The ECJ decision on joined cases C37/20 has important implications for corporate transparency and personal privacy. In this article we discuss the Maltese implementation of the decision, and reflect on some of the challenges raised by the Maltese approach.
Malta Beneficial Ownership Access Rights - Implications of ECJ Decision on Joined Cases C37/20
On the 22nd November 2022 the European Court of Justice (“ECJ”) published an important decision with significant implications with respect to corporate transparency, privacy and anti-financial crime.
In its judgment on the joined cases C37/20, the ECJ found that Article 1(15)(c) of the Fifth Money Laundering Directive (“5MLD”) was invalid so far as it amended point (c) of the first subparagraph of Article 30 (5) of the Fourth Money laundering Directive (“4MLD”).
In so doing, the ECJ invalidated the provision of the 5MLD which expanded rights of access to beneficial ownership registries to include “any member of the general public”. Under the previous 4MLD regime this subparagraph applied to a narrower group, namely “any person or organisation that can demonstrate a legitimate interest”. The ECJ decision did not impact the rights of access to beneficial ownership information to competent authorities and subject persons.
The decision generated a certain level of controversy since it brought into focus difficult questions about the correct balance between the privacy rights of individuals and the social need for transparency around corporate ownership.
Swiftly following the publication of the decision the Malta Business Registry (“MBR”) undertook a number of steps in order to implement it. In particular, the MBR issued a notice to the public whereby it advised the general public as follows:
As the judgement has the effect of invalidating the relevant part of the mentioned Directive, the Malta Business Registry is limiting access to the register of beneficial owners to competent authorities and subject persons only.
The MBR therefore effectively (i) introduced a registration requirement for subject persons to be able to access beneficial ownership information and (ii) limited such access only to competent authorities and subject persons.
From an administrative perspective the registration requirement appears to have been implemented in an effective manner and reportedly the transition has been orderly.
However the restriction of access rights solely to competent authorities and subject persons may extend the restriction more than is mandates by the ECJ. The ECJ only found Article 1(15)(c) invalid in so far as it amended the 4MLD to require Member States to ensure that beneficial ownership of companies and other legal entities incorporated within their territory information to be accessible in all cases to members of the general public. The court only invalidated the 5MLD provision in so far as it extended the rights under 4MLD. The provisions of the 4MLD were not invalidated. One would therefore expect provision to be made for persons demonstrating a legitimate interest. However as at the date of this article no guidelines have been issued to this effect.
It should be noted that the obligations of subject persons are not impacted by this judgment. Subject persons are still required to verify the beneficial ownerships of their customers, and they retain their right and duty to check the beneficial ownership registry information.
This is established under 7(1) of the Prevention of Money Laundering and Funding of Terrorism Regulations which state:
…where the customer is a body corporate, a body of persons or any other form of legal entity incorporated in a Member State or a trust or similar legal arrangement administered in a Member State, that is subject to the registration of beneficial owner information, subject persons shall also obtain proof that such beneficial ownership information has been duly registered with a designated beneficial ownership register
These requirements remain unchanged following the ECJ judgment. This creates a challenge for subject persons. Should corporate registries across the European Union adopt the same approach as the MBR subject persons which service customers throughout the European Union may be faced with the requirement of registering with corporate registries across Europe. Subject persons may face unnecessary administrative hurdles in fulfilling their duties unless appropriate administrative alignments can be organized to facilitate access to beneficial ownership registries across Europe.