The real estate market has long provided a way for individuals to secretly launder or invest stolen money and other illicitly gained funds.
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Anonymity and the ability to rapidly move large sums across borders make shell companies one of the vehicles of choice for the corrupt and criminal. There are, however, other legal entities that offer similar “benefits” but face considerably less scrutiny from regulators. These include, first and foremost, private investment funds such as hedge, private equity, venture capital and other types of pooled funds.
A new investigation by Transparency International and the Anti-Corruption Data Collective has found that investment funds in Luxembourg largely operate in an opaque manner. With more than 4.5 trillion euros in assets under management, Luxembourg is home to the largest number of investment funds in Europe and the second largest in the world after the United States. Yet, despite recent anti-money laundering reforms, we know very little about who the real end-investors are and whether the funds they invest are of legitimate sources.
Using Open Lux, a database created by Le Monde by scraping the data of the newly released Luxembourg Register of Beneficial Owner (RBO) from November 2019 to December 2020, we found that approximately 80 per cent of private investment funds did not declare their beneficial owners. In most cases, this is likely because they could not identify any beneficial owner following the definition provided in Luxembourg’s legislation.
We then compared data from the RBO registry with the reports that a smaller number of Luxembourg funds had to submit with the US government in order to do business there. Our analysis reveals that over 15 per cent of the funds from our sample submitted conflicting information to the US and Luxembourg authorities. Taken together, a significant number of Luxembourg-based funds appear to have failed to identify their owners as required by law
These findings highlight significant shortcomings in both how beneficial ownership is defined as well as the verification mechanisms in place to ensure the accuracy of the information recorded in the register.