The recent decision by the European Union’s Court of Justice that unrestricted public access to a register that discloses the ultimate beneficial ownership of EU companies is unlawful, constitutes a serious blow to the public’s right to important information.
Creating a legal vehicle for the conduct of business is a privilege provided by society, as is the ability of a company to protect the liability of its owners from any debts it might leave behind if it fails. It has long been broadly accepted that in return for the benefits of incorporation and limited liability, certain basic financial and ownership information should be publicly available. It now appears that this trade-off has been upset by more recent concerns around data protection.
Information on company ownership is commonly disclosed on ordinary company registers in EU member states, but often complex ownership structures, sometimes involving companies in different jurisdictions, make it all but impossible to discern who the ultimate beneficial owners of a company are.
A particularly worrying aspect of the ruling is the idea that the logic of the court’s finding might eventually be applied to the ordinary company register in Ireland and other EU member states
It was in response to concerns that the obscuring of the ownership of corporate entities was facilitating money laundering and terrorist financing that the European Commission introduced new anti-money laundering (AML) directives in 2018. The directives led to an Irish registry of beneficial ownership being established in 2019 and similar structures were introduced throughout the union. The Irish beneficial ownership register is used by State authorities, banks and professionals such as law firms and accountants, so they can combat money laundering and comply with their know-your-client obligations.
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Up to recently the online registry also allowed members of the public to find out who the ultimate beneficial owner of an Irish company was in return for registering and paying a fee of €2.50. The Irish Times used the register earlier this year to show that an Irish company called Holytown Ltd, with an address in Sandyford, Dublin, was owned by the daughter and stepdaughter of a sanctioned Russian businessman and former KGB general, Sergey Chemezov.
Chemezov is chief executive of the State-owned Russian military and industrial conglomerate, Rostec, a position to which he was appointed by Russian president Vladimir Putin. He has been the subject of US and EU sanctions since the 2014 annexation of Crimea. Holytown was linked to the ownership of an expensive villa near Marbella, in southern Spain.
In the wake of the ruling by the EU Court of Justice, access to the Irish register has been suspended. According to a notice on its website, the register, when it reopens, will only be open to “designated persons”.
The ruling restricting public access to such registers was taken by the EU court following cases taken in Luxembourg based on privacy rights, personal data and general data protection provisions. The courts in Luxembourg sought guidance from the EU Court of Justice. The Court of Justice, which is the EU’s highest court, decided that the 2018 AML directives were in breach of the EU Charter of Fundamental Rights. It found that it is legitimate to grant public access to registries of ultimate beneficial ownership, despite the invasion of privacy involved, but that the AML directives went too far and are not “limited to what is strictly necessary, nor proportionate to the objective pursued”.
The directives granted access to the registries to those who had a “legitimate interest” in the information. The court has ruled that the difficulty in defining what would constitute a legitimate reason for a member of the public to have access to the register was not a sufficient reason for the EU to decide to allow public access generally. The implications of the ruling are being examined by the commission and authorities around the union.
For John Devitt, chief executive of Transparency International Ireland, the decision “might be the biggest setback for the fight against corruption, organised crime and tax evasion in Europe since work began to tackle money laundering at EU level 30 years ago”.
The ruling is also seen as a threat to the ‘many eyes’ concept, whereby interested parties, often working on a voluntary basis, scrutinise company registries to see if they can locate improper and questionable activity
Dublin lawyer Paul Egan, who chairs the Irish Company Law Review Group, tweeted in response to the ruling that “trading anonymously, with limited liability, cannot be a human right. There is a legitimate public interest in the publication of the identity of controllers of a limited company, who will escape personal liability if and whenever that limited liability company becomes insolvent.”
Graham Barrow, a UK-based former banker who has interest in the use of incorporated entities for money-laundering purposes, worries that the EU will introduce a regime whereby members of the public, including journalists and NGOs, will only be allowed access to beneficial ownership data if they can show a legitimate reason for having an interest in a particular company. This would prohibit the type of work he does, where he uses technology to interrogate ownership data generally, with a view to locating patterns that indicate that incorporated entities are being used for improper or illegal purposes.
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The ruling by the Luxembourg-based court is also seen as a threat to the “many eyes” concept, whereby interested parties, often working on a voluntary basis, scrutinise company registries to see if they can locate improper and questionable activity, which can then be brought to the attention of the authorities, journalists and society generally.
A particularly worrying aspect of the ruling is the idea that the logic of the court’s finding might eventually be applied to the ordinary company register in Ireland and other EU member states. As matters stand, anyone can access the Irish Companies Registry Office database and get the names, and often the home addresses and dates of birth, of the people and companies who directly own shares in Irish companies, or act as their directors and secretaries.
It is not easy to see why, if the Luxembourg court has found that public access to a register of beneficial owners is contrary to EU data protection and privacy law, the same logic would not apply to ordinary company office registries. If a future case were to establish such a view, it would be an extraordinary reversal for the trend of recent years towards more transparency in corporate and public life. Society generally would be the poorer for it.
Colm Keena is an Irish Times journalist. He was previously legal affairs correspondent and public affairs correspondent