European Court ruling on UBO register: where to go from here?

On November 22, 2022, the Court of Justice of the European Union (hereinafter: the Court) ruled in a preliminary ruling on the Luxembourg UBO register. This ruling removes the mandatory disclosure of certain data regarding ultimate beneficial owners (UBOs) of companies and other legal entities. This applies not only to the “regular” UBO register for legal entities, but also to the UBO register for trusts and similar legal arrangements (hereinafter: UBO register trusts). What direct consequences does this ruling have for Wwft institutions in the Netherlands?

What was at issue?

The Court’s ruling centers on the question of whether the fact that anyone can access the information in the UBO-register does not violate European fundamental rights. Since the introduction of the Fifth Anti-Money Laundering Directive (“AMLD5”), the number of persons to whom member states must give access to information in the UBO register has been expanded. Previously, access to the UBO register was limited to:

• Competent Authorities and Financial Intelligence Units (FIUs);
• Wwft institutions; and
• Individuals and organizations that can demonstrate a legitimate interest.

This included allowing the latter persons and organizations access to the name, month of birth, year of birth, nationality, state of residence and the nature and extent of the UBO’s economic interest. The introduction of AMLD5 extended access to this information to every member of the population. In short, everyone (with or without a legitimate interest) has the right to access this information.

What is the Court’s ruling?

In this case, the applicant argued that public access to information from the UBO register poses disproportionate risks to UBOs (and their families or relatives). This could include the risk of fraud, kidnapping, blackmail, extortion, harassment, violence or intimidation. The disclosure of this information, according to the party, violates Articles 7 and 8 of the Charter of Fundamental Rights of the European Union (“Charter”). These articles address the right to protection of private and family life and the right to protection of personal data. The Luxembourg court decided to refer this question to the Court.

In answering this question, the Court indicates that the purpose of disclosing the data of UBOs pursues a certain public interest. Namely, the prevention of money laundering and terrorist financing by creating greater transparency. The pursuit of a general interest may even justify serious interference with fundamental rights recognized in the Charter. Yet in this case, the Court held that the interference with fundamental rights by the amendment to AMLD5 went too far. Indeed, the Court ruled that this interference goes beyond what is strictly necessary and thus constitutes a disproportionate interference with these fundamental rights.

What are the consequences for Dutch legal practice?

The Court’s ruling shows that the relevant part of AMLD5 is invalid. This means that Member States must now ensure that this information is again only accessible to persons and organizations that can demonstrate a legitimate interest. Exactly how member states do this is up to them.

In the Netherlands, it is currently not possible to retrieve information from the UBO register. Access is closed to all authorities and organizations. This does not mean that organizations in the Netherlands are exempt from the obligation to enter their UBOs. This obligation to register has been confirmed by the Court and therefore continues to apply. Since November 1, 2022, this registration obligation also applies to trusts and funds on joint account (FGR). These parties must comply with their registration obligation by April 1, 2023.

What changes will there be?

However, the UBO register is not intended to remain closed. The Dutch legislature has indicated it is going to make several changes. As a result, agencies and organizations should partially regain access to the UBO register. The proposed changes as of January 20, 2023 are as follows:

The provision of information to competent authorities and the FIU.
This will be restored as soon as possible. This applies to public authorities assigned anti-money laundering and terrorist financing tasks, tax authorities, supervisors and the public prosecutor’s office.

The provision of information to persons and organizations that can demonstrate a legitimate interest
This change will take some time for now. The Dutch legislator indicates that it is still investigating how this should be shaped. In practice, it is quite complex to sharply define when a person or organization has a legitimate interest.

The provision of information to Wwft institutions.
Also for these institutions, according to Dutch law, access to the UBO register will be restored as soon as possible. Indeed, Wwft institutions are obliged to consult the UBO register when entering into a new business relationship and to report any discrepancies between the information provided and the UBO register to the Chamber of Commerce.

However, full compliance with these obligations is not possible as long as Wwft institutions do not have access to the UBO Register. As a solution, the Dutch legislator has proposed to fall back on an earlier regulation, which was drafted because the KVK could not process all entries in the UBO register in a timely manner. In short, this means that Wwft institutions now only need to establish that a new business relation has registered. This can be done on the basis of a confirmation email from the Chamber of Commerce, including an explanation from the client as to what UBO data and underlying documentation was provided with it.

Want to know more?

Projective Group is happy to help you with financial compliance. Do you have questions about compliance with the Wwft, or need assistance with the qualification of the UBO(s)? Please feel free to contact us.