Luxembourg is inconsequential to many, but an investigation dubbed “OpenLux” shows how this small and secretive European country has attracted more wealth than the GDP of Japan.
Through favorable tax structures and opaque ownership registers, Luxembourg has attracted €4.5 trillion ($5.4 trillion) of investment funds into the country. But with this comes a serious risk of money laundering: As much as 80% of these investment funds have not declared their beneficial owners.
Analysis of the OpenLux database by Transparency International found “significant discrepancies” between named beneficial owners of investment funds. By law, these owners must be registered with Luxembourg authorities and, when business is done in the U.S., with the SEC. But 15% “submitted conflicting information,” the campaign group says, opening the door to money laundering.
The FBI is worried that investment funds are being used for large scale money laundering, according to an internal bulletin leaked in May last year. A lack of anti-money laundering (AML) checks has made it easier for criminals to “integrate illicit proceeds into the licit global financial system,” it said.
Luxembourg is home to 16,777 investment funds, ranging from venture capital to asset management and hedge funds, which between them manage €4.5 trillion ($5.4 billion). U.S. giants including Northern Trust NTRS , JPMorgan JPM and Blackstone BX all operate Luxembourg subsidiaries.
The Billionaire Capital Of Europe
The total figure of offshore wealth in Luxembourg is nearer €6 trillion ($7.2 trillion), says Le Monde, which created the OpenLux database.
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The French publication has identified wealth belonging to 266 billionaires in Luxembourg, almost more than the total number of billionaires living in the European Union.
Among them are politicians, royal families and celebrities including Tiger Woods, Shakira, Angelina Jolie and Brad Pitt and the King of Bahrain. Most of them own shell companies in Luxembourg through which they own real estate, private jets, yachts or other investments. The practice is perfectly legal and has the added advantage of discretion and a lower tax on profits.
For example, in 2019 an Indonesian billionaire, Sukanto Tanoto, used a Luxembourg-registered company to buy a €350 million ($423 million) building in Munich, according to the Organised Crime and Corruption Reporting Project (OCCRP), which collaborated on the OpenLux database. The billionaire’s name was previously hidden behind shell companies registered in Luxembourg, Cayman Islands and Singapore.
Other wealthy individuals, including an ex-son-in-law of Tunisia’s former dictator Ben Ali and the children of Russian oligarchs, have used Luxembourg companies to buy French chateaus, Riviera villas and Parisian apartments, the OpenLux database shows.
But some of these companies are linked to crime, says the OCCRP. It has identified Luxembourg-registered companies with links to Venezuelan oil and Italy’s ‘Ndrangheta clan, who are currently fighting Italy’s biggest mafia trial in 30 years.
Luxembourg passed a law in 2019 requiring companies to publish the names of their owners following pressure from the European Union. But this data is not easily available and hard to search, prompting Le Monde, the OCCRP and 16 other media organizations to create the OpenLux database.
But the Luxembourg Government says not only is its Ultimate Beneficial Owners Registry (UBO) is publically available but it was one of Europe’s first.
The country is fully compliant with applicable E.U. and international laws, the government said in a statement responding to the OpenLux findings. “Neither the E.U. nor the OECD has identified any harmful tax regime of practices in Luxembourg,” it says.
Life In The Grand Duchy
For a country with a population of around 600,000 people and whose existence was questioned by Napoleon, the “Grand Duchy,” as it is officially known, is attracting a lot of attention.
The OpenLux database follows the “LuxLeaks” scandal of 2014 when the offshore tax structures of Amazon AMZN , Apple AAPL , Deutsche Bank and other corporates were laid bare in documents leaked from PwC Luxembourg.
Scrutiny of tech giants registered in Luxembourg has only grown since. In 2017 the European Commission ruled that Luxembourg gave illegal tax benefits to Amazon worth around €250 million ($301 million) in 2017. Now, governments in the U.K. and E.U. are pressing these tech companies to pay more tax in their own countries.
Luxembourg denies it is a tax haven, however. “Luxembourg provides no favorable tax regime for multinational firms, nor digital companies, which have to abide by the same rules and legislation as any other company in Luxembourg,” the government said in a statement.
However, there is now so much financial activity in Luxembourg that half the workers in the Grand Duchy are foreign, with many having to commute to work from neighboring France, Germany or Belgium.
Le Monde estimates there are a quarter as many companies registered in the Grand Duchy than there are residents, and a third of these are owned by non-Luxembourgish individuals.
More often than not they will be owned by French nationals, the newspaper says. Nearly 15,000 wealthy French residents own companies in Luxembourg, which together are worth at least €100 billion ($121 billion) or 4% of France’s GDP, it says. “It’s almost as if Luxembourg owned small pieces of France.”