Striking a Balance: UBO Disclosure Rules and the Right to Privacy

Inspired by insightful articles, including Elizabeth Hearst 's contributions on AMLintelligence.com, sharing my reflections on ‘’Striking a Balance: UBO Disclosure Rules and the Right to Privacy ‘’

The importance of UBO disclosure in combating money laundering, corruption, and other financial crimes cannot be overstated. However, the imperative to safeguard individuals' fundamental right to privacy remains equally compelling. Striking the right equilibrium between these two essential aspects is not just a matter of regulatory compliance, but a pursuit that underlines our commitment to both accountability and human rights. At the present scenario where AML compliance is the talk of the town, knowing the actual owners of companies and trusts help deter money laundering and corruption. This comprehensive article delves into the intricate interplay between Ultimate Beneficial Owner (UBO) disclosure rules and the fundamental right to privacy in the context of contemporary financial regulation. It examines the legal landscape, discusses case laws from various jurisdictions, explores potential solutions, and offers insights into achieving a harmonious equilibrium between transparency and privacy.

When concerns over money laundering, corruption, and financial crimes have increased to its peaks, UBO disclosure and rules pertaining to the same have emerged as a potential tool to promote transparency and combat illicit financial activities. The origins of UBO disclosure rules trace back to international initiatives, including the recommendations put forth by the Financial Action Task Force (FATF). These recommendations urged member countries to adopt measures that identify the individuals ultimately controlling and benefiting from legal entities. The aim was to hinder criminals' ability to exploit corporate structures for money laundering, terrorist financing, and other financial misconduct. European Union's Fourth Anti-Money Laundering Directive (AMLD) also required EU member states to maintain central registers of UBOs. In 2018, ADGM introduced its Under Beneficial Ownership and Control Regulations 2018, emphasizing transparency and accountability. Subsequently, the UAE strengthened its stance against tax avoidance and money laundering, aligning with global standards. Notable advancements like Cabinet Decision No. 58 of 2020 regarding Ultimate Beneficial Owners (UBO Law) and Cabinet Resolution No. 57 of 2020 addressing Economic Substance Requirements (ESR Law). These measures signify the UAE's proactive commitment to global financial integrity. However, concerns arose regarding public accessibility and potential privacy breaches. Later, in 2022, The EU Court held that the provision of the anti-money-laundering directive of the EU AMLD whereby Member States must ensure that the information on the beneficial ownership of corporate and other legal entities incorporated within their territory is accessible in all cases to any member of the public is invalid. According to the Court, the general public’s access to information on beneficial ownership constitutes a serious interference with the fundamental rights to respect for private life and to the protection of personal data. 

Many were of the opinion that this ruling has effectively undone a decade's worth of advancements made in combatting corruption, economic resource-related offenses, tax evasion, and various other illicit financial activities worldwide. The verdict rendered by the court invalidated a specific aspect of the European Union's Anti Money Laundering Directive that enabled public access to registries containing information about beneficial owners of companies, that is, the actual individuals who own or exert control over these entities. 

But the real question is what is important?

1. Whether public should be given access to all the UBO information so as to bring concerns like unwanted exposures, safety and security concerns, personal privacy, stigmatization and reputational damages, business competitiveness, misuse and targeted cybercrimes, data security and unauthorized access, cross -border privacy concerns?
2. Whether Ultimate business owners should be allowed privacy and non-disclosure so as to facilitate reduced transparency, increased risk of financial crimes, weakened investor confidence, ignorance or neglect to global efforts put forward by organisations like FATF, loss of completive advantage, challenges and impacts on financial institutions, impaired corporate governance, loss of deterrent effect, potential impact of regulatory arbitrage etc?
3. Whether a balance between Ultimate Beneficial Owner (UBO) Disclosure and the Right to Privacy should be implemented and is imperative?

Achieving a balance between Ultimate Beneficial Owner (UBO) disclosure and the right to privacy is not only advisable but imperative and stems from international efforts to combat money laundering, corruption, tax evasion, and other illicit financial activities. Initiatives like the Financial Action Task Force (FATF) recommendations have underscored the significance of revealing true ownership structures to deter criminal exploitation of corporate entities. However, this transparency must be approached cautiously to avoid infringing upon individuals' right to privacy.

Important developments, such as the European Union's Court of Justice ruling invalidating the provision for public access to UBO registries, highlight the evolving nature of this delicate balance. This ruling emphasized the need to respect privacy rights and proportionality when implementing UBO disclosure measures.

Risk-Based Approach, Controlled Access, Confidentiality Registers, Data Protection, Legitimate Privacy Claims, Transparency in Review, Confidentiality Registers, are few suggestions to bring about this balance. Several jurisdictions have embraced confidential UBO registers, enabling disclosure to regulatory authorities while restricting public access. This approach respects both transparency imperatives and privacy rights. 

The ADGM (ADGM) has taken noteworthy strides in effectively addressing this challenge. Having a comprehensive framework with regard to the UBO disclosures with the introduction of Ownership and Control Regulations 2018 and subsequent regulations on AML, the renowned international financial centre has demonstrated a proactive approach in addressing the UBO disclosure-privacy conundrum with below measures:

1. Confidentiality and Restricted Access: ADGM has established a confidential register of beneficial owners. While regulatory authorities have access to this information to combat financial crimes, public access is restricted. This approach aligns with the principle of proportionality, ensuring that UBO information is disclosed only to those with a legitimate need for it. 
2. Risk-Based Approach: ADGM's regulations focus on identifying entities with higher risks of money laundering or terrorist financing, allowing for targeted UBO disclosure and EDD requirements.
3. Data Protection Regulations: ADGM's data protection regulations align with international standards, emphasizing the importance of handling personal data securely and respecting privacy rights.
4. Enhanced Due Diligence: ADGM mandates enhanced due diligence measures for entities with complex ownership structures, ensuring effective UBO identification without compromising privacy.

Introducing effective UBO disclosure rules while preserving the right to privacy is difficult and it involves the synergy of legal expertise, policy formulation, and global cooperation. Striking this much debated balance is not easy and is an ongoing endeavour that demands vigilance, adaptability, and a commitment to preserving the essence of democracy and individual rights in the modern world.

ADGM's approach to balancing UBO disclosure and privacy reflects a commitment to responsible financial regulation that respects fundamental rights. By embracing risk-based strategies, safeguarding data, and engaging stakeholders, ADGM has crafted a regulatory framework that serves as a model for other jurisdictions.

With that being said, it is crucial for all ADGM companies to adhere to the UBO disclosure rules, especially when setting up your businesses and you can consult a professional service provider as your main support in the process.