By journalist Inga Karlinska.
By January 2020, European Union member states were required to implement anti-money laundering laws, which, among other things, included the introduction of public registers of beneficial ownership of legal entities. Latvia is one of two countries where access to this data is without any restrictions; namely, anyone can identify the actual owners of companies. Since the end of 2022, following a ruling by the European Union Court that highlighted the imbalance between the right to disclose such information and privacy policies, discussions have taken place in Latvia regarding whether this regulation should be changed. However, no changes have yet been made.
The necessity to disclose the beneficial owners of companies was determined to prevent the laundering of illegally obtained assets. However, within three years, there still hasn’t been a unified view on this issue among EU member states. While Latvia and Denmark have established free access without authorization to the register of beneficial owners, in four EU countries, including our neighboring country Lithuania, such a register has not been introduced at all. Other solutions are also being sought; for instance, in Belgium, access to registers can be granted by authorizing with an EU identification card, in Cyprus, this information can only be obtained upon request, and several other countries have imposed a fee for its retrieval.
Due to the differing approach, international non-profit organization “Transparency International,” which fights against corruption and annually compiles the Corruption Perceptions Index, raises concerns. Latvia’s score has remained unchanged for several years – 59 points out of 100 – significantly lower than in many other European countries. In Latvia’s National Development Plan for 2021-2027, a goal was set to reach 64 points by 2024 and 67 points by 2027. Despite several measures taken to achieve this goal, including the establishment of a public register of beneficial owners of companies, the transparency society “Delna” has repeatedly indicated doubts that the desired result will be achieved. Therefore, a question arises whether, in caring for security, Latvia should evaluate the method of accessing the register data of actual company owners, especially in the current geopolitical situation, where representatives of certain aggressor states might gain access to these sensitive data for their own purposes.
One of the implemented actions was the establishment of the public register, a move that was supported at the time by Guna Pūce (ex. Paidere), the exChief State Notary of the Enterprise Register. She remains convinced that this step was the correct one. Pūce (ex. Paidere) reminds that the disclosure of beneficial owners and its public accessibility helped Latvia avoid being listed among the grey countries where regulations permit money laundering. Inclusion in such a list would entail significant complications. Primarily, it would affect entrepreneurs operating in international markets. Secondly, it would impact society as a whole, although the direct impact of the country’s international reputation on daily life might be less tangible for the general public. Thirdly, it would have implications for national security, considering the influence of financial sources on their recipients or those involved in related transactions.
“As with any regulation, potential risks must be acknowledged. It cannot be denied that risks exist; however, it’s important to look at them comprehensively. Even if certain aggressor states or influential powers wish to access this data, some form of identification may not suffice to protect it. Instead, a greater focus should be placed on the benefits. For instance, the free access to data has facilitated the detection of unlawful activities. Yet, there haven’t been any instances reported where this data was used in any way against Latvia’s security,” explains G. Pūce (ex. Paidere), clarifying her standpoint.
The viewpoint isn’t unambiguous, as stated by Jānis Lielpēteris, a member of the board at the Latvian Chamber of Commerce and Industry and Director of the Policy Department. He notes that two fundamentally opposing fronts are emerging in this matter, observable also among entrepreneurs. “The greatest benefit is that entrepreneurs can promptly verify their business partners and mitigate risks related to sanctions or other issues. If an entrepreneur has an obligation to conduct due diligence on their business partners, it cannot be that the necessary information for these checks is unavailable. At the same time, as decided by the European Union Court, entrepreneurs’ right to privacy should also be balanced,” outlines J. Lielpēteris.
He expresses confidence that the legal framework for accessing data on actual company owners in Latvia will change, possibly no longer being available for free access without authorization. Simultaneously, J. Lielpēteris highlights that these changes should not burden entrepreneurs with additional bureaucratic procedures, such as requiring authorization each time within the system. “For some, it might seem insignificant – consuming what seems like 10 minutes – but when we add up the numerous bureaucratic burdens that entrepreneurs already face daily, the picture changes. Entrepreneurs should be allowed to do their work rather than being burdened with various additional tasks that take away from their time for conducting business,” as stated by an expert from the Latvian Chamber of Commerce and Industry.
One of the significant risks, according to Jānis Lielpēteris, in the case of free data access, involves companies that work with armed forces or security institutions. He believes that in such instances, one solution could be to introduce specific categories of companies whose data, for security reasons, is not accessible. However, discussions need to continue on these cases.
It should be noted that last year’s ruling by the EU Court imposes an obligation on Latvia to change the currently effective national legal norms concerning access to the register of beneficial owners.
The ruling of the EU Court has stirred resonance not only in Europe but globally. Publicly, the world community has divided into two camps: one advocating for the legal clarification of laws to ensure transparent disclosure of beneficial owners, especially in cross-border cases, while the other asserts that company owners have the right to remain private, and registers should be made accessible only to law enforcement agencies. Both groups have legal justifications for their stance.
Some argue that the protection of the privacy of company owners should be valued higher than the public’s right to know the individuals behind a company. Additionally, it’s worth noting that the court, in its judgment, speaks of the owners’ right to privacy without distinguishing between beneficial owners and legal owners. Conversely, the other group contends that the public has the right to know which individuals act on behalf of legal entities. It is anticipated that discussions on this matter will continue.