Luxembourg’s Investment Funds: A Black Box for Money Launderers?
A recent investigation by Transparency International and the Anti-Corruption Data Collective has uncovered disturbing findings about Luxembourg’s investment funds industry, revealing a lack of transparency and accountability that makes it vulnerable to corruption and money laundering.
The Problem with Investment Funds
Investment funds are pools of capital from various investors that purchase assets such as stocks, bonds, and real estate. Despite their significant size and influence, these funds often operate in secrecy, with few requirements for transparency or accountability.
- Few requirements for transparency or accountability
- Significant size and influence, yet shrouded in secrecy
The industry’s lack of transparency has been exploited by corrupt individuals and criminals, including those involved in the notorious 1MDB scandal in Malaysia. The Financial Action Task Force has classified investment funds as high-risk for money laundering.
The Register of Beneficial Owner (RBO)
Luxembourg recently released its RBO, intended to shed light on corporate ownership. However, an investigation found that:
- 81% of the 16,777 investment funds registered did not declare any beneficial owners
- Discrepancies were discovered between reports filed with US authorities and those submitted to Luxembourg
Loopholes in Corporate Transparency Framework
The findings highlight two major loopholes in Luxembourg’s corporate transparency framework:
- Inadequate definition of who qualifies as a beneficial owner
- Lack of verification mechanisms to ensure data accuracy
Recommendations for Reform
Experts recommend:
- Reviewing the beneficial owner definition to include all beneficiaries of investment funds
- Undertaking regular reviews of RBO data
- Implementing a mechanism for verifying and validating information provided by legal entities
The European Commission should also revisit and amend the current beneficial ownership definition during its review of the EU’s anti-money laundering framework.
The OpenLux Project
The OpenLux project aims to shine a light on these issues and push for reforms that will make it more difficult for corrupt individuals and criminals to exploit Luxembourg’s financial system.