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Luxembourg: Where wealth meets secrecy

The week in corruption, 12 February 2021

Photo by Gwenael Piaser on Flickr

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Transparency Int'l

Thanks to the GameStop saga, investment funds are in our collective consciousness again. This week’s OpenLux investigations show it’s high time to scrutinise this industry for a whole set of other reasons too.

Why care about investment funds?

Investment funds – such as hedge funds and private equity funds – are types of companies that pool money from wealthy individuals. Fund managers use this money to purchase assets like stocks, bonds and real estate.

Remember The Big Short? Michael Burry, portrayed by Christian Bale, was a hedge fund manager who earned his investors extraordinary profits by betting against the US mortgage market, which fell during the 2008 financial crisis.

Imagine for a second that one of his investors had acquired their assets through corruption. On top of making a profit, such an investor’s motivation would be to also launder money acquired by illicit or illegal means.

Back in the real world, this is not a far-fetched scenario. The Federal Bureau of Investigation and the Financial Action Task Force are concerned that bad actors use investment funds to launder money.


With a population of just 620,000 people, Luxembourg is home to almost 17,000 investment funds that manage US$5.4 trillion in assets.

So what makes Luxembourg so attractive to foreign investors? It’s secrecy.

Perhaps that is why many rushed to delete their companies in 2020, soon after Luxembourg required companies to disclose the real individuals benefitting from them, also known as beneficial owners.

Luxembourg was one of the first countries to comply with the EU directive requiring member states to establish a public register, making its register public in autumn 2019.

French newspaper Le Monde has now scraped the register and collaborated with the Organized Crime and Corruption Reporting Project, Miami Herald, Süddeutsche Zeitung and other media organisations to analyse the data.

OpenLux shows that Luxembourg has 140,000 active companies – investment funds or otherwise – that hold at least US$6.5 trillion in assets.

Alongside powerful businesspeople and Hollywood celebrities, investigative journalists found the OpenLux database to contain names of individuals suspected in criminal activity. Some are even under investigation back home, where the authorities were unaware of their Luxembourg-based companies until now.

In addition, our investigation together with the Anti-Corruption Data Collective has revealed that 80 per cent of Luxembourg-based investment funds did not declare beneficial owners at all. Some also submitted conflicting information to the US authorities.

What now?

In response, the government of Luxembourg issued a defensive statement that failed to recognise the gaps in the register and the need for the authorities to verify corporate ownership data.

The government of Luxembourg and the European Commission would do well to take these findings seriously. With more scrutiny over other types of legal vehicles, such as shell companies, there is a looming risk that investment funds will become even more attractive to criminals.

Closing loopholes that allow investors to remain anonymous should be a priority. This includes changing the definition of a 'beneficial owner' both in the legislation and in practice. It does not make sense for the fund managers to report only certain shareholders or themselves, as OpenLux shows is the case right now.

Even more needs to be done in the US, where private investment funds not only do not need to disclose the names of their beneficial owners to the authorities, but fund managers are not subject to any anti-money laundering obligations.

Finally, unlike other major investigative exposés that have relied on document leaks, OpenLux was possible thanks to a public register of companies in Luxembourg, underscoring the importance of having all countries follow suit.

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