 7 and 8 of the Charter of Fundamental Rights of the European Union. Slovak courts are obligated to protect the rights of individuals guaranteed by European law and not to apply domestic legislation that conflicts with, for example, the Fifth Directive. Likewise, international treaties on human rights and freedoms (including the Charter) take precedence over the laws of the Slovak Republic, including the aforementioned laws governing the disclosure of information on ultimate beneficial owners, in accordance with the Constitution of the Slovak Republic.
At the same time, it is essential to monitor the impact on the transparency of ownership relationships in general and other opportunities for the public, including, for example, non-governmental organizations, to exercise oversight over certain entities and the related fight against money laundering.
