Month: November 2022

CJEU Invalidates Public Access to Beneficial Ownership Registers

A Shift in EU Transparency Law relating to beneficial ownership

On 22 November 2022, the Court of Justice of the European Union (CJEU) delivered a landmark judgment in Joined Cases C‑37/20 and C‑601/20. The decision marks a major shift in EU anti-money laundering and data protection law. It addresses whether the public should have unrestricted access to beneficial ownership information.

The Court struck down a key part of the 5th Anti-Money Laundering Directive (Directive (EU) 2018/843). This provision required Member States to grant the public full access to beneficial ownership registers for companies incorporated in their territory.

Background: Balancing Transparency and Privacy of beneficial owners

The 5th Anti-Money Laundering Directive introduced public access to beneficial ownership registers. It amended the 4th AML Directive (Directive (EU) 2015/849). The aim was to boost financial transparency, build trust in corporate structures, and strengthen efforts against money laundering and terrorist financing.

Sovim SA and another applicant in Luxembourg challenged these rules. They argued that the expanded transparency violated fundamental privacy rights under the EU Charter of Fundamental Rights.

The Court’s Findings

The CJEU ruled that the contested provision—Article 1(15)(c) of Directive 2018/843, which amended Article 30(5) of the 4th AMLD—was invalid. Here are the relevant considerations:

1. A Serious Interference with Fundamental Rights of beneficial owners

The Court found that full public access to beneficial ownership data constitutes a serious interference with the right to respect for private life (Article 7) and the right to protection of personal data (Article 8) of the Charter.

This interference was deemed particularly intrusive since it could:

  • Expose individuals’ financial and business affairs,
  • Facilitate profiling or targeting by malicious actors,
  • Lead to risks of harassment, extortion, or identity theft, particularly for beneficial owners with no connection to illicit activities.

2. Lack of Proportionality and Justification

The Court acknowledged transparency as a valid policy goal. However, it ruled that giving the general public unrestricted access went too far. The earlier approach under AMLD4—limiting access to those with a legitimate interest—struck a better balance.

The Court held that the EU legislature did not show why full public access was essential to meet the Directive’s aims.

3. Insufficient Safeguards for Beneficial Owners

Article 30(9) of AMLD4 let Member States grant exemptions case by case—for example, to protect high-risk individuals. But the Court found this safeguard inadequate. It came too late and did too little to prevent harm, especially when privacy risks had not yet emerged.

Implications for Member States and Corporate Transparency

This decision has immediate and long-term consequences for EU Member States. Businesses operating in the EU are also affected:

  • Member State Registers: Many countries—including Luxembourg and the Netherlands—moved swiftly to suspend public access to their beneficial ownership registers following the ruling. Others are reviewing legislative changes to align with the judgment.
  • Reassessment of Access Regimes: Member States must now ensure that access to beneficial ownership data is limited to parties with a legitimate interest. These would include competent authorities, financial intelligence units, and entities subject to due diligence obligations.
  • Future AML Legislation: This ruling would influence the upcoming EU AML Package, including the establishment of the new EU Anti-Money Laundering Authority (AMLA). Once created, AMLA would centralise and harmonise certain oversight functions. Any further expansion of transparency tools will need to respect the limits drawn by the Court.

A Step Back or a Refocus in disclosing beneficial ownership information?

The judgment has attracted mixed responses. Privacy advocates have welcomed it as a necessary recalibration of data protection principles in an era of growing surveillance. However, transparency NGOs and investigative journalists warn that this sets back progress on tackling opaque ownership structures, especially in the wake of revelations like the Panama Papers.

At its core, the ruling reaffirms the EU’s constitutional commitment to fundamental rights, even in areas where policy goals like financial transparency are clearly important. For practitioners and compliance professionals, it serves as a reminder that regulatory ambition must be matched with legal precision.

If you have queries about the information held in respect of a company that you own, or you wish to notify the Malta Business Register of any changes in the beneficial ownership of your company, please get in touch and we will be pleased to guide you.

Understanding the Representative Actions Directive Malta

The Representative Actions Directive (Directive (EU) 2020/1828) introduces a harmonized framework for consumer collective redress across the European Union. Designed to strengthen consumer rights enforcement, the directive empowers qualified entities to bring representative actions on behalf of consumers, especially in mass harm situations.

Although the directive officially came into force in 2023, EU Member States had until the end of that year to transpose it into national law. Malta launched its public consultation on the directive’s implementation late in the year — closing on the 25th of November — and it remains unclear whether the required legal framework will be adopted on time.

Malta’s Existing Legal Framework

The concept of collective redress is not new to Maltese law. The Collective Procedures Act (Chapter 520 of the Laws of Malta) already allows for collective actions. However, the new legislation implementing the Representative Actions Directive aims to carve out competition claims from the existing act and handle consumer redress separately under a new legal framework.

Whether this bifurcated structure will fully comply with the directive remains an open question and one that legal practitioners are watching closely.

In Malta, the competent authority for consumer affairs is the Consumer Affairs Diretorate within the Malta Competition and Consumer Affairs Authority.

Methodology and Key Features

A key departure from the American class action model is the EU’s emphasis on safeguards against abusive litigation. Instead of a lead plaintiff representing a class, the Representative Actions Directive mandates that only qualified entities — typically consumer organizations or public bodies — may bring forward such claims.

These entities must meet strict criteria to be eligible for cross-border claims, as defined in a checklist by the European Commission. Domestic-only actions may require less stringent qualifications but still need to reflect the directive’s principles.

To mitigate the financial burden of litigation, the draft Maltese Bill proposes an exemption from court registry fees and reduced fees for unsuccessful claims. However, concerns remain about whether local consumer organizations possess the resources and manpower to file and follow through with complex claims.

Funding and Participation Challenges

Access to adequate funding remains a significant obstacle. Many Maltese organizations lack not only financial resources but also the human capital — particularly younger legal professionals — required to lead large-scale litigation efforts.

Malta is also opting for an opt-in mechanism, meaning consumers must actively choose to join a representative action. This raises additional concerns about consumer engagement, especially when the potential compensation is relatively modest.

Public Consultation and Legal Community Reactions

The public consultation revealed a variety of perspectives, many of which highlight both support for the directive and concern about Malta’s readiness to implement it effectively. Historically, Maltese courts have interpreted collective redress provisions liberally, but the new legal framework may narrow that flexibility.

Legal Training and Awareness

In response to the upcoming legal changes, I am hosting a seminar series this week focused on the Representative Actions Directive, its objectives, and Malta’s proposed implementation model. These sessions will explore legal, procedural, and operational aspects of the directive, offering insights for both practitioners and policymakers.

Conclusion

The Representative Actions Directive signals a significant shift in EU consumer protection enforcement. Malta’s approach to implementation — balancing existing mechanisms with new legislative structures — will play a pivotal role in shaping how collective redress is accessed and delivered locally.

As these developments unfold, it is essential for legal professionals and stakeholders to remain engaged, informed, and prepared to adapt to the evolving regulatory landscape.