Citadeles nekustamie īpašumi (C-22/23): Court of Justice EU clarifies definition of ‘company service provider’ in Anti-Money Laundering Directive
Key takeaways
- On 18 April 2024, the Court of Justice of the European Union (CJEU) handed down its judgment in Citadeles nekustamie īpašumi SIA v Valsts ieņēmumu dienests (C-22/23), at the request of the District Court of Latvia.
- In the ruling, the CJEU assesses whether the concept of “company service provider” set out in Article 3(7)(c) of the Anti-Money Laundering Directive (Directive 2015/849, AMLD), should be interpreted as referring to a discrete service which does not arise from a transaction involving the letting of self-owned real estate and is not linked to such a transaction.
- The CJEU concludes that the leasing owner of real estate in which the lessee registers, with the consent of the leasing owner, its registered office and carries out transactions does not, by that fact alone, fall within the scope of that concept.
Facts of the case
Citadele is a company whose business consists in the purchase and in the sale of real estate for its own account and in the letting and management of that property. Following an anti-money laundering inspection carried out by the State Tax Authority of Latvia between September 2021 and February 2022, Citadele was fined for violating the Latvian law transposing the AMLD.
The State Tax Authority imposed the fine because it considered that by letting premises situated in a self-owned building to legal persons and to legal arrangements which had registered their registered office in those premises, Citadele had to be regarded as carrying on the activity of a company service provider within the meaning of the transposed AMLD provisions. The fact that Citadele’s leases permitted the lessees to register their registered office at the leased premises, was of particular importance.
Request for preliminary ruling
In response, Citadele filed an action before the District Administrative Court, seeking annulment of the decision on the basis that it is not an obliged entity. The court in turn requests a preliminary ruling on the following question:
‘Is the concept of “company service provider” set out in Article 3(7)(c) AMLD to be interpreted as referring to a discrete service which does not arise from a transaction involving the letting of self-owned real estate and is not linked to such a transaction, irrespective of whether or not the lessor has consented to the lessee registering its registered office at the leased property and carrying out transactions there?’
Judgment
The CJEU answers this question affirmatively: the concept of “company service provider” is a discrete service which does not arise from these facts. In its ruling, the Court states that the interpretation requires considering not only the wording, but also the context and the objectives pursued by the provision.
As to the wording, the CJEU first notices that based on Article 2(1)(3) sub c AMLD, the Directive applies to a “trust or company service provider” in the sense of Article 3(7)(c) AMLD, which is not already covered under Article 2(1)(3) subs a or b.
According to Article 3(7)(c), “trust or company service provider” means any person who provides: (1) ‘a registered office, business address, correspondence or administrative address’, and (2) other related services for a company, a partnership or any other legal person or arrangement’, services which must be provided by way of business and to third parties. The CJEU notes that the AMLD does not further define the meaning of the service of providing a registered office or address under (1), but considers that this service usually involves “making available [a point of contact for professional and administrative purposes], which is distinct from a service consisting of the mere letting of real estate”, following the conclusions of A-G Szpunar. It supports this reading by examining the differences between the services and a grammatical analysis of the provision.
As to the context, the CJEU compares Article 3(7)(c) AMLD to the definition of certain other obliged entities in Article 2(1)(3) AMLD and observes that unlike those entities, Article 3(7)(c) AMLD does not link the definition of “trust or company service provider” to real estate transactions. The EU co-legislators refrained from including lessors of immovable property as obliged entities in Article 2(1) AMLD. The other services in Article 3(7)(a) to (e) also do relate to real estate transactions. But since AMLD is a minimum harmonisation Directive and Member States can adopt stricter provisions to ensure that the scope of the Directive is extended to entities which engage in activities which are particularly likely to be used for money laundering or terrorist financing purposes, a national court must verify whether the scope has been extended in its jurisdiction.
On the basis of these considerations, the CJEU concludes that the answer to the question is that Article 3(7)(c) AMLD must be interpreted as meaning that a leasing owner of real estate in which a lessee registers, with the consent of the leasing owner, its registered office and carries out transactions does not, by that fact alone, fall within the scope of the concept of a “trust or company service provider”, within the meaning of that provision.
Implications
The CJEU’s ruling is important for several reasons:
- First, it provides more clarity on regulatory perimeter of the AMLD for lessors of real estate which allow lessees to register its registered office. This business model is clearly out of scope of the perimeter. Rather, it is making available a point of contact for professional and administrative purposes which may be used for the delivery of correspondence, that drives this definition.
- Second, the classification of activities under national transpositions of the AMLD is not a categorical exercise, but requires considerations of all the elements of the legal and factual matrix. Analysing whether a Member State has gold-plated the Directive, is especially important, as the comments from our Belgian, Austrian Spanish and Germany teams illustrate.
Article 3(7)(c) AMLD has been transposed in Belgian law in Article 5, 29° of the Act of 18 September 2017 on the prevention of money laundering and terrorist financing and on the restriction of the use of cash (the Belgian AML Act), which stipulates that company service providers fall within the scope of the AML regulation.
Company service providers are defined as “any natural or legal person who professionally provides any of the following services to third parties: a) participate in the purchase or sale of shares of a company other than those of a listed company; b) providing a registered office to a company, a legal entity or a similar legal arrangement; (c) provide a business, administrative or correspondence address and other related services to a corporation, legal entity or similar legal arrangement”. (Art. 5, 29° Belgian AML Act jo. Art. 3, 1° Act of 29 March 2018 on the registration of service providers to companies).
Thus, the Belgian legislator decided to impose a stricter rule by stating that companies that merely provide a registered office (without offering other related services), do fall within the scope of the AML Act.
Companies that provide a business, administrative or correspondence address, will – in line with the AMLD - only fall in scope of the Act to the extent that they also provide other related services. According to the parliamentary papers, such services are defined as services that have a link to the functioning of the company as a legal entity, such as, for example, legal services or financial advice. Basic services of an operational nature that facilitate the exercise of the company’s activity, such as, for example, the receipt receiving packages, are not envisaged by the Belgian legislator.
Due to the Belgian gold-plating of Article 3(7)(c) AMLD, the above-mentioned judgement will likely not be relevant for the interpretation of the transposed provision in the Belgian AML Act. Moreover, please note that persons or companies that professionally engage in financial leasing activities (of moveable and immoveable goods) are obliged entities that fall in the scope of the Belgian AML Act (Art. 5, 22° Belgian AML Act).
In Austria, Article 3(7)(c) AMLD was transposed into national law by Section 2(4)(c) of the Austrian Financial Markets Money Laundering Act (Finanzmarkt-Geldwäschegesetz, “FM-GwG”). According to parliamentary discussions and the prevailing authorities, Austria has not implemented any additional provisions beyond those contained in the AMLD in this particular context.
Given the lack of guidance from the regulator regarding the definition “trust or company service provider”, we expect that the CJEU’s interpretation in the case at hand will be applied to the fullest extent.
Spain has not gold-plated the AMLD and includes literally within the list of obliged subjects “persons who, by way of business, provides a registered office, business address, correspondence or administrative address and other related services for a company, a partnership or any other legal person or arrangement” (article 2.1 o) Law 10/2010 on AML).
Furthermore, Spanish law requires that these “company services providers”, prior to the beginning of their activities, should register mandatorily in the relevant Commercial Registry in Spain (Additional Disposition 1 Law 10/2010).
The Spanish AML regulator (SEPBLAC) has published some Guidelines in relation to these registration requirements which provide us clarity on how “providing registered office, business address, correspondence or administrative address and other related services” should be interpreted in accordance with Spanish law:
- The registration obligation corresponds to the natural or legal persons who, by way of business, provides a registered office, business address, correspondence or administrative address ( including tax domicile), regardless of:
a. whether or not the service is included in the provider’s corporate purpose, and
b. whether is part of a package of services that include tax or legal advice or is provided separately of those services.
- This concept does not include cases of provision of registered office for the mere purposes of notification within the provision of another professional service.
- This concept does not include the provision of lease or rental services of office or spaces for use by professionals or companies, whether temporarily or intermittent, provided that said rental service does not include any of the service described in 1 above.
Taking into account the above, and specially number 3, we understand the SEPBLAC would agree with the CJEU’s ruling, and if Citadele were a Spanish entity, it would not regard Citadele as an obliged subject for the mere fact of letting premises situated in a self-owned building to legal persons and permitting the lessees to register their registered office at the leased premises, unless the lease or rental service included ex proceso those services (i.e., the provision of a registered office, business address, correspondence or administrative address).
The provision of Article 3(7)(c) AMLD has been implemented in Section 2 (1) no. 13 c) of the German Anti-Money Laundering Act (GwG) without deviating from the European provision.
In Germany, the company service providers are not subject to supervision by the Federal Financial Supervisory Authority (BaFin), but subject to the AML supervision on lower state level.
In principle, the wording of the definition of a company service provider is quite broad. The background to the regulation of these service providers is that such services are often misused to conceal illegal activities. For example, companies that wish to conceal their cross-border business activities can use company service providers to simulate registered offices and thus, among other things, present a business identity that does not actually exist in this form or is organised differently than it appears to be on the outside.
However, the competent regional authorities have expressly stated in their joint interpretation and application notes that the group of company service providers includes in particular "companies that offer so-called "virtual offices", e.g. as part of an office centre, irrespective of whether their customers also have their registered office at the address provided (e.g. as part of the business registration or entry in the commercial register)". On the other hand, the mere letting of office space, including furnished office space, shall not fall under Section 2 (1) no. 13 GwG.
Against this background, we expect that the German authorities will share the CJEU’s assessment and would not classify a landlord of a property as a company service provider within the meaning of the definition of an obliged entity under anti-money laundering law solely because the tenant of the property registers its registered office in the property in question and conducts business with the landlord's consent.
For more information or assistance with issues related to EU rules on anti-money laundering and terrorist financing, please contact our European Financial Services Regulatory Team
