The European Union Court of Justice issued a ruling this week that could throw a wrench in the United Kingdom’s longstanding plan to force the Virgin Islands and other overseas territories to implement public company registers next year.
In a case involving Luxembourg’s public registry, the court ruled Tuesday that a key provision of the EU’s own anti-money-laundering directive — which requires beneficial ownership information to be available to the public — is invalid, according to a court press release announcing the ruling.
Although the decision is not binding on the UK, VI or other overseas territories, VI attorney Martin Kenney said it sets a precedent that the UK will notice.
“It will be harder for, I think, the British government to carry on with beating the BVI up about opening up [ultimate beneficial ownership] information in light of this decision,” Mr. Kenney told the Beacon yesterday.
Financial services stakeholders in the VI and other offshore jurisdictions will celebrate the ruling as a victory for “privacy.” Transparency advocates, however, said the decision could set back decades of efforts to fight money laundering and other financial crime by protecting corporate “secrecy” that they say empowers bad actors.
“Access to beneficial ownership data is vital to identifying — and stopping — corruption and dirty money,” Maíra Martini, a corrupt-money-flows expert at the non-profit advocacy organisation Transparency International, said in a Tuesday response to the ruling. “The more people who are able to access such information, the more opportunity to connect the dots. We have seen time and time again, from the Czech Republic and Denmark to Turkmenistan, how public access to registers helps uncover shady dealings. At a time when the need to track down dirty money is so plainly apparent, the court’s decision takes us back years.”
Mr. Kenney said such transparency campaigners will doubtlessly continue to push for public registers despite the ruling.
“And so the fight will go on,” he said. “But at least the BVI government now has a very fair precedent from a serious court to say, ‘Hey, there’s more to this than what [transparency advocacy group] Global Witness or Transparency International has to say about the issue.”
Under UK pressure, the VI government grudgingly agreed in September 2020 to sign on to a UK plan for the overseas territories and crown dependencies to implement public registers by the end of 2023.
The decision complied with the Sanctions and Anti-Money Laundering Act passed by the UK Parliament in 2018 in furtherance of the EU’s Fifth Anti-Money Laundering Directive.
The VI government subsequently began laying the groundwork for a public register. In March of this year, then-Premier Andrew Fahie announced that the consultation process with the financial services industry would begin in short order, led by the Ministry of Finance and the BVI Financial Services Commission.
But the EU decision has now shifted the field of play.
“The house of cards is starting to collapse,” said Mr. Kenney, head of VI investigative and asset recovery firm Martin Kenney & Co. “For the European Union to force member states to open up for members of the public, journalists or anyone the identities of [ultimate beneficial owners] has been declared by the European Court of Justice to be unlawful and a disproportionate violation of privacy rights.”
The ruling’s impact has already started resonating in Europe. At least one EU member — the Netherlands — stated on Tuesday that it is temporarily closing its public register until the government has considered the implications of the decision.
However, Mr. Kenney said the ruling allows EU registers to remain under a controlled system of transparency like the VI’s Beneficial Ownership Secure Search System.
“Authorities can still access the information,” he said. “It’s just that members of the Guardian newspaper or Global Witness cannot.”
The EU court case has roots in 2019, when Luxembourg adopted a register of beneficial ownership in accordance with the EU directive. That register required the inclusion of various information about company owners, much of which was made accessible to the general public through the internet.
The Luxembourg system, however, allows a beneficial owner to ask Luxembourg Business Registers, which administers the register, to restrict public access to their company’s information in certain cases.
Recently, LBR denied such a request from the owner of a Luxembourgish company, according to the court press release.
The matter was taken before a lower court in Luxembourg, which “considered that the disclosure of such information is capable of entailing a disproportionate risk of interference with the fundamental rights of the beneficial owners concerned,” the release added.
The lower court then “referred a series of questions to the [EU] Court of Justice for a preliminary ruling concerning the interpretation of certain provisions of the anti-money-laundering directive and the validity of those provisions in the light of the Charter of Fundamental Rights of the EU,” the release explained.
In its Tuesday judgment, the EU court held that in due to the the charter, “the provision of the anti-money-laundering directive whereby member states must ensure that the information on the beneficial ownership of corporate and other legal entities incorporated within their territory is accessible in all cases to any member of the general public is invalid,” the press release stated.
The EU court also found that granting public access to information about beneficial ownership could leave owners and their finances vulnerable.
Here in the VI, successive government leaders had long argued similarly, claiming that allowing unfettered access to the VI’s register risked revealing private information that could put beneficial owners and their fortunes at risk.
The EU court found 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, respectively, according to the press release.
“Indeed, the information disclosed enables a potentially unlimited number of persons to find out about the material and financial situation of a beneficial owner,” the release added.
The court also found that the possible abuse of this personal data is exacerbated by the public’s ability to disseminate it.
That said, the court noted that the EU Parliament seeks to increase transparency and eliminate money laundering, which is an “objective of general interest capable of justifying even serious interferences with the fundamental rights enshrined in Articles 7 and 8 of the charter,” the release stated.
But the court held that the beneficial ownership regime introduced by the anti-money-laundering directive amounts to a “considerably more serious interference” with the rights of the charter without being offset by as many potential benefits, according to the release.
The Court of Justice does not decide the specific dispute that led to the ruling, the release added.
“It is for the national court or tribunal to dispose of the case in accordance with the Court’s decision, which is similarly binding on other national courts or tribunals before which a similar issue is raised,” it said.