#openlux

#openlux

Statement by the Luxembourg Government on recent press articles published about Luxembourg

The Luxembourg Government takes note of the publication of a series of articles in the international press concerning alleged shortcomings in the Grand Duchy's anti-money laundering arrangements and refutes the various allegations. The authors also make a number of unsubstantiated assertions about the Luxembourg economy and the financial centre.

Luxembourg is fully in line and compliant with all EU and international regulations and transparency standards, and applies, without exception, the full arsenal of EU and international measures to exchange information in tax matters and combat tax abuse and tax avoidance. Neither the EU nor the OECD have identified any harmful tax regime or practices in Luxembourg.

Luxembourg provides no favourable tax regime for multinational firms, nor digital companies, which have to abide by the same rules and legislation as any other company in Luxembourg.

Luxembourg is a stable, triple-A rated country with an open, diversified economy focused on high-added value services and industry, including financial services, automotive industry, information technologies, biotech and cleantech, as well as satellite and space technologies. Many industrial groups have production facilities as well as R&D and innovation centres in Luxembourg.

Luxembourg is also home to one of Europe's main international financial centres: many of the world's leading financial institutions, asset managers, and insurance firms have established their EU hubs and centres of excellence in Luxembourg. Multinational firms from across the globe leverage the financial sector expertise of the country to centralize their cross-border financial activities, from corporate financing to treasury and cash pooling.

Fully aware of its responsibility as an international financial centre, Luxembourg continuously assesses and updates its supervisory architecture and arsenal of measures to combat money laundering and terrorist financing (AML/CFT) and applies all EU and international regulations as well as the FATF (Financial Action Task Force on Money Laundering) recommendations.

Luxembourg authorities in charge of AML closely cooperate with each other as well as their peers in other jurisdictions. In line with the growth of the financial centre, the Financial Sector Supervisory Commission (CSSF) has doubled the number of its employees over the past seven years to reach 1 000 staff to date, a high figure even in absolute terms and commensurate with other major financial centres. Its staff in charge of the fight against money laundering is constantly increasing, having grown by 46% over the last three years alone.

Companies in the regulated financial sector, as well as business service providers, including lawyers, notaries, chartered accountants, auditors and other accounting and auditing professionals, as well as bailiffs, real estate agents and developers, authorized free zone operators, virtual asset service providers, certain dealers in goods and works of art to the extent that payments are made or received in cash in the amount of € 10. 000, are all subject to the obligation of due diligence, which requires the professional to identify his client as well as the beneficial owner of the transaction, and to report any suspicious activity.

More recently, Luxembourg was one of the first countries in Europe to set up a public Ultimate Beneficial Owners Registry (UBO). Importantly, it is one of the only European Union countries to have opted for a completely open and transparent registry, which is accessible, online and free of charge, without any restriction to the public (including journalists). The UBO, which is obviously only one tool among many to ensure AML compliance, and the data it holds are continuously being assessed and improved where necessary. At the end of 2020, the completeness rate of the register was around 90%.

Given that Luxembourg is fully compliant with and has implemented all applicable EU and international rules and standards with regards to tax transparency, the fight against tax abuse as well as AML/CFT – and even gone beyond these requirements – Luxembourg rejects the claims made in these articles as well as the entirely unjustified portrayal of the country and its economy.

Having been contacted prior to publication of the articles in question, the Luxembourg authorities have given extensive feedback to the questions raised. 

Communication from the Ministry of Justice concerning the Register of Beneficial Owners and capacity building

 

The Ministry of Justice takes note of the publication, in the last few days, of a series of articles concerning, inter alia, the fight against money laundering and terrorist financing (ML/TF) and the Register of Beneficial Owners (RBE). The articles were produced based on data taken from the Register of Beneficial Owners, which is open and accessible to the public without charge or identification. The names revealed in the articles have since been communicated to the Financial Intelligence Unit (CRF).

 

In 2018, Luxembourg conducted its first national ML/TF risk assessment (ENR 2018), which was updated in 2020 (ENR 2020). In line with Luxembourg's policy of transparency in the fight against ML/TF, the ENR 2020 can be consulted online or downloaded. The level of risk inherent to legal persons and legal arrangements appears to be "high". It should however be noted that, during the work for the ENR 2020, the mitigation effects of the RBE to mitigate the inherent risks of legal entities were not taken into account, as the system was too new to assess its beneficial effects. The Ministry of Justice would like to provide some details on the tool that the RBE constitutes in this context and to announce the additional measures envisaged at this stage.

 

The RBE is a new generation register, based on the 5th anti-money laundering directive. It is one of the few registers in Europe to be fully public and accessible without identification or fees.

 

The Grand Duchy of Luxembourg has thus reinforced, in the interest of the fight against ML/TF, the transparency of legal persons. It enables civil society, citizens, associations and journalists to use this tool to form an opinion and contribute to the debate at Luxembourg, European and global level on the measures to be put in place to improve the fight against ML/TF. We are assuming our role in this debate, while defending the assessment of the measures already taken by Luxembourg.

 

Since the creation of the RBE by the Law of 13 January 2019 (the RBE Law), approximately 90% of reporting entities have declared one or more beneficial owners. Those that have not complied with this obligation have been reported to the State Prosecutor's Office. In addition, any reporting entity that fails to declare its beneficial owner(s) or files a false or incomplete declaration is liable to a fine of up to €1.25 million.

 

With regard to applications for exemption based on article 15 of the RBE Law, the LBR received 4 028 applications, of which 1 410 concerned minors, which were accepted, 2 412 were refused and 206 are pending investigation. The cases are pending before the Luxembourg courts pending a preliminary ruling by the Court of Justice of the European Union on references for preliminary rulings concerning, in particular, the respect of personal data.

 

Article 15 of the RBE Law specifies, under the terms of the 5th Directive, that a registered entity or a beneficial owner may request, on a case-by-case basis and in exceptional circumstances, on the basis of a duly reasoned request to the manager, to limit access to registered information to national authorities only, credit and financial institutions and court bailiffs and notaries acting in their capacity as public officers, where such access would expose the beneficial owner to a disproportionate risk, to the risk of fraud, abduction, blackmail, extortion, harassment, violence or intimidation or where the beneficial owner is a minor or is otherwise incapacitated.

 

Following the introduction of the RBE, the LBR proceeded with the withdrawal of inactive companies, an operation that will henceforth be repeated annually.

 

The number of withdrawals made between 2018 and 2020 (based on the date of the application for withdrawal and not the date of termination) are as follows.

 

Number of withdrawals filed from 2018 to 2020
  2018 2019 2020
Total  5683 6527 24606*
(*) of which 18 375 automatic withdrawals carried out by LBR aimed at removing entities that have been inactive for more than 10 years      

 

Adjustments to the Register of Beneficial Owners (RBE)

A. Adjustments at the level of the Register of Beneficial Owners

 

1. Technical adaptation of the tool

 

The establishment of the RBE should be seen as a success. Nevertheless, as soon as the tool was launched, its manager carried out an evaluation of the first experiences acquired, which made it possible to identify ways of improving its operation.

 

In addition, various technological adaptations are planned in order to enhance the quality and reliability of the data and to improve the user's consultation experience in general.

 

2. Broadening the manager's skills

 

Given the register's objective of transparency, the competence of its manager, Luxembourg Business Register (LBR), is for the time being limited to a verification of the accuracy of the data with regard to the documents provided. Indeed, the checks fall under the responsibility of the actors in the control chain, who must alert the LBR in the event of inaccuracies.

 

Nevertheless, it appears that strengthening the manager's skills would allow the LBR to work more efficiently without making it a regulator in its own right.

 

While the LBR's mission is currently limited to contacting the entity and transmitting its file to the State Prosecutor's Office in the absence of a satisfactory response, current work is focused on the introduction of direct administrative sanctions for the benefit of LBR.

 

B. Adaptations at the level of the professional actors concerned

 

In accordance with article 8 of the RBE Law, professionals are required to inform the manager when they notice inaccuracies or omissions, but it is not specified that consultation of the RBE, at the time of entering into a business relationship and during the course of the relationship, is mandatory.

 

Work is currently under way on such an obligation.

 

The identification of a suspicious profile presents a challenge in the context of a business relationship, so we are reflecting on the tools to be put in place, either within the LBR or with another authority, in order to set up an additional warning system.

 

Strengthening the capacity of the State Prosecutor's Office and the courts

 

In the fight against ML/TF, it is essential that breaches of the RBE Law are prosecuted and punished.

 

In this context, the LBR reports the new entities registered with the RCS and falling within the scope of the RBE, but which have not declared their beneficial owners, to the State Prosecutor's Office. As of 31 October 2020, the LBR thus reported 1 238 newly registered entities that had not made a declaration to the RBE to the State Prosecutor's Office. Failure to make a declaration to the RBE is punishable by a fine ranging from €1 250 to €1 250 000 (article 20 of the RBE Law).

 

Finally, the Ministry of Justice would like to specify the forthcoming tabling of a draft law, enabling the State Prosecutor's Office and the courts to appoint référendaires in order to speed up the processing of cases. 

 

Frequently Asked Questions

Luxembourg's UBO register
The setting up of a public Ultimate Beneficial Owner (UBO) register is a strong act of transparency, as well as a challenge for the Member States. What is your assessment?

It is indeed a strong act of transparency, all the more so as Luxembourg was one of the first countries in Europe to set up a fully public and accessible UBO register. Along with Bulgaria, Denmark, Latvia and Slovenia, Luxembourg is one of the few European Union countries to have opted for a register that is completely open and accessible to the general public (including journalists) without any restrictions. The data can be consulted free of charge online without prior authentication or registration.

This has been welcomed by several observers, including NGOs like Global Witness. More details here:

https://www.globalwitness.org/en/campaigns/corruption-and-money-laundering/anonymous-company-owners/5amld-patchy-progress/

 

What is the completeness rate of the UBO register?

The Law of 13 January 2019 with effect from 1 March 2019 set up the Luxembourg UBO register. At the end of 2020, the completeness rate of the register was around 90%.

The Luxembourg register cannot be searched by name. Why did you make this choice? Are you in favour of a more open and accessible consultation of your register by the general public (including access by name)?

Luxembourg is one of the few EU countries to have set up a register that is completely open and accessible to the public without any restrictions. Its consultation is free of charge and without prior authentication or registration, which also makes it possible for journalists or NGOs to access the data of the register.

The rules for its public consultation have been guided by the necessary steps to find the right balance between safeguarding the right to privacy of those registered in the UBO on the one hand, and the principle of transparency on the other. 

Is there a procedure for verifying the accuracy of information on beneficial owners? Errors and inconsistencies seem to exist in the UBO register.

There is a procedure for verifying the accuracy of information of beneficial owners. Determining the status of beneficial owners is the responsibility of the registered entity, which expressly commits towards the UBO to provide adequate, accurate and timely data.

A willfully incorrect declaration made to the UBO is punishable under criminal law by a fine of between 1,250 and 1,250,000 euros. The Luxembourg Business Register, which is in charge of the Luxembourg UBO, checks the submitted registrations, verifying the accuracy of the data communicated against the supporting documents attached.

The register is not the only mechanism for identifying the beneficial owners. The law stipulates in particular that professionals such as lawyers, notaries, banks and all other entities that have to apply AML cannot rely exclusively on the UBO to identify the beneficial owners. Indeed, under AML/CFT legislation, professionals are subject to the duty of due diligence, which requires the professional to identify their client as well as the beneficial owner of the transaction.

The due diligence obligation also includes constant vigilance of the business relationship by examining the transactions concluded throughout the duration of the business relationship and, if necessary, verifying the origin of the funds.

The mere suspicion of money laundering should furthermore not lead to the automatic deletion from the UBO, as some observers have made recently on the use of UBO data. 

Is it true that exemptions can be granted to the public nature of the information entered in the UBO Register? Will these entities or people not be checked?

Exemptions to the public nature of the information entered in the UBO register are exceptional measures that are decided on a very strict case-by-case evaluation by the Luxembourg Business Register, which manages the UBO. Any request for limited access must be supported by precise and detailed information as well as concrete evidence to explain and justify such an exemption.

Please find more details on the procedure under article 15 of the Law of 13 January 2019: http://legilux.public.lu/eli/etat/leg/loi/2019/01/13/a15/jo

It is furthermore important to highlight that even though an exemption can be granted on the public nature of the information, AML checks on this person will still have to be performed by all the relevant actors.

The UBO register is indeed not the only mechanism for identifying the beneficial owners. The law stipulates in particular that professionals such as lawyers, notaries, banks cannot rely exclusively on the UBO to identify the beneficial owners. Indeed, under AML/CFT legislation professionals are subject  to the duty of due diligence, which requires the professional to identify his client as well as the beneficial owner of the transaction.

A number of foreign persons involved in corruption cases, or linked to organised crime, have opened companies in Luxembourg, apparently without raising a red flag. How is this possible?

Professionals are obliged to cooperate fully with the Luxembourg authorities responsible for the fight against money laundering and terrorist financing, in particular with the Financial Intelligence Unit (FIU), the supervisory authorities and the self-regulatory bodies. In particular, professionals must inform the FIU of any case of money laundering or suspicion of money laundering. Any failings by professionals will be sanctioned accordingly.

In the context of investment funds, why can there be discrepancies in the number of beneficial owners listed in the RBE and other sources such as, for instance, SEC Investment Adviser Public Disclosure (SEC IADP)?

Discrepancies can be possible, as these sources are often not really comparable and were designed for different purposes and, depending on the jurisdiction, may even have different definitions of ultimate beneficial owners, based on economic notions (who 'profits') or notions of company control, or may apply different ownership thresholds. It is therefore not really possible to draw conclusions based on apparent discrepancies and it is certainly wrong to infer that information in Luxembourg’s RBE is false or incomplete simply by comparing information in the RBE with an entirely different type of source, such as the SEC IAPD.

The RBE in Luxembourg is a beneficial ownership register to identify individuals that are the ultimate beneficial owners of a company and/or holding a controlling interest (in the case of funds, for instance, controlling more than 25%)

The SEC IAPD register, on the other hand, provides information on investment advisors and stock brokers registered and supervised by the SEC but is not intended to disclose the beneficial owners of each fund advised by these investment advisors (indeed very often the beneficial owners in this context would be the beneficial owners of the listed asset management company, which has to communicate UBOs with more than 5% to the SEC; and not necessarily the UBOs of the investment funds itself).

The RBE in Luxembourg and the SEC IAPD were simply not designed for the same purpose and do not hold the same information.

Luxembourg's efforts in the field of tax transparency
Is Luxembourg a tax haven? What kind of tax advantages does the country offer?

In line with international efforts to combat tax evasion, Luxembourg has resolutely embraced the tax transparency agenda.  The national tax policies have been adapted accordingly.

As such, Luxembourg complies with all Organisation for Economic Cooperation and Development (OECD) and European Union (EU) standards and directives on tax transparency, specifically in the area of exchange of information and administrative cooperation. The Global Forum of the OECD and the EU all have recognised Luxembourg’s efforts and commitments in this regard.

Luxembourg has also not put in place any tax incentives to attract multinationals and in particular BigTech companies. Multinational companies are all subject to the same European, international and national taxation standards and rules.

Luxembourg’s nominal tax rate (around 25% in Luxembourg City) is well above the European average (19.12%) and above the EU average (20.94%).

Is the country committed to the fight against tax evasion and aggressive international tax planning?

Luxembourg is a constructive and reliable partner in administrative cooperation at European and international level. It has supported all major developments at the European level in the field of information exchange and administrative cooperation.

Luxembourg has fully transposed the European Directive and its amendments on administrative cooperation in the field of taxation:

  • The second amendment to this directive, commonly known as 'DAC3', allows for the automatic exchange of rulings and transfer pricing agreements, and was adopted under Luxembourg's EU presidency in 2015.
  • Its fifth update 'DAC6', imposing mandatory disclosure of potentially aggressive tax planning, was adopted in March 2020.

With regard to the taxation of multinationals, Luxembourg has been an active participant in the OECD BEPS project since its inception. All European legislative responses that directly or indirectly address this issue have also been adopted.

Luxembourg was one of the first countries to sign the Multilateral Convention to Implement Tax Treaty Related Measures to prevent  BEPS (MLI), which already covers 95 jurisdictions.

Luxembourg transposed the two EU Anti-Tax Avoidance Directives (ATAD) before the transposition deadline and implemented the Common European General Anti-Abuse Rule (GAAR), and thus adapted its existing anti-abuse provisions.

Furthermore, the new tax regime in favour of intellectual property, introduced in 2018, takes fully into account the final OECD report on Action 5 of the BEPS Action Plan, which details the modified nexus approach for intellectual property regimes. Both EU and OECD competent bodies have endorsed the new regime. More details can be found here: Law of 17 April 2018.

Furthermore, in March 2021, legislation will take effect that aims at limiting the tax deductibility of outbound payments to jurisdictions on the EU list of non-cooperative jurisdictions for tax purposes. The provision helps to combat aggressive tax planning structures, which result in outbound interest and royalty payments made by companies located in Luxembourg to tax-exempted or low tax jurisdictions - particularly to jurisdictions which do not operate a corporate tax regime or which apply nominal corporate tax rates of zero or close to zero. More details can be found here: Parliament of the Grand Duchy of Luxembourg.

So Luxembourg no longer grants rulings to multinational companies?

In Luxembourg, rulings are strictly regulated. Advance rulings issued by the Luxembourg Inland Revenue are issued through an Advance Rulings Commission and are valid for a maximum period of five years. The number of such rulings has decreased significantly and reached 44 in 2020, which corresponds to a decrease of -92.6% between 2015 and 2020.

Rulings are  exchanged between European administrations as well as at the international level. Indeed, the exchange of rulings within the European Union, carried through a dedicated central directory, accessible to all Member States and managed by the European Commission, is completed by an exchange of rulings communicated directly to the jurisdictions concerned on a spontaneous and mandatory basis according to Action 5 (Harmful tax practices) of BEPS.

The practice of advance rulings on tax matters is well established in many countries. At both European Union and G20 level, the vast majority of tax administrations issue rulings in one form or another. The European Commission has confirmed the conformity of the practice of advance rulings in general with European law, provided that they are not used to grant advantages to companies which other companies in the same situation would not be able to enjoy. 

Some say that Luxembourg’s financial centre is the best place in Europe for holding companies or other companies with no real economic activity or substance?

Firms rely on setting up companies for their financing activities, to manage a group of companies, to segregate assets and manage risks, to finance new projects, raise funds, or in the context of mergers and acquisitions. It has to be noted that investment funds also rely on companies to channel their investments for legal, regulatory or risk spreading and managing reasons.

All these activities are genuine economic activities put in place for valid commercial reasons. It is not surprising that the creation of such companies is preferably done in jurisdictions with an international financial centre specialised in cross-border services and which are characterised by a high degree of financial stability and legal certainty.

The Luxembourg financial centre, ranked as the European Union's leading international financial centre, provides a wide range of financial services that meet the needs of financial institutions, investors and companies from all over the world. Luxembourg provides a well-established legal framework, which complies with EU and international rules and standards. Multinational companies from around the world are taking advantage of the country's expertise in the financial sector to centralise their cross-border financial activities, from corporate finance to treasury management and cash pooling. 

Does Luxembourg favour the creation of holding companies through an advantageous tax regime?

Companies that are primarily set up for holding participations exist in many countries, including France and Germany. The Luxembourg tax regime for these companies is not more advantageous than that of other European countries and is in line with the European framework in this area, and notably the Parent-Subsidiary Directive. Luxembourg's comparative advantage in this area stems from the high degree of openness of its economy, the expertise of its professionals and the efficiency of its administrative system.

The establishment of such companies can be a natural step in a group’s development and growth. They allow companies to be structured in an efficient way.

Companies and groups around the world choose one or more finance hubs to centralise their financing activities through companies holding equity interests. It is precisely this reality which is governed by European directives, like the Parent-Subsidiary directive or the Interest and Royalties directive. 

Is Luxembourg opposed to a digital tax?

No. Luxembourg is in favour of a global solution, which would include the United States, thus guaranteeing a level playing field. Nevertheless, Luxembourg was not opposed to a provisional European solution. The Grand Duchy supported the European proposal to establish a provisional tax on revenues from digital services in 2018.

The country actively participates in OECD working groups on modernising international corporate taxation and believes that the international tax framework needs to be adapted to 21st century business models to reflect the digitalisation of the economy. 

Why do international companies invest and settle in Luxembourg? What are Luxembourg's assets when it comes to attracting business?

Luxembourg is a stable, triple-A rated country with an open and diversified economy, focused on services and high value-added industry. Financial services, automotive industries, information technologies, biotechnology and clean technologies, as well as satellite and space technologies are privileged sectors.

Luxembourg is also home to one of Europe's leading international financial cent. In fact, many of the world largest financial institutions, asset managers and insurance companies have established their centres of excellence and European platforms in Luxembourg.

Multinational companies from all over the world take advantage of the country's expertise in the financial sector to centralise their cross-border financial activities, from corporate finance to centralised cash management.

In particular, companies that are active internationally find ideal conditions in Luxembourg, thanks to its social, economic and political stability:

  • Social stability and multinational society: Luxembourg is one of the safest countries in the world, with a high quality of life. Nearly 50% of the resident population are foreigners and its international community makes Luxembourg a welcoming place for foreign talent. In the public sector, administrations and supervisory authorities allow companies to interact with them in the four languages spoken in the country, namely Luxembourgish, French, German and English.
  • Economic stability: the country has experienced sustained growth and has been granted an AAA rating for its sustainable public finances. High public investments and an efficient and reliable administrative system are key aspects for companies choosing locations to set their business.
  • Political stability: Luxembourg’s high degree of political stability represents a key factor for businesses. 
What are the strengths of the Luxembourg financial centre? Why do international financial players choose Luxembourg?

The Luxembourg financial centre has developed a high level of expertise over the past decades in pan-European and international financial services, connecting investors and markets around the world. Its stability and openness to innovation make it a leading European platform for international financial institutions, asset managers, insurers as well as Fintech firms. It is a European hub for sustainable finance.

As the world's second largest centre for investment funds, and home to a highly specialised asset-servicing ecosystem, leading international, including European, asset managers have established their centre of excellence for cross-border investment funds in Luxembourg. In particular pension funds rely on UCITS to diversify their portfolios with a well-regulated product.

Luxembourg is home to more than 120 international banks who have set up their European competence centres in areas such as depositary banking and custody services, corporate banking as well as wealth management.

Many investors wishing to manage their wealth and assets over the very long term and across different jurisdictions choose Luxembourg as an EU hub. The country’s political and economic stability is a real asset and a guarantee for people that want their wealth to be passed on to future generations. All these activities are carried out in total tax transparency towards the tax authorities of the countries of residence of these clients. 

Fight against money laundering and terrorist financing in Luxembourg
What are the money laundering and terrorist financing threats and risks for Luxembourg?

Luxembourg periodically updates its National Risk Assessment (NRA) and vertical risk assessments to identify, assess and understand its money laundering and terrorist financing (ML/TF) risks. Overall, the inherent risks associated with ML/TF (i.e. before taking into account the mitigation measures currently in place) are linked to its international financial centre, characterised by a large number of institutions, the importance of assets under management and cross-border flows, fostered by an open and diversified economy.

The mitigating factors put in place by the national framework in anti-money laundering and counter terrorist financing matters (AML/CFT) at the national level, within the various sectors and the authorities responsible for combating ML/TF, reduce the inherent risks to a residual risk level. In general, mitigating factors are greater in the financial sector, which has been the subject of the EU's ML/TF framework since 1991 and which has a good knowledge of the risks and applies AML/CFT measures in a consistent manner.

Threats to Luxembourg arise mainly from the laundering of the proceeds of predicate offences committed abroad. The terrorist financing threat is moderate overall. This can be deduced from the large number of international letters rogatory (CRI) received from abroad and aimed at the seizure of assets derived from predicate offences committed abroad. Most of the suspicious transaction reports received by the Financial Intelligence Unit (CRF) concern cross-border transactions, foreigners or suspicious acts that were carried out abroad.

From 2017-2019, the judicial authorities received 1 701 requests for international mutual assistance, of which 362 related to money laundering. The seizures made based on CRI during the same period amounted to approximately €311.5 million, compared to approximately €92.1 million seized for domestic cases. The CRF, prosecutors and investigative judges cooperate regularly with their foreign counterparts, particularly within the EU.

The most frequent predicate offences relate to fraud and forgery, tax offences, corruption and drug trafficking. Worldwide, it is estimated that these four categories of predicate offences account for more than 70% of criminal proceeds. At the national level, these four categories of offences account for approximately 57% of the CRIs received between 2017 and 2019 and for approximately 45% of the seizures made.

 

The latest NRA can be found at:

https://mj.gouvernement.lu/dam-assets/dossiers/blanchiment/NRA-2020.pdf

 

How are holding companies, investment companies and investment vehicles supervised in terms of the fight against ML/TF?

The rules on combating ML/TF apply to these companies in the same way they would to any other company. In Luxembourg, professionals advising and assisting groups or fund managers in the creation of a new company are subject to the AML/CFT legislation.

They are subject to all professional obligations and, in particular, the due diligence obligations. Professionals must identify their client, the beneficial owners, assess and understand the purpose and nature of the business relationship and conduct ongoing due diligence of the business relationship, in particular by examining the transactions entered into throughout the duration of the business relationship and, if necessary, by verifying the origin of the funds.

Furthermore, professionals, their directors and employees are obliged to report suspicious transactions, including attempted suspicious transactions, to the CRF, regardless of the amount of the transaction, without professional secrecy applying. The identity of the reporting entities is protected.

In addition to cooperating with the CRF, professionals are obliged to cooperate fully with supervisory authorities and self-regulatory bodies. These supervisors are responsible for ensuring compliance with professional obligations by regulated professionals in the financial and non-financial sector. In 2019, supervisors conducted more than 250 on-site inspections, in addition to desk-based inspections. They applied more than 90 corrective measures (in the form of warnings, reprimands, fines, etc.) to remedy approximately 300 cases of non-compliance with professional obligations.

What is the number of prosecutions and convictions in ML matters?

IIn 2019, 361 people were convicted for ML, of which 217 received prison sentences. 

What is the mechanism to combat money laundering and terrorist financing?

Luxembourg has a comprehensive AML/CFT system covering prevention, detection, prosecution and asset recovery. In 2009, Luxembourg implemented a wide-ranging reform of its AML/CFT legal framework and strengthened its institutional structures. Since then, this framework has been continuously adapted to the evolution of ML/TF risks and to international standards in this area.

The Law of 12 November 2004 on the fight against money laundering and terrorist financing (2004 AML/CFT Law), as amended, is the cornerstone of this system. In particular, it contains provisions relating to professional obligations, supervisory powers of supervisors, administrative, disciplinary and criminal sanctions and national and international cooperation arrangements.

The 2004 AML/CFT Law has been amended on numerous occasions, in particular to transpose the 4th and 5th European Directives and to extend its scope of application to new categories of professionals, such as virtual asset service providers (VASPs). In addition, the supervisory and sanctioning powers of self-regulatory bodies (SRBs) were harmonised in 2020.

 

Following the last mutual evaluation of Luxembourg by the FATF (2009), the means of the financial sector supervisory authorities were considerably strengthened. As such, all their supervisory activities are dictated by the risk-based approach. Following the first national risk assessment in 2018, some SRBs increased the level of specialisation of their supervisory teams and are in the process of finalising their risk-based approach. In general, supervisors have increased their level of engagement with professionals.

 

In 2019, supervisors conducted more than 250 on-site inspections, in addition to desk-based inspections. They applied more than 90 corrective measures (in the form of warnings, reprimands, fines, etc.) to address approximately 300 cases of non-compliance with professional obligations.

 

The role of the CRF

The CRF receives and analyses suspicious transaction reports (STRs) and other information and disseminates the results of its analyses to the competent national authorities and foreign counterparts. The CRF is independent and autonomous. It is headed by magistrates administratively attached to the General State Prosecutor's Office.

The CRF operates a secure portal, called goAML, to communicate with regulated professionals and certain competent authorities. All STRs made by professionals and requests for information addressed to professionals pass through this portal.

The CRF has access to a wide range of databases and has significant IT capacity to carry out its analyses.

In addition, the CRF has the power to freeze assets for an indefinite period of time.

With regard to the physical transport of cash, the CRF can freeze cash for up to three months upon request of the Customs and Excise Administration (ADA).

The annual accounts of Luxembourg companies
The annual accounts of Luxembourg companies organised as limited liability companies have been available to the public for decades and well before 2016.

Luxembourg accounting law has been built around the axiom "accounting publicity as a counterpart to the limited liability of shareholders ". In this context, the annual accounts of Luxembourg companies organised in the form of a société anonyme (SA), a société en commandite par actions (SCA) and a société à responsabilité limitée (S.à r.l.) have been accessible to the public for several decades (law of 4th May 1984) and for more than a century in the case of SAs and SCAs (law of 10th August 1915).

With the development of information technology, Luxembourg companies have been obliged since 2012 to file their annual accounts electronically, which facilitates their remote consultation by any stakeholders and other interested party.

With the reform of the trade and companies register (law of 19 December 2002), the annual accounts of Luxembourg companies, previously filed in paper form, have been digitised in order to facilitate their communication and remote consultation by any interested party. Since 2012 and the implementation of a standardised collection of financial data (eCDF platform), Luxembourg companies are obliged to file their annual accounts electronically. In the vast majority of cases, this collection is carried out using structured forms, which facilitates the comparison, use and exploitation of financial data.

In order to promote transparency and to limit any barrier to the consultation of annual accounts, consultation has been entirely free of charge since June 2016 and can be carried out without any identification obligation.

Initially subject to a fee (€2.50 excl. VAT per set of accounts), the consultation of the annual accounts has been entirely free of charge since 1st of June 2016 so that transparency can benefit as many interested parties as possible. Similarly, interested parties wishing to consult financial data no longer need to identify themselves by creating an account and can freely consult company financial data.

Luxembourg companies subject to accounting disclosure must file their annual accounts no later than 7 months after the closing date. Late filings are automatically subject to an increased fee. In addition, failure to file annual accounts may lead to the implementation of criminal sanctions against the legal representatives of the company and may even lead to the dissolution or judicial closure of the company.

The filing of the annual accounts of Luxembourg companies must take place within 7 months following the end of the financial year. In response to the delays noted in the past, a system of increased filing fees has been implemented as from 1st January 2017 (annual accounts for the financial year 2016). The introduction of these late filing surcharges has significantly reduced the number of late filings and the duration of the delays observed (progressive fees).

It should be noted that Luxembourg goes beyond the requirements of the European Accounting Directive which requires publication of annual accounts within 12 months of the end of the financial year.

The report published by STATEC in May 2020 entitled "La Centrale des bilans: un état des lieux décennal" ("The Central Balance Sheet Office: a ten-year review") shows that 87% of companies had filed their annual accounts within 11 months of the end of the financial year (reference financial year 2017).

In addition to administrative surcharges, it should be noted that in the event of failure to file annual accounts within the legal deadlines, managers and directors are exposed to criminal sanctions. Similarly, the failure to file annual accounts is a serious breach of the law on commercial companies and may lead to the dissolution or judicial closure of the company.

The Covid-19 pandemic and the ensuing containment measures led to an exceptional extension of 3 months of the legal deadlines for filing and publication of companies' annual accounts.

The exceptional circumstances linked to the Covid-19 pandemic and the containment measures for companies and their accountants led to the adoption of a law extending the legal deadlines for filing by 3 months.

The delay in the filing of annual accounts for the financial year 2019 is therefore exceptional and justified in view of the circumstances. In this respect, a catch-up effect was noted at the end of 2020 and the beginning of 2021.

The limited content of the notes to the annual accounts: consequence of the European accounting regime applicable to "small companies".

In Luxembourg, as in the other Member States of the European Union, the annual accounts of companies consist of at least the balance sheet, the profit and loss account and the notes to the annual accounts. The notes to the accounts are a key document that contributes greatly to the objective of a true and fair view.

However, the content of the notes to the accounts is currently very limited, as the European Accounting Directive has implemented a simplified regime in 2013 to reduce the administrative burden on small companies. The Member States cannot free themselves from the European rules specific to the accounting regime for small companies and do not have the option of requiring the addition of disclosures not required by the European text.

The specific absence of information in the appendix concerning shareholdings and subsidiaries.

Under European accounting law, small companies are exempt from the obligation to present in the notes to the accounts information relating to companies in which they hold a participation.

However, this information appears in the consolidated accounts of the Luxembourg company or of the company in which it is itself included as a subsidiary.

Luxembourg has not availed itself of the option to introduce the European accounting regime applicable to "micro-enterprises" which exempts them from the obligation to draw up an appendix or even to publish their annual accounts.

If the content of the notes to the annual accounts of small companies is limited, it should be noted that European accounting law allows Member States to introduce an accounting regime applicable to micro-enterprises which exempts them from the obligation to draw up notes to the annual accounts.

Many Member States have made use of this optional regime, some even going so far as to exempt micro-enterprises from the obligation to publish their annual accounts (option of confidentiality of accounts).

It should be noted that Luxembourg has chosen not to introduce this accounting regime applicable to "micro-enterprises". The introduction of such a regime would have had the effect of significantly reducing the level of information publicly available to interested parties for a significant number of companies.

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