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Luxembourg turns into the second-biggest destination for dirty money

Luxembourg, Germany, France, Belgium, Europe, EU, Japan, UK, Tax Justice Network

International

Luxembourg turns into the second-biggest destination for dirty money

Luxembourg is a tiny country — officially a Grand Duchy — that sits on barely more than 2,500 square kilometers of land wedged between Germany, France, and Belgium.

So why is it the world’s second-biggest destination for foreign capital?

Secrecy.

Activists say it has one of the most opaque financial systems in the world, and for years it has been a notorious tax haven, accused of being part of an “axis of tax avoidance” in Europe. Combined with the stability derived from being at the heart of the European Union, this makes it a magnet for investors from around the globe.

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By December 2019, they had poured $5.06 trillion in portfolio investment into Luxembourg, more than Japan, Germany or the UK. In a country of under 650,000 people, only around half of whom are native Luxembourgers, there are now 140,000 companies.

Foreigners who open companies in Luxembourg tend to do it for one reason: “to disconnect themselves from their holdings,” explains Gabriel Zucman, an associate professor at the University of California, Berkeley, who studies tax havens.

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“That’s the key service that’s provided by this segment of the financial industry: Disconnecting people from their assets, creating financial opacity, making it harder for authorities to investigate.”

After years of pressure from the EU, Luxembourg finally agreed in 2018 to create a database that would reveal the ultimate beneficial owners (UBOs) of all the companies registered within its borders.

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The UBO register was established in March 2019, but it has a critical flaw: It does not allow searches by an owner’s name, only by company name or registration number. This makes it much harder for journalists and members of the public to determine who owns what.

Alex Cobham, an economist who leads the Tax Justice Network, said this undermined the whole point of the register — creating more accountability and transparency about the people behind companies.

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“Luxembourg appears instead to have made the data unduly hard to access, and to have failed to ensure that the ultimate, warm-blooded beneficial owners are directly identified.”

But French newspaper Le Monde managed to scrape the registry’s website and obtain 3.3 million documents, covering over 140,000 companies based in Luxembourg. It then shared them with OCCRP and other reporting partners across the globe, allowing us to dig deeper into the people actually benefiting from these firms.

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It has long been known that Luxembourg is a haven for tax evasion, but our trawl through the OpenLux database revealed some names that surprised us: Fraudsters, an arms dealer, organized crime figures, oligarchs, and relatives of political figures from around the world were able to open companies in Luxembourg, seemingly without raising red flags.

Companies in Luxembourg might be opened for entirely legitimate reasons. But in some cases, we found firms that were used to hide, move, and launder millions in money, stocks, and other assets.

Now, in a series of stories focusing on these companies and their owners, OCCRP and its partners are trying to re-draw some of the connections severed by opacity and offshoring — to link people to their financial holdings, when it is in the public interest to do so.

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Blitz’s Editorial Board is responsible for the stories published under this byline. This includes editorials, news stories, letters to the editor, and multimedia features on BLiTZ

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