EU court backs Italy push to unmask fiduciary trusts

(CN) — A financial arrangement built to keep one person’s name off another person’s assets ran headfirst into Europe’s anti-money laundering rules Thursday, as EU judges backed Italy’s push to uncover who is really behind the money.

In a ruling spanning two joined cases, the Court of Justice of the European Union sided largely with Italy and EU lawmakers against several Italian fiduciary companies that argued the disclosure system violated privacy rights, created legal uncertainty and reached too deeply into private financial affairs.

Known in Italy as a “mandato fiduciario,” the arrangement allows one party to hold and manage assets on behalf of another. Italian authorities treated those structures as trust-like arrangements under European anti-money laundering law, meaning firms had to disclose information about the real beneficiaries behind them.

That classification became the industry’s main complaint. The companies insisted the arrangements worked differently from Anglo-American trusts because ownership of the assets never formally changes hands.

Judges rejected that argument. “Such a transfer of ownership cannot be regarded as a mandatory condition,” the court wrote, finding EU law does not require assets to formally change ownership before an arrangement can be treated like a trust.

The judges instead focused on what they described as an “effet de voile,” or veil effect, in which fiduciary companies can function as a screen concealing the identity of the real owner. That feature, they said, matters because EU anti-money laundering rules are specifically designed to expose hidden ownership structures tied to money laundering and terrorist financing.

European law already requires member states to maintain registers identifying the “beneficial owners” behind trusts and similar arrangements, part of a broader transparency drive aimed at making hidden money flows easier to trace.

That transparency push accelerated across Europe after scandals such as the Panama Papers exposed how offshore structures and opaque ownership arrangements could be used to hide wealth and move money beyond public scrutiny.

The fiduciary firms separately challenged rules allowing people with a “legitimate interest” to request access to beneficial ownership information, warning the concept was too vague and risked opening sensitive financial data too widely.

Their challenge followed the court’s 2022 Luxembourg Business Registers ruling, which struck down fully public access to beneficial ownership registers after finding the system interfered too broadly with privacy and personal data rights.

Judges dismissed that argument too but emphasized that privacy protections still matter. “More specifically, derogations from and limitations on the protection of personal data must apply only insofar as is strictly necessary, it being understood that, where there is a choice between several measures appropriate to meeting the legitimate objectives pursued, recourse must be had to the least onerous,” the court wrote.

The judgment repeatedly framed transparency as a central tool in Europe’s fight against financial crime. Judges noted that EU lawmakers considered fighting money laundering “could not be effective without creating an environment hostile to criminals” and that stronger transparency rules could serve as “a powerful deterrent.”

Still, the court made clear this was not a green light for unrestricted public access to ownership records. Under the Italian system, access is limited to people able to show a real and specific legal interest in obtaining the information, rather than allowing anyone to freely browse sensitive financial data.

Judges also approved Italy’s process letting local chambers of commerce handle access requests first, while preserving the ability to later challenge those disclosure decisions before a court.

The ruling immediately drew attention from transparency advocates and anti-money laundering researchers watching how far European courts are willing to let governments go in balancing financial transparency against privacy rights.

Giulia Cantalupi, policy officer for illicit financial flows at Transparency International EU, welcomed the ruling, saying it sends an important signal as EU countries work through a new round of anti-money laundering reforms and transparency obligations.

“It is crucial that journalists, civil society organizations and academics are able to use beneficial ownership information to uncover corruption scandals, tax evasion and the abuse of anonymous companies across Europe and beyond,” Cantalupi said.

She added the judgment arrives at a sensitive moment for the EU’s latest anti-money laundering overhaul, as member states work to implement new transparency obligations under the bloc’s sixth anti-money laundering directive.

Other transparency campaigners said Thursday’s trust rulings could have implications far beyond beneficial ownership registers, particularly for efforts to stop trusts from being used to shield assets and sidestep sanctions.

Andres Knobel, lawyer and consultant with Tax Justice Network, said the judgments confirm long-standing concerns that “trusts’ flexibility, ownerless limbo and asset protection features can be abused to escape the rule of law, or in this case, sanctions.”

He added that the court’s broad reading of ownership and control could make it harder for people to distance themselves from trusts “until the coast is clear from tax authorities, creditors or sanctions.”

Michele Riccardi, deputy director of Transcrime and an associate professor at Università Cattolica del Sacro Cuore, said the ruling “could genuinely open or close the door to future claims by other interest groups,” calling the judgment “of crucial importance for the future.”

Riccardi also noted the wider debate over transparency now extends beyond beneficial ownership registers themselves.

“It is reductive to limit the concept of ‘transparency’ solely to the existence and accessibility of beneficial ownership registers,” he said, adding that meaningful transparency also depends on access to company registries, land records and other sources tracing ownership structures and assets.

The fiduciary firms and Italian authorities did not immediately respond to requests for comment.

The cases now return to Italy’s Council of State, which must apply the EU court’s interpretation to the underlying disputes. Because the ruling came through the bloc’s preliminary ruling system, the Luxembourg court’s judgment itself is final and cannot be appealed.

Courthouse News reporter Eunseo Hong is based in the Netherlands.