Luxemburg Business Register case. End of investigations or cardboard monster?
by Krzysztof Izdebski / Open Spending EU Coalition and Stefan Batory Foundation
Black clouds hang over the effective work done by investigative journalists. The recent decision of the Court of Justice of the EU imposed a serious risk of closure of access to information about beneficial owners. Journalists may be forced to limit investigations and, in effect, their subjects will be able to continue their legally and ethically questionable activities.
The CJEU judgment in fact reverses the whole logic behind the solution adopted in the 5th EU Anti Money Laundering Directive (AMLD5). It relied on the obligation of Member States to maintain the registers of beneficial owners and open them to the general public.
The Commission’s pro-disclosure approach was dictated at the time, among other things, by the experience of the Panama Papers scandal, the scale of which shocked societies and politicians around the world. The information on engagement of various decision-makers in offshore companies was only disclosed as a result of the leak of data, which were scrupulously concealed in so-called hard copies.
What the Court said?
Let’s give the floor to the judges who delivered the ruling which caused the stir in the journalistic community. But to do so, it is also worth setting out the context in which the case came to Luxembourg at all. Although it could be said that it never left it until the ruling.
Proceedings by the CJEU began with a preliminary questions from the ordinary court in Luxembourg, which had to deal with two complaints by entrepreneurs against the disclosure of their data in the register of beneficial owners. They argued that the disclosure of details of their identity and their assets put them at risk. Therefore, they requested that access to data about them should be restricted. As the matter concerned European law and the legal basis for the publication of data on beneficial owners was the AMLD5, the court decided to ask the CJEU several questions regarding the interpretation of the provisions of the directive, also in the context of the Charter of Fundamental Rights and the GDPR.
The CJEU ruled on 22 November 2022 on both cases, sparking a debate on its consequences among journalists, civil society organizations, and decision-makers.
Judges stated that public access to all data on beneficial owners violates Articles 7 and 8 of the Charter of Fundamental Rights, namely respect for private and family life and protection of personal data. According to the Court, when balancing the values of openness of economic dealings, anti-money laundering and the fight against terrorism with these rights described in the Charter, one must conclude that the individual’s right to privacy should prevail.
The ruling pointed out on this occasion that the implementation of the protection of the public interest against corruption and terrorism is carried out by the relevant state authorities and it is they who are primarily supposed to take action in this regard and have the more effective means to do so. Accordingly, the judges held that the provision of the Directive that ensures access to the data of the beneficial owners to everyone and under all circumstances is invalid.
What does this mean for journalists?
Maybe a lot, maybe nothing. What is certain is that the coming weeks and months will be crucial and all depends on the European Commission and the Council, who are currently working on the 6th version of AMLD. This is because, despite closing the general access to registers, the Court has given EU institutions the hint to allow access by journalists and some non-profits dealing with, for example, anti-corruption.
The CJEU pointed out that “both the press and civil society organisations that are connected with the prevention and combating of money laundering and terrorist financing have a legitimate interest in accessing information on beneficial ownership.” Although it sounds reasonable, this hint may not conclude in concrete actions.
One of the reasons for opening up the registers to everyone was the inability of the EU legislators to provide a uniform and clear definition of ‘legitimate interest’ and it was felt at the time that the best solution was simply to remove this condition. In connection to this, the other problem is that EU countries do not have uniform rules defining who is ‘press’ or a journalist. In some countries media do not have to be registered at all, so it is an open question how it will be verified, for example, whether the person who wants to receive information about a beneficial owner is a journalist and thus shows legitimate interest.
Another problem is the practicality of the verification tool. In some countries, e.g. Greece, in order to consult the data in the register, one has to provide identity in order to log on to the service. There are also known solutions that let the person whose data are in the register know the identity of the person who was checking them. This clearly poses a risk to the success of the investigation and, in extreme cases, may even endanger the health and life of journalists whom, for example, a member of a criminal group would want to ‘silence’ when they discover they are the target of investigative material.
It will also remain a fundamental challenge to regulate whether journalists will only have access to individual records or whether they will be able to download larger data sets in one go. After all, one very helpful feature connected with digitalization of documents is the ability to analyse large amounts of data and thus detect multiple connections between individuals and companies. Access that is restricted to only one company or person at a time can generally only confirm some suspicions. It appears that the latter model will constitute the direction of change following the CJEU judgment.
Representatives of the Commission, while stipulating that these are not binding comments, argue that they will want to maintain the widest possible framework for access to registers. We also have preliminary declarations from some governments, e.g. Latvia and France, that they do not intend to introduce additional restrictions on the use of registers for the time being. On the other hand Austria, Luxembourg and Netherlands have already shut down access to their registers. At the same time EU decision makers refer to the need for in-depth analysis of the CJEU ruling, so there is a chance that they will come up with unified conclusions, and the access to registers in all EU countries will be re-established and based on common and equal rules.
Have we really lost much?
While the CJEU judgment is an important development in terms of the law and its impact on the concept of openness of registers, the practice of access to beneficial owners data was not as bright as it may seem. As Transparency International’s 2021 study showed, many countries did not even keep registers or access to the data was severely limited. Visegrad countries, with the exception of Hungary, were rated as doing relatively well in terms of openness of beneficiary data.
The system in place in Poland is based on a division into two separate registers. The National Court Register contains data on companies, including the data of their official representatives, e.g. members of management boards. By the way, nothing should change in this respect, as the CJEU indirectly indicated in the judgment that broad access to the data of persons who represent companies is justified. The data of the beneficial owners can be found in the Central Register of Beneficial Owner (Centralny Rejestr Beneficjentów Rzeczywistych) It is open, in the sense that there’s no need to log in or show legitimate interest to see the data. However one needs to know either the company VAT number (which is easy to find in other sources) or the exact details of the person one is looking for. The system does not allow a large amount of data to be downloaded directly.
In the Czech Republic, the Evidence skutečných majitelů, which has been in operation since 2021, allows for an easy search by company name, but when one wants to search by surname it can be done by providing a unique number identifying the person. The previous lack of access to data on beneficial owners meant, among other things, that conflicts of interest of the then prime minister Andrej Babis were not disclosed. This was only possible thanks to access to the Slovak database. Slovakia was, incidentally, one of the first countries to open its register of beneficial owners.
Hungary, on the other hand, is one of the last countries to introduce a register at all, and it is assessed as the bad example also because the access to it is limited, requiring registration and payment of a fee.
Making registers beneficial again
In addition the fact that the obligation to submit data to the registers only applies to companies based in an EU country remains a problem, severely limiting knowledge about the people behind many investments on the old continent. This is to be changed in AMLD6, which also seems to become a vehicle to prevent most negative outcomes of the CJEU ruling.
We need to prepare for a scenario in which, at least for a while, we get rid of the dream of making registers’ records available as open data (i.e. allowing bulk data downloading and big data analysis). We also have to reckon with the fact that the condition for accessing the data will be the identification of journalists and, in the extreme case, the actual beneficiary knowing who checked his or her data. Let’s observe the work of the Commission and the Council on AMLD6 and try to influence them so that the modest success of openness of records that has been achieved in the EU in recent years is not completely lost.
Krzysztof Izdebski is a policy and legal expert at Open Spending EU Coalition and Stefan Batory Foundation.
The views and opinions expressed on our blog are those of the authors, representing a wide range of viewpoints, and do not necessarily reflect the position of VSquare or our affiliated organisations.