In late November, the European Court of Justice (ECJ) delivered an early Christmas present to opponents of corporate transparency. In a landmark judgment, described by Transparency International as “setting the fight against cross-border corruption back by years”, the ECJ has cast doubt on EU member states’ ability to maintain public access to information on the ownership of companies, land and other assets on public registers.
Since the mid-19th century, a governing principle of company law has been public disclosure of information in return for the privilege of limited liability. Both the company itself and the Companies Registration Office (CRO) would maintain records open to the public, identifying directors and registered shareholders.
In 1991, company directors (including de facto and shadow directors) became obliged to formally notify their company of the interests they had in its shares and debt securities. Companies, in turn, became obliged to maintain publicly-accessible registers disclosing these interests as well as disclosing them in financial statements.
These measures combined to make it possible for a reasonable picture of beneficial ownership of companies to be drawn, even if joining the dots would often require expert input. While an occasional irritant for companies, they were never a matter of controversy.
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A 2015 EU directive targeting money laundering and terrorist financing introduced a positive obligation on companies and trusts to identify their beneficial owners, and to keep a register of those owners. In the case of companies, the register must contain particulars of the owners of shareholdings greater than 25 per cent, or where there are no owners with such holdings, among the directors. Since 2019, this information must also be recorded in a central register of beneficial ownership (RBO).
Inspection of this information was initially reserved to competent authorities, those conducting customer due diligence, such as banks, lawyers, trust and company service providers, estate agents, and those that could demonstrate a “legitimate interest”.
In an amending 2018 directive, the right to inspect the central RBO was extended to any member of the public. The directive’s reasoning was that “public access ... allows greater scrutiny by civil society, including by the press or civil society organisations, and contributes to preserving trust in the integrity of business transactions and of the financial system”. Combating money laundering would be assisted by public disclosure “as anyone who could enter into transactions is aware of the identity of the beneficial owners”.
Since 2019, this has meant that any member of the public has been able to make an online search of the Irish RBO and obtain the name, year and month of birth, nationality and country of residence of 25 per cent-plus shareholders (or directors) along with the nature and extent of their ownership interest in any Irish company. That is, until the ECJ judgment of November 22nd.
Sovim SA, a Luxembourg company, applied to the ECJ for a ruling that public access to the identity and personal data of its beneficial owners at its central RBO would infringe the right to respect for private and family life and right to the protection of personal data, enshrined in articles 7 and 8 of the Charter of Fundamental Rights of the EU.
In summary, the ECJ decided in favour of Sovim SA, ruling that the public’s access to beneficial ownership information constituted an unjustified “serious interference” with those fundamental rights. While the aim of preventing money laundering and terrorist financing was an objective of general interest justifying such an interference, a principle of transparency could not justify the general public’s access to ownership information. The rules governing any interference should be clear and precise: the EU law did not limit what ownership information could be disclosed to the public by member states, and accordingly the amending provisions of 2018 allowing public access were stuck down.
In early December, an unusual ECJ “review of the judgment” statement appeared on the ECJ LinkedIn feed. It stated that those that “are connected with the prevention and combating of money laundering and terrorist financing have a legitimate interest in accessing information on beneficial ownership” and, therefore, journalists would still have access. There are, however, other legitimate reasons for seeking this information, such as exposing corporate misconduct, sanctions evasion, profiteering from State contracts, corruption in public office or conflicts of interest. Or simply to avoid trading with a competitor or undesirable counterparty.
This ruling puts public access to comparable CRO information in doubt: if the RBO information on company directors should not be accessed by the public, why should comparable CRO information be accessible? If RBO information as to company ownership is to be off-limits, what about freely available land ownership information at the Land Registry?
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The reasoning of this ruling makes no reference to limited liability being a legal privilege, or the long-established principle of information in exchange for that limited liability. The French language expression for a public company is “société anonyme”. This ruling has gone a considerable distance to render all companies anonymous.
The EU judgment does provide scope for amendments being made to the directives to restore transparency, in a way that navigates the EU Charter, notably a specific and broad definition of legitimate interest. But amendment there must be, and soon.
Paul Egan SC is a senior consultant with Mason Hayes & Curran and chair of the Company Law Review Group
