While in New York, I asked a friend about his business in Florida, and he explained to me that he is the owner through his Scandinavian business. Tracing his ownership structure would be time-consuming, and the task is made harder by the decision of the Court of Justice of the European Union (CJEU) to annul public access to ownership registries on the grounds that public access contravenes the right to privacy in the EU Charter of Fundamental Rights.
Implicit is the claim that evidence demonstrating that public ownership registries prevent crime is weak. My friend put it more bluntly when he said:
Public access is like arguing: if you have nothing to hide, you have nothing to fear.
What the court considers "strong" evidence is unclear, so let's start with the strongest case for public access to ownership registries—namely, the practice of fighting illicit finance. We'll then look at the claim to "privacy" and whom privacy, in reality, protects before assessing why civil society should fall under the "legitimate interest" clause in the CJEU's ruling.
Public Ownership Data in Financial Crime Fighting
The Panama Papers
The Panama Papers is the most public exposure of the world's most powerful people and their financial secrets, and the impact that those leaks have had serves as an excellent example of the positive impact that public ownership data has.
More than 11.5 million records exposed how politicians and criminals use the rogue offshore finance industry to launder money and avoid taxes. The leaks implicated 150 politicians from 50 countries and had serious political fallout. Iceland's Prime Minister, Sigmundur Davíð Gunnlaugsson, was forced to resign from his office amid outrage that his family had sheltered money offshore.
In the wake of the revelations that caused snap elections in Iceland, The Guardian used the offshore leaks to shed light on the trail between Vladimir Putin and an offshore network of assets worth $2 billion.
Investigative journalists and their hard work not only helped close Mossack Fonseca, the infamous Panamanian law firm and target of the leak, but also led to the prosecution of the firm's owners, Jürgen Mossack and Ramón Fonseca, who are defendants in a case in Panama where they are being tried for "crimes against public economic order."
How Mossack Fonseca operated and how their crimes impacted ordinary people inspired The Laundromat, a film starring Meryl Streep and Gary Oldman.
The Panama Papers show that transparent ownership is vital to fighting corruption and that when ownership structures are made public, those implicit in illicit finance face legal consequences.
**Hold on—**is the Panama Papers really a strong case for opening ownership registries? After all, the tranche of 11 million documents is a leak of sensitive information from a shadowy organisation and not a register where ordinary people set up their business.
The whistleblower nature of the Panama Papers is a perfectly valid objection, so let's look at two investigations that used ownership registries that were not leaked to the public domain.
The Open Lux Investigation
Transparency International has documented several cases where public access to beneficial ownership registries enabled journalists and activists to uncover corruption and money laundering. One of these cases is the OCCRP's Open Lux investigation.
In the Open Lux investigation, journalists analysed beneficial owners registered in Luxembourg and found dozens of foreign citizens linked to corruption, embezzlement, and organised crime. As Transparency International points out:
What sets the Open Lux Investigation apart from the Panama Papers is that, for the first time, journalists did not have to rely on leaks. Instead, they relied on publicly available data to uncover hidden owners using Luxembourg companies to own assets and open bank accounts.
The case of the Open Lux Investigation is a clear example of how actors other than law enforcement agencies are crucial to combating corruption. This is a role that the CJEU itself recognises in its ruling against public access to ownership registries.
Global Witness
In addition to identifying crime, actors can improve ownership data when that data is publicly available.
Global Witness, working with volunteer data scientists at DataKind UK, analysed the UK's beneficial ownership registries and successfully identified loopholes, information gaps, and suspicious activity.
They found that most companies registering their beneficial owners at the Persons of Significant Control registry in the UK are straightforward, with an average of 1.13 beneficial owners per company. However, hundreds of thousands of companies filed highly suspicious entries that would never have been found were it not for the open-data nature of the register.
Global Witness identified common methods for avoiding disclosure of real owners, such as:
- Disclosing an ineligible foreign company as the beneficial owner
- Filing a statement that the company has no beneficial owners
- Creating circular ownership structures where companies control themselves
Of the companies with a foreign owner, 10,000 declared a foreign company as their beneficial owner—and of these, 72% were in secrecy jurisdictions.
Their analysis resulted in a red-flagging system to uncover high-risk entries and recommendations to the UK government demonstrating the benefit of open ownership registries.
Public ownership data helps civil society, investigative journalists, and law enforcement scrutinise data and combine it with other datasets, increasing the likelihood of spotting criminal activity.
Is Privacy an Absolute Right?
Having established that open ownership data helps prevent crime, let's scrutinise the right to privacy.
Anxiety about data protection is understandable, especially considering companies like Facebook and Cambridge Analytica known for their exploitation of personal data. I understand why my friend sides with the CJEU, and I think he made a good point when he said that open ownership data sounds like:
If you have nothing to hide, you have nothing to fear.
The right to privacy is essential to our autonomy and it is important to respect privacy. However, publishing information about who owns companies is different in one important respect: as a business owner, you are in the public sphere.
As OpenOwnership's Head of Policy, Zosia Sztykowski explains:
Publishing information about who owns companies is fundamentally different. This is about changing the role that companies play in society. We often forget that the legal form that we call a company can't exist without the state, and agreements between states. Therefore, they have the right, and even the responsibility, to ensure that they serve a social good. Open ownership data can do just that—all while also providing desirable incentives for legitimate businesses, including reducing the risk of being exposed to bad actors and supporting the stability of economies globally.
Privacy is a critical right, but it isn't absolute. Having a substantial ownership stake in a company gives that individual access to a range of benefits, including protection from personal liability. In exchange, is it not fair to expect business owners to help society ensure that companies are used for their intended purposes?
Opening a company is easy and benefits society as a whole, but one unintended consequence is that corporations have become easy tools for criminals.
As Zosia Sztykowski explains:
There is a balance here to be struck between personal freedoms and the responsibility to create a fairer society.
There is also an important question when we invoke privacy: who exactly are we trying to protect? Closing registries might protect more people with illegitimate intentions than those with legitimate ones. If the practice of investigating illicit finance teaches us anything, it is that criminals thrive in secrecy. The decision to close access to ownership registries has impacted already scarce ownership data, forcing investigators to rely on leaked data.
Legitimate Interest
The CJEU ruling presumes that journalists and civil society organisations engaged in preventing money laundering have a legitimate interest and should be granted access to beneficial ownership information.
However, the absence of an EU-wide definition of "legitimate interest" has effectively squashed the right of individuals and organisations to use the registers. Journalists and civil society are unable to access 13 of 27 beneficial ownership registers in the EU, and after the court ruling, eight countries suspended public access to their registers.
Transparency International's map is a useful resource to trace the impact of the ruling.
Countries like Cyprus, Malta, and the Netherlands have denied access, even when journalists and civil society demonstrate their legitimate interest. Other countries require that legitimate interest be demonstrated on a case-by-case basis.
Ireland's approach is highly restrictive since you have to demonstrate that the beneficial owner under investigation is connected to or convicted of an offence involving money laundering or terrorist financing.
If the goal of providing access to journalists and civil society is to help detect offences, the Irish approach seems to contravene this goal.
In trying to strike a balance between privacy and legitimate intentions, the CJEU has tipped the balance too far, frustrating investigations that yield tangible results.
What the Evidence Tells Us to Do
Evidence from practice shows that open access is crucial to improving the quality of data in beneficial ownership registries and that public access prevents crime itself.
It is also clear that some member states will interpret the CJEU's ruling conservatively and contravene the spirit of the ruling—to protect both privacy and civil society's legitimate interest.
What is required are EU rules that leave no space for discrimination against civil society and public watchdogs. Those rules should enable those who work to combat illicit finance to access crucial ownership data.