Rupert analyses how whilst the UK allows unrestricted public access to information about the ultimate beneficial owners in most UK companies, Europe and other jurisdictions are moving in the opposite direction limiting access to those with a legitimate interest. He reflects on whether the UK will now find itself under pressure to reverse its unusually liberal stance.

 


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Why EU Ruling On Beneficial Ownership May Affect The UK

by Rupert Cullen 

Since 2016, under Part 21A of the Companies Act 2006 — known as the people with significant control, or PSC, regime — the U.K. has provided unrestricted public access to information about the ultimate beneficial owners of the vast majority of U.K. companies, as disclosed in Companies House filings.

Company PSC disclosures are now routinely the subject of U.K. press commentary and debate — for example, in the context of the controversy over Baroness Michelle Mone and the nature of her links to PPE Medpro Ltd.

Given the way in which unrestricted public access to this information is now taken for granted in the U.K., it is perhaps surprising to note that things internationally are moving somewhat in the opposite direction, with implications for the U.K.’s dependencies and overseas territories and possibly the U.K. itself.

The EU Situation

This is mainly the result of a judgment handed down by the Court of Justice of the European Union in the case of WM and Sovim SA v. Luxembourg Business Registers in November 2022.[1]

This is not the place to analyze in detail the CJEU judgment or its impact within the EU. Broadly, the EU’s 5th Anti-Money Laundering Directive had required EU member states to provide general public access to a register of company beneficial ownership information, as in the U.K., and most were taking steps to comply.

However, the CJEU declared this requirement invalid on the grounds that it was in conflict with a beneficial owner’s rights to privacy and data protection under the EU Charter of Fundamental Rights and disproportionate to achieving the objects of the directive.

In response, many EU member states have suspended access to beneficial ownership information or restricted it to applicants with a so-called legitimate interest.

The legitimate interest restriction originates in the CJEU judgment, which makes it clear in general terms that persons with such an interest — although not the public — should continue to have access to beneficial ownership information.

However, member states have taken very different approaches to defining a legitimate interest and regulating access in practice, with some, e.g., Ireland, being much more restrictive than others.

On Jan. 18, the EU Council and Parliament announced that they had provisionally agreed a draft of the 6th Anti-Money Laundering Directive, which is intended to clarify EU law on beneficial ownership registers in response to the CJEU judgment.[2]

The published summary indicates that, in line with the judgment, the proposed directive will provide for access on legitimate interest grounds.

Whatever the precise wording of the finalized directive, it is clear that there will be no return to a general requirement that each member state provide unrestricted public access to beneficial ownership information on the current U.K. model — no other EU institution or member state can overturn a judgment of the CJEU.

Recent Announcements by U.K. Dependencies and Territories

In a belated response to the CJEU judgment, the last few months have seen a number of important financial centers among the U.K.’s overseas territories and dependencies reverse their commitment — previously adopted under pressure from the U.K. — to introduce unrestricted public access to company beneficial ownership information.

In November 2023, the government of the Cayman Islands announced its decision, citing the CJEU judgment as “a material change in circumstance” and stated its intention to limit access to those with a legitimate interest in line with the judgment.[3]

In December 2023, the governments of the British Virgin Islands and the Crown dependencies — Jersey, Guernsey and the Isle of Man — followed suit, also citing the CJEU judgment and stating an intention to implement a legitimate interest filter.[4]

U.K. Government Position

On Dec. 7, 2023, the issue of access to beneficial ownership information in the dependencies and territories was discussed in the House of Commons.[5]

Leading the debate, the Labour MP Margaret Hodge expressed disappointment that none of the U.K.’s dependencies and only one of its overseas territories — Gibraltar — had so far introduced a publicly accessible beneficial ownership register and invited the government to lay an order in council that would formally require the overseas territories to adopt publicly accessible registers.

Hodge described the territories’ and dependencies’ stated reliance on the CJEU judgment as a “convenient but lame excuse” and suggested that the “Crown dependencies in particular are acting in a completely dishonorable way.”

David Rutley MP, minister for the overseas territories, stated in response that the CJEU judgment had changed the international context.

The U.K. government and those territories and dependencies with concerns regarding the CJEU decision were working together to implement registers with a legitimate interest filter, which Rutley described as an “interim step” toward corporate transparency.

The minister’s reference to an interim step is hard to reconcile with the announcements by the territories and dependencies themselves, where there is no suggestion that the implementation of a legitimate interest filter is an interim measure.

It is presented as a permanent measure based on the conclusions of the CJEU judgment, which, as noted, cannot now be overruled by any EU legislative process.

What’s Next for Dependencies and Territories

Would a U.K. government ever compel an overseas territory to adopt a fully public register against its will? There is no doubt that there exists the constitutional ability for a U.K. government to pass laws applying to an overseas territory without its consent, but in practice this has been exercised rarely.

In the Cayman Islands, for instance, U.K. governments have imposed laws against local wishes only twice in the territory’s 60-year history.

Moreover, if the U.K. were to take such a stance, its moral case would be weakened by the territories’ perfectly correct claim that their position is based on the decision of the CJEU and thus, ultimately, on international human rights law.

Constitutional niceties aside, it seems clear from the statements of the minister for the overseas territories that, in practice, the current U.K. government does not intend to force a public register on any territory any time soon.[6]

There has been little sign from the Labour Party front bench that the party would act differently if it were to return to government this year.

If it appears unlikely that a U.K. government would try to force a public register on any overseas territory, this is much more emphatically true of the dependencies, where there is doubt in constitutional law that the U.K. even has the ability to impose legislation.[7]

Assuming no territory or dependency is compelled to introduce a public register, the next question is what policy each of them will pursue if left to its own devices.

Anyone reading between the lines of their public statements over the last few months will probably suspect that the Cayman Islands, the British Virgin Islands and the dependencies intend to base their long-term approach on a highly conservative interpretation of the CJEU judgment.

Access to their registers of beneficial ownership will be restricted on grounds of legitimate interest, narrowly and prescriptively defined; access requests, as in Ireland currently, will be assessed on a case-by-case basis.

Bermuda, the other major financial center among the dependencies and territories, has not yet made its position known, but seems unlikely to buck the trend.

It is not yet clear what refinements in this area will be introduced into EU law by the 6th Anti-Money Laundering Directive when it is finalized and adopted this year.

If the directive compels member states to provide relatively liberal access to beneficial ownership information, within the constraints of the CJEU judgment, it may be awkward for the territories and dependencies to justify an approach more restrictive than the EU minimum. But in the end, they are not bound by EU law.

Implications for the U.K.

What does all this mean for the U.K., which is more than ever an international outlier in granting unrestricted public access to beneficial ownership information?

Arguably nothing, in strict constitutional law terms. The U.K. left the EU in 2020, so it is no longer obliged to follow the CJEU, and Section 5(4) of the European Union (Withdrawal) Act 2018 expressly excludes the EU Charter of Fundamental Rights — on which the CJEU based its November 2022 judgment — from U.K. domestic law.

However, things are not that simple. Now that the international drift toward public registers seems to have been arrested or reversed, the U.K. may find itself under political pressure, internal and external, to justify its unusually liberal stance on public access, for instance on grounds of data protection.

But there is also the separate legal point that the right to privacy found in Article 7 of the EU Charter of Fundamental Rights, with which the CJEU found public registers to be incompatible, originates from the European Convention on Human Rights and is thus incorporated directly into existing U.K. law in Article 8 of Schedule 1 of the Human Rights Act 1998.

It is hard to believe that there will not, sooner or later, be a legal challenge to the U.K.’s policy of public access to beneficial ownership information, brought by an individual under the Human Rights Act 1998 on grounds analogous to those set out in the CJEU judgment and drawing on the legal arguments based on that decision that are now being enthusiastically developed in the U.K.’s dependencies and territories.

Immediately following the CJEU judgment, the U.K. government stated in a short memorandum that it had reviewed the judgment and still considered the PSC regime to be compatible with the European Convention on Human Rights.[8]

But it is unlikely that the matter is settled. And if public access to beneficial ownership information is challenged under the Human Rights Act, there will be arguments — perhaps, intriguingly, from parts of the political spectrum usually supportive of the act as well as from its traditional opponents — that highly political matters such as access to beneficial ownership information should be decided not in the courts but by Parliament.

Conclusion

It remains to be seen exactly what form access to beneficial ownership information will take in each of the U.K.’s dependencies and territories, but in the important financial centers, it appears likely that the approach will be a restrictive one and almost certain that, barring some dramatic turn of events, the idea of general public access has been shelved.

We may even see challenges to the U.K.’s own — increasingly unusual — regime of unrestricted public access.

Lawyers campaigning for greater public access to beneficial ownership information, as well as those acting for clients who wish to protect their personal information to the extent permitted by law, will watch developments with great interest.

 


Rupert Cullen is a solicitor at Allectus Law LLP.

The opinions expressed are those of the author(s) and do not necessarily reflect the views of their employer, its clients, or Portfolio Media Inc., or any of its or their respective affiliates. This article is for general information purposes and is not intended to be and should not be taken as legal advice.

[1] Sovim; C-37/20 and C-601/20;

EU:C:2022:912: https://curia.europa.eu/jcms/upload/docs/application/pdf/2022- 11/cp220188en.pdf.

[2] https://www.consilium.europa.eu/en/press/press-releases/2024/01/18/anti-money- laundering-council-and-parliament-strike-deal-on-stricter-rules.

[3] https://caymanfinance.ky/2023/11/27/cayman-islands-enhances-and-consolidates- beneficial-ownership-legislation/; https://www.mfs.ky/news/media-release/cayman- proactively-advances-its-beneficial-ownership- framework/#:~:text=Over%20the%20course%20of%202024,Act%2C%20which%20was% 20published%20today.

[4] https://bvi.gov.vg/media-centre/government-virgin-islands-position-publicly-accessible- registers-beneficial-ownership; https://www.gov.gg/CHttpHandler.ashx?id=173904&p=0.

[5] https://hansard.parliament.uk/Commons/2023-12-07/debates/819C04D6-19A8-4FD6- 94B1- CB886A9BD1B5/BeneficialOwnershipRegistersOverseasTerritoriesAndCrownDependencies.

[6] See his speeches in the 7 December parliamentary debate and also this subsequent update: https://questions-statements.parliament.uk/written-statements/detail/2023-12- 18/hcws150.

[7] Discussed in the 7 December parliamentary debate.

[8] https://www.gov.uk/government/publications/economic-crime-and-corporate- transparency-bill-2022-echr-memoranda/supplementary-echr-memorandum-amendments- made-to-parts-1-3-economic-crime-and-corporate-transparency-bill-beis-measures.

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