ECJ Ruling: EU Anti-Money-Laundering Directive is Partially Unlawful
According to a ruling of the European Court of Justice (ECJ) of November 22, 2022, the provision in the 5th EU Anti-Money-Laundering Directive whereby the information on the beneficial owners of EU-based companies is in all cases accessible to the public is invalid. According to the ECJ, the associated interference with the rights guaranteed by the Charter of Fundamental Rights of the European Union is neither limited to what is absolutely necessary nor is it proportionate to the objective pursued.
Starting Point: Unsuccessful Applications and Court Proceedings in Luxembourg
This decision was preceded by two legal disputes in Luxembourg in connection with the restriction of information contained in the Luxembourg register of beneficial owners (Registre des bénéficiaires effectifs (RBE)).
Similar to Germany, Luxembourg – in implementation of the 4th EU Anti-Money-Laundering Directive (Directive (EU) 2015/849) in 2019 – has set up in 2017 a register of beneficial ownership in which information on the beneficial owners of entities must be registered and retained. Some of this information is publicly available – not least via the internet. However, the relevant law provides that a beneficial owner may apply to the Luxembourg Business Registers (LBR), the administrator of the RBE, to restrict access to this information under certain conditions. This option is already provided for in the EU directive; Germany also made use of this option when implementing the directive.
The plaintiffs, who felt that the public availability of the information contained in the register exposed them to certain risks, in particular the risk of blackmail and kidnapping, had unsuccessfully invoked the provision and requested the RBE to restrict access to their information.
In the subsequent court proceedings, the plaintiffs essentially argued that (i) granting public access to the identity and personal data of their beneficial owner violated the right to protection of private and family life as well as the right to protection of personal data enshrined in Art. 7 and Art. 8 of the Charter of Fundamental Rights of the European Union (EU Charter of Fundamental Rights), respectively, (ii) public access to the personal data contained in the RBE constitutes a breach of several provisions of the GDPR, and (iii) that the dissemination of such information may entail a disproportionate risk of interference with fundamental rights.
As the Luxembourg District Court also considered that the disclosure of this information may entail a risk of disproportionate interference with the fundamental rights of the beneficial owners concerned, it suspended the proceedings and referred a number of questions to the ECJ for a preliminary ruling on the interpretation of certain provisions of the EU Money Laundering Directive and on their validity in light of the EU Charter of Fundamental Rights.
ECJ Declares Provision in 5th EU Anti-Money-Laundering Directive Invalid
The ECJ subsequently held in its judgment of November 22, 2022 (Case C-37/20, C-601/20) that the provision in Art. 1 No. 15 lit. c of the 5th EU Anti-Money-Laundering Directive (Directive (EU) 208/843), which requires Member States to ensure that beneficial ownership information is accessible to “any member of the general public“, is invalid in light of the EU Charter of Fundamental Rights.
In the court’s view, public access to beneficial ownership information constitutes a serious interference with the fundamental rights to respect for private life (Article 7) and to the protection of personal data (Article 8), since the information disclosed would in fact allow a potentially unlimited number of individuals to learn about the material and financial situation of a beneficial owner. Moreover, the potential consequences for individuals arising from possible misuse of their personal data would be exacerbated by the fact that, once publicly available, such data may not only be freely accessed, but also retained and shared.
No Justification for the Encroachment of Fundamental Rights
According to the ECJ, the legislator was pursuing an objective of general interest with the disputed measure, which could justify even serious interference with the relevant fundamental rights of the EU Charter of Fundamental Rights, and that the access of the general public to information on beneficial owners was suitable to contribute to the achievement of this objective. However, the Court found that the interference associated with this measure was neither limited to what was strictly necessary nor proportionate to the objective pursued.
Consequences and Implications of the Judgment
The direct consequence/implication of the ECJ’s ruling is that Art. 1 No. 15 lit. c of the 5th EU Anti-Money-Laundering Directive is invalid and can no longer be applied. Consequently, the Luxembourg Ministry of Justice issued a press release that same evening, stating that “access to the website of the register of beneficial owners via the Internet is temporarily suspended“.
The consequences of the ruling for the German transparency register are not yet foreseeable. Since 2019, the revised version of the German Money Laundering Act (GwG) also provides in Section 23 (1) Sentence 1 No. 3 GWG that the transparency register can be inspected by anyone. Until then, only public authorities and those who were obliged under the GWG to establish the identity of their customers could inspect the register. Furthermore, persons or organizations could inspect the transparency register if they could show a “legitimate interest,” such as professional journalists and non-governmental organizations specializing in combating money laundering or terrorist financing.
If the entity responsible for administering the transparency register in Germany (Bundesanzeiger Verlag GmbH) does not react similarly and suspend public access to the register until new legislation is passed, it is advisable that beneficial owners file an application for restriction of inspection pursuant to Section 23 (2) Sentence 1 GwG.