On 22 November 2022, the Court of Justice of the European Union (CJEU) declared[i] that the provision of the EU Anti-Money Laundering Directive[ii] (AMLD), whereby Member States must ensure that the information on the beneficial ownership of corporate[iii] entities incorporated within their territory is accessible in all cases to any member of the general public, is invalid.
Previously, the register of beneficial ownership was accessible by a competent authority, a financial intelligence unit, obliged entities[iv] and a person or organisation that demonstrates a legitimate interest.[v] In 2020 the final category, i.e., a “person or organisation that demonstrates a legitimate interest” was expanded to “a member of the public.”
The CJEU Judgment
The CJEU stated that:
“a fair balance should be sought in particular between the general public interest in the prevention of money laundering …and the data subjects’ fundamental rights.”
The CJEU decided that:
“the general public’s access to information on beneficial ownership…constitutes an interference with the rights guaranteed in Articles 7 and 8 of the Charter [of Fundamental Rights of the European Union].”[vi]
As a result of the CJEU ruling, a number of EU registers of beneficial ownership have since stopped general access to the public.
As Anthony Travers OBE eloquently stated in this publication[x] in December 2022:
“The provisions of Article 7 and 8 of the EU Charter of Fundamental Rights, which grant a right of respect for everyone’s private and family life and their correspondence and which are specifically regarded as paramount by the ECJ decision, are mirrored in current UK law in Article 8 of the Human Rights Act 1998 and as importantly in the Cayman Island Constitution in s.9 of its Bill of Rights.”
Similarly, article 19(1) of the British Virgin Islands constitution[xi] states:
“Every person has the right to respect for his or her private and family life, his or her home and his or her correspondence, including business and professional communication.”
For a detailed analysis of this area see the detailed report from 2019 by the Islands Rights Initiative.[xii]
Thus, following the CJEU ruling, the Cayman Islands issued a statement[xiii] on 30 November 2022:
“The Ministry, with the assistance of external counsel, is currently reviewing the ECJ judgment to determine if there are any implications with respect to the proposal to introduce public beneficial ownership registers.”
Furthermore, on 22 December 2022, the Crown Dependencies issued a statement[xiv] that contained the following:
“However, in light of this CJEU judgment, implementation of [public beneficial ownership register] legislation will be delayed for a short period to enable consideration of its impact and obtain specialist legal advice…
“In respect of extending access beyond obliged entities, we intend to obtain expert legal advice on all relevant issues and, in due course, intend to review the public commitment in line with that advice and any recent development of international best practice.”
Thus, as far as the European Union Member States, British Overseas Territories and the Crown Dependencies are concerned, the adoption and operation of fully accessible registers of beneficial ownership have come to a halt.[xv]
It is also useful to point out that Gibraltar implemented the provisions of AMLD in both 2017 and 2020[xvi], so it has a fully accessible beneficial ownership register.[xvii] It remains to be seen what will happen in Gibraltar and to the United Kingdom’s “Persons of Significant Control” register (which is unrestricted).[xviii]
"Restricted Access” Registers
However, “restricted access” registers of beneficial ownership are here to stay, and more and more jurisdictions are looking at introducing relevant legislation to this effect.[xix]
“Restricted access” registers are the true extent of “international standards” expected by the global community. Even the United States – not usually first in the queue to adopt international standards of this type – has introduced the Corporate Transparency Act.[xx] The proposed rules regarding access to and protection of beneficial ownership information were published on 16 December 2022[xxi] - the information may only be disclosed to federal agencies, foreign governments and financial institutions.
The Financial Action Task Force (FATF) issued the first standards on beneficial ownership in 2003 – focusing on the legal requirements for financial institutions and other gatekeepers.[xxii]
In 2012, these standards were strengthened to ensure that information was available and in 2014 the FATF issued a paper called “Guidance on Transparency and Beneficial Ownership”.[xxiii] In 2014, FATF Recommendation 24[xxiv] required basic information on companies to be obtained and recorded and to be publicly available. Countries were required to ensure “adequate, accurate and timely information on the beneficial ownership of all legal persons, and that their authorities can access this information in a timely manner.”
In 2014 the Guidance stated that “Basic information on the company [be] publicly available, [beneficial ownership] information could also be made publicly available or available to financial institutions and DNFBPs.”[xxv] In 2022, Recommendation 24 was revised but there is still not a requirement for a public register of beneficial ownership. Basic company information should be public.[xxvi]
An interesting reflection of this can be found in Hong Kong. In January 2017, the Financial Services and the Treasury Bureau launched a consultation[xxvii] proposing “to require companies incorporated in Hong Kong to obtain and hold up-to-date beneficial ownership information for public inspection upon request.”
Following the consultation conclusions in April 2017[xxviii], there was a notable shift: “Having regard to privacy considerations, international practices and the FATF recommendation, we agree that access to PSC [people with significant control] registers should be restricted to the competent authorities only.”
Interest vs Interference
The salient issue therefore is: what is the line between a “legitimate interest” and undue “interference”? Much discussion has been made on “legitimate interest” in the context of data protection and that is outside of the scope of this piece.[xxix] However, it is worth noting from the Information Commissioner’s Office: “The legitimate interests of the public in general may also play a part when deciding whether the legitimate interests in the processing override the individual’s interests and rights.”
“Requesters must demonstrate to HMRC that they have a ‘legitimate interest’ in the information they require to access. This is where the requester shows they are involved in an investigation into money laundering or terrorist financing, and the requester shows they are requesting the information in order to further an investigation into a specified suspected instance of money laundering or terrorist financing.”
However, under the current draft of the manual, there is no such “legitimate interest” requirement where the trust has “a controlling interest in an offshore company or other entity that is not a UK or EEA entity”.
To close, we should heed the words of Dr. Jay Fedorak, the then Information Commissioner of Jersey who stated in a balanced piece in 2019: “…we should not casually discard privacy in for speculative objectives. We should treat personal data like a valuable financial asset. We should exchange privacy only where a thorough cost-benefit analysis indicates that what we will receive is worth the loss.”[xxxii]
Further developments are expected.
[i] Joined Cases C-37/20.
[ii] Directive 2015/849 (i.e. the 4th AML Directive), as amended by the Directive 2018/84 (i.e. the 5th AML Directive).
[iii] And other legal entities.
[iv] Basically, legal and natural persons caught by AMLD.
[v] Not defined.
[vii] Those with companies that would be caught by such register.
[viii] Jersey, Guernsey and Isle of Man.
[ix] See for example https://www.cigouk.ky/statement-on-beneficial-ownership/
[xv] For a detailed analysis on the Cayman Islands, see Travers above at 10.
[xix] See for example Switzerland: https://www.admin.ch/gov/en/start/documentation/media-releases.msg-id-90662.html
[xxi] See Federal Register Vol. 87 No 241 Friday December 16, 2022 at pp77404-77457.
[xxii] See FATF Report to the G20 on Beneficial Ownership setting out the background. https://www.fatf-gafi.org/publications/fatfrecommendations/documents/report-g20-beneficial-ownership-2016.html#:~:text=7%20October%202016%20-%20The%20Financial%20Action%20Task,misuse%20of%20companies%2C%20trusts%2C%20and%20other%20corporate%20vehicles.
[xxiv] Since revised.
[xxv] Designated Non-Financial Businesses and Professions.
[xxvi] This is one of the factors behind the BVI allowing limited disclosure of current directors from 1 January 2023.
[xxix] See for example https://ico.org.uk/for-organisations/guide-to-data-protection/guide-to-the-general-data-protection-regulation-gdpr/legitimate-interests/what-is-the-legitimate-interests-basis/#what_counts
[xxxi] See TRSM60020.
Richard Grasby is a Partner in Appleby’s Hong Kong office, leading the Private Client, Trusts and Family Office practice. Richard advises trustees, ultra-high net worth individuals, private trust companies and family offices on the establishment, restructuring and administration of trusts, including special trusts i.e. BVI VISTA, Cayman STAR and Employee Benefit Trusts. He regularly assists in estate administration, succession planning and family governance. Private clients and family offices instruct Richard to advise on the use of corporate vehicles for asset holding and succession planning purposes. Richard is an expert in regulatory law including AML, AEOI, economic substance and licensing and risk management for trust companies. He also advises on collective investment funds, particularly unit trusts and private label funds. Richard has acted for many of the world’s leading trust companies, financial institutions, wealthy individuals and related structures. He has experience with dealing with clients and advisors across the globe. Richard has over 20 years’ post qualification experience with the majority spent in offshore firms. Richard has lived and worked in Jersey, London, the Cayman Islands and (since 2009) Hong Kong. He is admitted as a solicitor in England and Wales and the British Virgin Islands and is a Registered Foreign Lawyer in Hong Kong. He has also been admitted as an Attorney in the Cayman Islands. Richard is an active member of STEP. He has been on the local executive committee since 2012 and is a former chair. He is on the global steering committees for the Business Families and International Client Special Interest Groups. He is a member of the Academic Community. Richard is an elected Academician of the International Academy of Estate and Trust Law (the only such offshore practitioner in APAC). He is also a Certified Anti Money Laundering Specialist. Richard is a lecturer on trusts and family offices for the Hong Kong Securities and Investment Institute and for the Hong Kong University of Science and Technology. He is a member of the Hong Kong Trustee Association, the Family Firm Institute the International Bar Association and the Investment Migration Council. Richard is an active speaker at events across the world and a writer for many journals.