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Harry Cassin
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The European Court of Justice UBO ruling is a victory for controlled transparency

The European Court of Justice (ECJ) has ruled that a provision of the EU’s Money Laundering Directive, which requires member states to establish open public registers of ultimate beneficial owners (UBOs) of companies, is invalid. Dutch authorities have now removed public access to the nation’s open UBO register. Other member states may follow suit. 

This judgment should be welcomed. Public UBO registers are an affront to the right to privacy. They also rarely have the intended effect of increasing effective enforcement. The decision favours controlled over unlimited systems of transparency. This will serve to support the fight against economic crime.

In respect of privacy, the ECJ said as much in its judgment. The ruling confronts the inherent conflict between a citizen’s right to privacy and the need to disclose sufficient private financial information to maintain an effective financial crime enforcement framework. 

The court concluded that, on balance, public UBO registers are inconsistent with the right to privacy enshrined in the Charter of Fundamental Rights of the European Union:

According to the Court, 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.

My objection to a public UBO register on privacy grounds has been longstanding. In 2018, I opined that Dame Margaret Hodge MP and Andrew Mitchell MP were wrong to insist that UK overseas territories adopt an open and public register of UBOs. On one memorable occasion, I debated the issue with Dame Margaret Hodge at a conference. Suffice to say we had to agree to disagree.

In my 2018 post, I objected to the public UBO register on privacy grounds:

Why should a businessperson conducting perfectly legitimate business be denied the right to privacy in order to do so? The argument that “if it’s legitimate then why try and keep it confidential” doesn’t fly. We are all entitled to protection of private data unless we are doing something wrong. Privacy is closely aligned to human dignity. The legitimate right to privacy is analogous to privacy of bank account and other financial data (expected, but not unqualified) and medical records.

Similarly, the ECJ’s judgment advocates for the right to privacy, particularly in consideration of the tangible risk of complete disclosure of UBO data:

[T]he potential consequences for the data subjects resulting from possible abuse of their personal data are exacerbated by the fact that, once those data have been made available to the general public, they can not only be freely consulted, but also retained and disseminated and that, in the event of such successive processing, it becomes increasingly difficult, or even illusory, for those data subjects to defend themselves effectively against abuse.

UBO registers do little to support the financial crime enforcement imperative. Although the ECJ arrived at the right outcome, its judgment failed to address this point as effectively. Transparency campaigners assume that maximum UBO transparency will lead to maximum accountability for fraud and corruption. In fact, maximum UBO transparency could have precisely the opposite effect.

Where bad actors are aware that the UBO register will publicize their UBO identity, these bad actors will likely take evasive action to hide assets or proceeds of crime. Mass publication of UBO records of companies seated in Delaware, the British Virgin Islands (BVI), or the Cayman Islands, would rapidly diminish the effectiveness of existing enforcement regimes, with the subjects of enforcement action anticipating UBO publication. For the same reasons, a clandestine criminal or civil asset recovery inquiry into UBO identity is more effective than a public inquiry.

The existing controlled disclosure regime more proportionately balances privacy concerns against the enforcement imperative, and is also better suited to ensure effective, discreet enforcement action against perpetrators of financial crime. For instance, the existing regime provides that a store of verified UBO data is available in places like the BVI. Upon request by way of a court disclosure order, law enforcement, regulators, and victims of financial crime can access this data. 

The ECJ’s ruling is a tacit endorsement of the existing disclosure regime. This will support the work of law enforcement and regulators in addressing financial crime. Also, importantly, the ECJ’s ruling is a welcome victory for the right to privacy and the rule of law.

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