Part of Luxembourg’s effort to tackle allegations that it enables questionable business and tax practices through a lack of transparency will be significantly upgraded through new rules, technical capacities, increased staff and administrative penalties by 2023.
Under a reform project involving a draft Grand-Ducal regulation announced last week, the Luxembourg government body that makes available business registration information – including a ultimate beneficial owner registry - will be overhauled and have its staff doubled.
The body, known in English as the Luxembourg Business Registers (LBR), is in charge of the Trade and Company Register (RCS) and the Beneficial Owner Register (RBE). These contain all recorded data on business-related entities registered in this country. Luxembourg was among the first countries in the EU to set up a beneficial owner registry, based on a 2019 law.
According to the LBR, 20 million documents were accessed and downloaded during 2021. In 2021, 152,451 companies were registered there, 80 percent of which are businesses.
The Luxembourg government has presented these registries as evidence that they take the issue of transparency seriously. However, journalistic investigations carried out by the OpenLux consortium - coordinated by the Organized Crime & Corruption Reporting Project (OCCRP) which included Le Monde and the Süddeutsche Zeitung - have reported that there are substantial failings in the quality of this data.
Every necessary means
The Luxembourg government has defended its registers, but their shortfalls have been a liability for the country as it faces international evaluations. Luxembourg justice minister Sam Tanson has explained that the country must give itself every necessary means to ensure that the information Luxembourg records and makes available is as accurate and complete as possible.
In the first stage of the new procedures, the LBR will focus on prevention and on making sure the companies are fully informed about their obligation to register with the RCS. The second stage will involve sanctions, up to and including financial penalties.
Public posting
Gonner said the LBR will start off by posting information on its websites if individual companies’ files are non-compliant. Later, the LBR will publish public warnings on its internet pages making it clear that certain filing requirements are not being respected.
If after seven months the companies don’t react to the warnings, they can expect fines of up to 3,500 euro and the missing data will be pointed out in the public file. A refusal to pay the fine may lead to removal from the register and the case being forwarded to the public prosecutor’s office. At the extreme, non-compliant firms could be compulsorily liquidated.
These administrative sanctions have a lower burden of proof than the criminal proceedings that were previously the LBR’s only option and are easier to levy, though their low level has led some to suggest the fines will become “a cost of doing business.”
Checking for discrepancies
In parallel with these changes, the LBR is proposing to thoroughly check all of the data in its databases to filter out potential discrepancies.
As part of the Openlux disclosures, there were revelations about nearly 300 minor children owning Luxembourg companies, which become known by the hashtag #babylux. In certain cases, these included the children of oligarchs and criminals. It is legal for children to be the beneficiaries of companies. The justice ministry subsequently announced that it was planning an audit of underage owners.
The reform project will also invest in technology upgrades, including the digitalisation of forms and the creation of a secure platform allowing secure information exchanges between the LBR and its users.
Support for the portal
Banking industry association the ABBL has congratulated the government’s initiative to enable entities to make submissions through a secure electronic portal. They have called for the government to make the platform available to those subject to Luxembourg’s 2004 anti-money-laundering and counter-terrorist financing law.
Referring to a forthcoming tightening of EU AML requirements, the ABBL said that “the legislator seems to be anticipating future provisions in the proposed Sixth Anti-Money Laundering Directive on beneficial ownership registers”.