Recently a great deal of noise was made about the decision of the European Court of Justice, regarding the decision on the Ultimate Beneficial Owner Registers, at an international level.
Case C317/21 G-FINANCE SARL and DV ("G-FINANCE and DV") v Luxembourg Business Registers before the Court of Justice ("Court"), concerned a request for a preliminary ruling under Article 267 of the Treaty on the Functioning of the European Union referred to by the Tribunal d'Arrondissement of Luxembourg.
The case surrounded the interpretation and the validity of the provisions of the Directive (EU) 2018/843 of the European Parliament and of the Council amending Directive (EU) 2015/849 on the prevention of the use of the financial system for the purposes of money laundering or terrorist financing, and amending Directives 2009/138/EC and 2013/36/EU ("5th AML Directive"), in light of the fundamental rights and principles recognized by the Charter of Fundamental Rights of the European Union and raised before the Tribunal d'arrondissement during a case concerning the refusal of Luxembourg Business Registers to grant the request made by G-FINANCE and DV, a public limited company established in Luxembourg and its beneficial owner, to limit access to information concerning the beneficial owner.
The Tribunal d'arrondissement of Luxembourg referred the question for a preliminary ruling on whether Article 1(15)(c) of the 5th AML Directive, in so far as it grants a right of access to information on the beneficial owners of companies and other legal entities to "any member of the general public", is invalid because it infringes the principle of proportionality as set out, in particular, in Article 5(4) TEU. The 5th AML Directive provides that Member States shall make information on beneficial owners accessible to the general public. More specifically, Article 1(15)(c) provides that Member States shall ensure that information on beneficial ownership is accessible in all cases to: (a) competent authorities, without any restriction; (b) obliged entities, within the framework of customer due diligence in accordance with Chapter II; (c) any member of the general public. Members of the general public shall be permitted to access at least the name, the month and year of birth, the country of residence and the nationality of the beneficial owner as well as the nature and extent of the beneficial interest held. Member States may also provide access to additional information enabling the identification of the beneficial owner.
THE 5th AML DIRECTIVE
The 5th AML Directive provides that Member States shall make information on beneficial owners accessible to the general public. More specifically, Article 1(15)(c) provides that Member States shall ensure that information on beneficial ownership is accessible in all cases to: (a) competent authorities, without any restriction; (b) obliged entities, within the framework of customer due diligence in accordance with Chapter II; (c) any member of the general public. Members of the general public shall be permitted to access at least the name, the month and year of birth, the country of residence and the nationality of the beneficial owner as well as the nature and extent of the beneficial interest held. Member States may also provide access to additional information enabling the identification of the beneficial owner.
These transparency requirements are based on public policy objectives specifically outlined in the 5th AML Directive. Particularly, the EU legislator has considered that granting access to beneficial ownership information to members of the general public allows greater scrutiny of the information by civil society, including civil society organizations and journalists, which can contribute in the fight against the misuse of legal entities for the purposes of money laundering or terrorist financing, and preserve trust in the integrity of business transactions and the financial system, both by helping in investigations and through reputational effects, given that anyone who could enter into transactions is aware of the identity of the beneficial owners (Recital 30 of the 5th AML Directive). However, G-FINANCE and DV argue that it has not been shown how granting the public unrestricted access to the data contained in the Register of Beneficial Owners helps to achieve anti-money laundering objectives, and that, on the contrary, such access represents a serious and disproportionate interference in the private lives of beneficial owners. The EU rules on access to beneficial ownership information under the 5th AML Directive have been thoroughly analyzed by the EU legislator to ensure the right to respect for private and family life (Article 7 of the Charter) and the right to the protection of personal data (Article 8 of the Charter) and to find a proper balance between the need to ensure protection of privacy and personal data and the need for more transparency in financial and economic activities. The principle of transparency is one of the fundamental principles of the European Union, enshrined in Articles 1 and 10 of the Treaty on the European Union and in Article 15 of the Treaty on the Functioning of the European Union. The transparency principle enables citizens to participate more closely in the decision-making process and guarantees that the administration enjoys greater legitimacy and is more effective and more accountable to the citizen in a democratic system (see for example Case C-41/00 Interporc v Commission, para 39, and Case C-28/08 Commission v Bavarian Lager, para 54). While traditionally the principle for example enabled public control over the use of public funds by the administration (see to that effect Case C-465/00 Österreichischer Rundfunk and Others, para 81), it progressively became clear that it also perceived as needing to apply to corporate and other legal entities, trusts and similar legal arrangements, since the integrity of the EU financial system is apparently to some proponents of such registers dependent on their transparency (Recital 4 of the 5th AML Directive). In addition, it is worth recalling that the right to the protection of personal data is not an absolute right, we are equally reminded, but must be considered in relation to its function in society and be balanced against other fundamental rights, and it may be limited, provided that the limitations comply with the requirements laid down in Article 52(1) of the Charter. I would argue that this needs emphasis and a pivotal role in the calculation. This also applies to the right to respect for private life enshrined in Article 7 of the Charter. Therefore, to be lawful, limitations may be placed on the exercise of those rights only on the condition that (i) they are provided for by law, (ii) they respect the essence of the rights and freedoms at issue, and (iii) subject to the principle of proportionality, they are necessary and genuinely meet objectives of general interest recognised by the Union or the need to protect the rights and freedoms of others. As the Court holds consistently in its case law, "the principle of proportionality, which is one of the general principles of Community law, requires that measures adopted by Community institutions do not exceed the limits of what is appropriate and necessary in order to attain the objectives legitimately pursued by the legislation in question; when there is a choice between several appropriate measures recourse must be had to the least onerous, and the disadvantages caused must not be disproportionate to the aims pursued [citations omitted]" (See for example Case C-189/01 H. Jippes and Others and Case C-331/88 Fedesa and Others).
SOME MORE JUSTIFICATIONS FOR LIMITATIONS
The Directive provides for limitations that are accessible and foreseeable, which was not contested by the applicants of the underlying case. These limitations also respect the essence of the rights at issue. The purpose of the right to the protection of personal data is not an end in itself but a means to protect the private sphere of individuals. The Directive does not encroach upon the right to respect for one's private sphere, or private and family life, to such an extent that it would disrespect the essence of the right protected under Articles 7 and 8 of the EU Charter being one of the bizarre statements of Transparency International, interfere it will inevitably do. The measure also meets an objective general interest. The fight against serious crime, as confirmed by the case law of the Court, indeed constitutes an objective of general interest, which may justify interference with the fundamental rights to privacy and data protection guaranteed by Articles 7 and 8 of the Charter (Joined Cases C-293/12 and C594/12 Digital Rights Ireland and Seitlinger and Others). However, the objective of fighting money laundering and terrorist financing, and the necessary and proportionate interference it causes, must be properly balanced with the right to privacy and personal data of individuals. (Joined Cases C-293/12 and C-594/12 Digital Rights Ireland and Seitlinger and Others). The last question to be answered in the test used in the Fedesa case is whether there is a choice between several appropriate measures, whether the Directive opted for the least onerous one, and whether the disadvantages caused are disproportionate to the aims pursued. The 5th AML Directive is the latest main legal instrument of the development of the EU acquis to counter money laundering, a phenomenon that damages "the integrity, stability and reputation of the financial sector, and threaten[s] the internal market of the Union as well as international development" (Recital 1 of the 5th AML Directive). During the last three decades, the European Parliament and the Council have applied different measures in previous AML Directives, and the Member States have sought to keep up with the technical and legal developments and consequently with any new challenges related to illicit financial flows. The main novelty in the measure at hand is that the Directive makes beneficial ownership information accessible to any member of the general public. This is where the true objections arise most vehemently This policy change is in part an admission that the competent authorities, financial intelligence units and obliged entities have largely failed to effectively detect, prevent, investigate and prosecute money laundering (see European Parliament resolution of 10 July 2020 on a comprehensive Union policy on preventing money laundering and terrorist financing) and therefore more actors need to become involved in order to attain the highly important objective of fighting money laundering and terrorist financing. In part, it also points to a recognition that the general public, including the press and nongovernmental organisations (public and social watchdogs, see Magyar Helsinki Bizottság v. Hungary [GC], no 18030/11, paras 165-166), businesses and anybody who wishes to act as a watchdog has the right to take part in the prevention and detection of criminal offences. As the ECtHR pointed out in the Magyar Helsinki Bizottság case, "given the important role played by the Internet in enhancing the public's access to news and facilitating the dissemination of information (see Delfi AS v. Estonia [GC], no 64569/09, para 133, ECHR 2015), the function of bloggers and popular users of social media may be also assimilated to that of 'public watchdogs' in so far as the protection afforded by Article 10 is concerned".
Furthermore, Article 13 of the UN Convention against Corruption, to which all EU Member States and the EU itself are parties, requires that "[e]ach State Party shall take appropriate measures, within its means and in accordance with fundamental principles of its domestic law, to promote the active participation of individuals and groups outside the public sector, such as civil society, non-governmental organizations and community-based organizations, in the prevention of and the fight against corruption. This participation should be strengthened by such measures as: [...] Ensuring that the public has effective access to information". Opening up beneficial ownership information to any member of the general public is in line with the above international law obligation, the argument goes. In light of the above, it is worth noting that the EU has set up public access to beneficial ownership registers while considering the need to find the fair balance between the general public interest in the prevention of money laundering and terrorist financing and the fundamental rights of the individuals concerned, taking into account the need to limit the data available to the public in order to minimise the prejudice to the beneficial owner. Surely here that has not been achieved. There is a fundamental inconsistency here. In this respect, The caped crusaders at Transparency International and others believe that while legal persons are needed to operate complex businesses, collect capital, and limit risks and the liability of individuals, they have not been created as a tool to hide ownership. On the contrary, they bizarrely argue it is legitimate to expect transparency around ultimate beneficiaries. In a wonderfully naïve notion of business they have even said individuals, if they want, could trade in their own name and therefore avoid the public reporting obligation that comes with legal structures.
THE METHODOLOGY IN CYPRUS – THE DEFINITION OF "BENEFICIAL OWNER"
In accordance with the provisions of the AML Law, the Directive issued by the Cyprus Registrar of Companies and the Guidance issued by the Cyprus Registrar of Companies, the "Beneficial Owner" of a company and/or other entity is defined as the natural person who ultimately owns or controls the company, directly or indirectly.
- Direct Ownership may be indicated by shareholding of 25% + 1 share or an ownership interest of more than 25% in the Entity.
- Indirect Ownership may be indicated by a shareholding of 25% + 1 share or an ownership interest of more than 25% in the Entity held by a corporate entity, which is under the control of a physical person(s), or by multiple corporate entities, which are under the control of the same physical person(s) or through a nominee shareholder (whether physical or corporate) or other legal arrangements.
Whereas the percentage of interest is a strong indication of ownership, each Cyprus Company must take into account a number of parameters when assessing or trying to ascertain who is its beneficial owner, such as:
- the specific rights attached to the ownership interest (i.e., voting rights or lack of voting rights);
- any provisions of any shareholders agreements existing between the shareholders of the Company;
- the members who exercise dominant influence on the Company, or the persons who have the right to remove or appoint a majority of the management and administration of the Company.
The Guidance issued by the Cyprus Registrar of Companies provides that "control through other means" should also be determined by taking into account the relevant provisions of the Cyprus Companies Law Cap.113 (as subsequently amended) and of the EU Directive 2013/34.
In case no natural persons are identified or can be identified as the beneficial owners (i.e. in cases where there is no person holding more than 25% interest in the company) of the Cyprus Company and after having exhausted all possible means and given that there are no grounds for suspecting who the beneficial owner might be , then the details of the senior managing official(s) of the Company i.e. the Board of Directors and/or other managerial body must be reported as the beneficial owner of the Company.
Therefore, companies and other relevant entities must consider the definition of beneficial owner and control in order to take the required and appropriate measures to obtain the information required regarding their beneficial owners for internal keeping and reporting.
BENEFICIAL OWNER INFORMATION TO BE REPORTED IN RESPECT OF BENEFICIAL OWNERS WHO ARE NATURAL PERSONS
In accordance of Article 4(1) of the AML Law, the following information should be reported on each beneficial owner of an obliged entity (as applicable):
- Date of Birth;
- Current residential address;
- Type of Identification document (i.e., Passport or ID);
- Identification Document Number;
- Identification Document Country of Issuance;
- Nature and extent of the beneficial interest held i.e.: – Direct or indirect? – Through percentage of shares or voting rights? – Nature and extent of the significant influence or control with other means?;
- Date on which the natural person became a beneficial owner;
- Date on which there were changes in the particulars of the natural person;
- Date on which the natural person ceased to be a beneficial owner.
BENEFICIAL OWNER INFORMATION TO BE REPORTED WHEN THE STRUCTURE OF AN ENTITY LEADS TO TRUSTS / FOUNDATIONS / OTHER SIMILAR LEGAL ARRANGEMENTS / LISTED COMPANIES
In cases where the shareholding structure of a Cyprus Entity leads to Trusts / Foundations / other similar Legal Arrangements or listed companies as beneficial owner(s), the information to be submitted in the UBO Register is the following:
- Name of Trust / Foundation / other similar Legal Arrangement / Listed Company;
- Registration Number;
- Business Address;
- Nature and extent of the beneficial interest held i.e.: – Direct or indirect? – Through percentage of shares or voting rights? – Nature and extent of the significant influence or control with other means?;
- Date on which the Trust / Foundation / other similar Legal Arrangement / Listed Company became a beneficial owner;
- Date on which there were changes in the particulars of the Trust / Foundation / other similar Legal Arrangement / Listed Company; and
- Date on which the Trust / Foundation / other similar Legal Arrangement / Listed Company ceased to be a beneficial owner.
OBLIGATION TO REPORT
In accordance with Article 4(2) of the AML Law, the officers of the company (i.e., the Directors and the Company Secretary) have the obligation to collect the necessary information and maintain/update the beneficial ownership information at the company's registered office.
In accordance with Article 5(1) – 5(5) of the AML Law, if any of the required information is not known to the Company and/or to its officers, then a signed request letter should be sent to the natural person whom the Company has reasonable grounds to believe that is the beneficial owner of the Company, requesting him or her to confirm and verify the information needed in accordance pursuant to Article 4(1) of the AML Law.
ACCESS TO THE UBO REGISTER
During the first 12-month reporting period, i.e., starting from 12.03.2021 to12.03.2022, access to the online portal of the UBO Register for Entities will only be granted to the Cyprus Competent Supervisory Authorities, the Cyprus FIU, the Cyprus Customs Department, the Cyprus Tax Department and the Cyprus Police.
The online search function and beneficial owner information WILL NOT BE publicly available during the first 12-month reporting period.
At the end of the first reporting period, i.e., after 12.03.2022, access to the UBO Register for Entities will be publicly available.
- Cyprus Competent Supervisory Authorities, the Cyprus FIU, the Cyprus Customs Department, the Cyprus Tax Department and the Cyprus Police will have fast and unlimited access without the payment of a fee and without notifying the relevant Cyprus Entity;
- Obliged Entities as these are defined per the AML Law and such as Corporate Service Providers, Law Firms, Audit Firms etc., in the context of conducting due diligence and identification measures for their client (as defined by the AML Law) will have online access to the UBO Register portal and can obtain information as to the name, month and year of birth, nationality and country of residence of the beneficial owner as well as the nature and extent of the beneficial interest held following the payment of a fee of EURO 3,50;
- All members of the general public will have online access to the UBO Register portal and can obtain information as to the name, month and year of birth, nationality and country of residence of the beneficial owner as well as the nature and extent of the beneficial interest held following the payment of a fee of EURO 3,50.
The point will be made simply here. ACCESS SHOULD BE LIMITED in Cyprus indeed elsewhere. As stated at the start of this piece and echoed by the courts and Directives of the EU there is an unpalatable and unsavory voyeuristic tone to arguments for public access to UBO information and simply none of the arguments hold sufficient water. So, in other words the Cyprus authorities simply get rid of the public access element and keep the rest. Simple, clean, effective.
The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.