Introduction
In recent times, there has been a concerted international effort to increase (i) the overall transparency of the economic and financial environment (ii) the prevention of money laundering and terrorist financing (iii) cooperation in international tax matters and (iv) the automatic exchange of financial account information. The means utilized to achieve these aims often interfere with and/or provide exceptions to the enforcement of individuals’ rights to privacy and confidentiality, as are recognized in democracies across the globe.
Recent decision of the European Court of Justice on public beneficial ownership registers
In a Judgment delivered on 22 November 2022 by the Court of Justice of the European Union (CJEU) concerning the interpretation of certain Directives of the European Parliament and of the Council concerning rights of access to beneficial owner registers, the CJEU issued a ruling which determined that EU legislation granting public access to the beneficial owner registers of EU member state companies is no longer valid (the “Ruling”).
Central to the Ruling was the 2018 Directive of the European Parliament on the prevention of the use of the financial system for the purposes of money laundering or terrorist financing (the “Directive”) which was controversially amended to require Member States to ensure that, in addition to competent authorities and obliged entities (within the framework of customer due diligence), beneficial owner registers were fully accessible by “any member of the general public”. In the previous version of the Directive, Member States were only required to ensure full access to “any person or organization that can demonstrate a legitimate interest.” In each case access was, at a minimum, to include “at least the name, the month and year of birth, the nationality and the country of residence of the beneficial owner as well as the nature and extent of the beneficial interest held.”
In its reasoning, the CJEU found that public access to information on beneficial ownership was consistent with the established general interest of the Directive to prevent money laundering and terrorist financing by increased transparency. Notwithstanding this, the CJEU found that making personal data available to third parties is not strictly necessary or proportionate to prevent money laundering and terrorist financing. Moreover, the CJEU confirmed that making personal data available to third parties (for example public access to the beneficial owners register afforded by the Directive) (i) constitutes an interference with individuals’ fundamental rights to private life no matter the subsequent use of the information and (ii) it does not matter whether the information in question relating to private life is sensitive or whether the persons concerned have been inconvenienced by the communication of the personal data.
Ultimately, the CJEU held that the Directive is incompatible with the right to respect for private and family life and the right to the protection of personal data, enshrined in the Charter of Fundamental Rights of the European Union.
The Bahamas’ register of beneficial ownership regime
The Bahamas’ register of beneficial ownership regime was implemented on 20 December 2018 by the enactment of the Register of Beneficial Ownership Act (“ROBOA”). The introduction of the ROBOA was a direct response to demands by the European Union Code of Conduct Group for low tax jurisdictions to collate beneficial ownership information to aide international anti-tax evasion efforts. Drafting of the ROBOA was a concerted effort of the Bahamian legislature and industry stakeholders who keep their fingers on the pulse of the needs and expectations of beneficial owners who choose to establish their entities in The Bahamas. Their objective was to create a beneficial ownership registration regime that balanced the fundamental right of individuals to privacy and confidentiality in respect of their financial affairs with the Bahamas’ overarching goal to remain cooperative with its international partners. A key factor informing the creation of the regime was that there already existed channels by which foreign government authorities could request and or receive beneficial ownership information (for instance, under a Tax Information Exchange Agreement or the automatic exchange provisions of FATCA and CRS) provided the information requested is relevant to the authority’s investigation. The result of this effort is a beneficial ownership registration system which complies with international best practice while maintaining an acceptable degree of confidentiality of the affairs of beneficial owners.
Under the ROBOA, the registered agent of legal entities incorporated, registered, continued or otherwise established in The Bahamas (or where the legal entity has no registered agent, the Attorney-General), is required to collect, maintain and upload beneficial ownership information into a database that is accessible by the secure search system operated by the Office of the Attorney General (the “Secure Search System”).
Importantly, the Secure Search System is not accessible by the public. Access is expressly restricted to persons designated by the Minister of Legal Affairs, who must access the information from physically secure premises using a secure information technology system only.
Additionally, the ROBOA states overtly that all information maintained in each registered agent’s database is confidential*. There is no automatic sharing of beneficial ownership information by registered agents or the Attorney General with any local or international government authority under the ROBOA. Due process under the ROBOA dictates that searches of the information contained in the Secure Search System may be made only: (i) if made by a Bahamian regulatory authority specifically listed in the ROBOA and (ii) is certified as proper, lawful and in compliance with the legislation governing the affairs of the authority making the request and any international agreement administered by it.
Conclusion
The Ruling is a much-welcomed decision for The Bahamas as it gives credence, on an international scale, to the strict limitations The Bahamas places on access to beneficial ownership information for legal entities governed by Bahamian law. There are currently no plans to make information collected under the provisions of the ROBOA publicly accessible. For now, The Bahamas remains steadfast in its approach to dealing with beneficial ownership information confidentially. While EU member states and other jurisdictions now seek to scale back their beneficial ownership regimes in light of the Ruling, they may readily look to The Bahamas as the appropriate model.
*ROBOA, Subsection 13(2).
AUTHORS
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