The grand duchy has been named one of the world’s top 10 tax havens in the latest “Financial Secrecy Index” released by the pressure group Tax Justice Network. Luxembourg’s finance ministry said the report was “misleading”, lacked sufficient evidence, and ignored recent progress and the country’s observance of EU and international norms.
TJN ranked Luxembourg as the 6th most financially secret jurisdiction overall, behind the Cayman Islands, US, Switzerland, Hong Kong and Singapore in 5th place.
By another measure, the “global market for offshore financial services,” Luxembourg took 3rd place (with 12.36% of worldwide marketshare), behind the UK in 2nd place (15.94%) and the US in 1st place (21.37%). “This makes [Luxembourg] a huge player compared to other secrecy jurisdictions,” according to the paper.
No longer the “Death Star”
TJN said that Luxembourg’s “position is largely unchanged since our 2015 and 2018 index.” According to the report:
“Until recently we were calling Luxembourg the ‘Death Star’ of financial secrecy in Europe, due to its highly aggressive stance in fighting European transparency initiatives. Since 2013, however, Luxembourg has joined various international transparency initiatives and made significant improvements in its financial transparency. We attribute this relative change of heart above all to the evolving international climate on transparency, combined with high-profile global scandals that have cast the tax haven in a highly negative light.”
The report continued:
“Despite these improvements, Luxembourg remains one of the world’s most important secrecy jurisdictions, hosting a range of financial and other activities that foster illegality or abuses elsewhere”.
The activists cited the Luxembourg Freeport (which has repeatedly said it complies with strict national and EU rules), alternative fund structures (which are widely used for many types of constructive investments) and the country’s professional secrecy laws (which do not negate any Luxembourg and EU compliance requirements).
Luxembourg’s finance ministry said in a statement to Delano on 19 February:
“The analysis of Luxembourg and its apparent role as a so-called secrecy jurisdiction as presented in the ‘Financial Secrecy Index’ is misleading, if not often outright false. The authors make negative assumptions on Luxembourg’s financial center and legal framework, without providing enough clear and credible evidence to support their analysis.
“The research methodology, for its part, on which it is based seems to be flawed, as it fails to reflect the major progress that has been achieved over the last 5 years in the field of transparency in Luxembourg.”
Indeed, the TJN report cited Jean-Claude Juncker, Luxembourg’s prime minister until 2013, 13 times, but only mentioned Xavier Bettel, PM for the past 6 years, twice.
However, TJN reckoned, “this standard is limited”.
Luxembourg’s finance ministry told Delano:
“Importantly, the analysis (and concomitant ranking) fails to take into account the fact that regulators and institutions of the Luxembourg financial centre are applying all the relevant EU and international standards. Luxembourg, being an active member of the OECD and a founding member of the EU, has implemented and put in practice all applicable OECD and EU rules on exchange of information in tax matters and all of the [Financial Action Task Force] standards on [anti-money laundering] and [countering the financing of terrorism], thus protecting and subscribing to the integrity of the global financial system.
“As a matter of fact, this has been confirmed by a large number of assessments conducted by international fora. The OECD Global Forum on Tax Transparency for example assessed Luxembourg’s standards on the exchange of information on request in tax matters and rated the country as ‘Largely Compliant’.”
Critics of earlier TJN reports have told Delano that the pressure group seems to equate a larger sized financial centre with larger amounts of secrecy. However, the outfit reckoned that greater size requires greater responsibility. In its methodology notes, TJN wrote:
“While large players may be slightly less secretive than other jurisdictions, their greater financial sector size offers far more opportunities for illicit financial flows to hide. Therefore, the larger a jurisdiction’s international financial sector becomes, the greater its responsibility to ensure appropriate regulation and transparency.”
According to the activist group’s report:
“Illicit cross-border financial flows have been estimated at $1trn-$1.6trn per year, dwarfing the $135bn or so in global foreign aid.”