After adopting amendments to Recommendation 24 in March 2022, the Financial Action Task Force (FATF), published updated guidance for public consultation on October 25th, 2022 to help countries and the private sector implement the strengthened requirements to prevent criminals from hiding illicit activity behind opaque corporate structures.
In October 2022, the FATF also released a document for public consultation, on proposed revisions to Recommendations 25 on transparency and beneficial ownership of legal arrangements. The public consultation process for both Recommendations 24 and 25, closed on December 6th ,2022, and the comments received will be considered next month at the FATF’s February 2023 Plenary meetings.
However, as several of the 206 members of the FATF/FATF Style Regional Bodies (FSRBs) global network were considering and legislating for public beneficial ownership registers, the Court of Justice of the European Union (CJEU) ruled “the provision whereby information on beneficial ownership of companies incorporated within the territory of Member States” as invalid.
Despite acknowledging that increased transparency could help prevent money laundering and terrorist financing, the preliminary ruling sent shockwaves around the world.
The CJEU stated that “the general public’s access to information on beneficial ownership constitutes a serious interference with the fundamental rights to respect for private life and to the protection of personal data enshrined in Articles 7 and 8 of the Charter [of Fundamental Rights of the European Union (the Charter)]” Even when exemptions from public access to personal information about beneficial owners are allowed, the CJEU said that “sufficient safeguards enabling data subjects to protect their personal data effectively against the risks of abuse” are not available.
Campaigners and activists were upset by this decision.
The 2018 EU Directive 2018/843 at Article 30(5) (c) requires Member States to ensure that information on beneficial ownership is accessible to any member of the general public in all cases. The requirement in the Fourth Directive to demonstrate a legitimate interest is no longer applicable.
Headlines announced the shielding of anonymous companies from public scrutiny as a disappointing twist, and the striking down of public access was declared as being “stabbed in the back.” There were hard-fought battles and lengthy negotiations that led to recent victories to open up transparency data to the public.
The CJEU was also clear that the EU’s Parliament intention and the interference created by its adoption of the 5th Directive “is neither limited to what is strictly necessary nor proportionate to the objective pursued”
Within hours, it was reported, that access to public registers holding personal details of the beneficial owners of companies in several EU states was blocked or temporarily suspended. Advocacy groups may find a measure of vindication in having anticipated the advent of beneficial ownership blackouts immediately across the EU.
The registry administrator of a leading FATF member is considering the further implications of the CJEU ruling and will provide further information in a timely manner. One FSRB member with a constitutional relationship with a FATF member is reportedly seeking to understand the full implications of the CJEU ruling with officials from that FATF member, within that framework. This process could be pursued by several other FSRB members.
The fluidity of the circumstances demands that more time is needed for assessing the broader implications of the ruling, and the marshalling of submissions to the FATF, so that informed consultations should occur. Additionally, the reality of the human and financial resource constraints within the FSRB community, which is acknowledged within the global network, provides further impetus for this approach. It is critical that the voices of all stakeholders be heard, especially small developing countries, and the activist institutions who feel desperately aggrieved by the ruling and its fallout.