Luxembourg has joined the international move to impose sanctions against Russia for its ruthless invasion of Ukraine. It has followed steps taken by other European and global countries and organisations, including condemning Russia’s aggression, even sending some weaponry and equipment to Ukraine’s beleaguered defenders. But there’s one area where Luxembourg appears to be out of step: the high profile application of the sanctions to Russian oligarchic assets held in this country.
Just across the border, high level French politicians have spoken publicly about how they’re making life difficult for these oligarchs, Russian “made men” who have amassed great fortunes in usually dubious ways.
French Finance Minister Bruno Le Maire has said French authorities are working to identify and seize homes, luxury cars, yachts and other assets held by Russian oligarchs in France targeted by European Union sanctions, as well as Russians close to President Vladimir Putin who could be covered by new penalties. On Thursday, the authorities seized a yacht belonging to close Putin associate Igor Sechin, just as it was urgently casting off to flee customs officers.
Targeting holding companies
French banks and insurance companies, Le Maire explained, are combing through millions of accounts to identify Russians on the sanctions list, as well as members of their families and any holding companies they may have set up to hide their identities.
French Foreign Minister Jean-Yves Le Drian made his view very clear on French television on Monday. “The oligarchs need to watch out, because the list of oligarchs that have been targeted by the EU is very large,” he said. “So if I were an oligarch, in Russia or France, I’d be worried.”
France has long been a destination for ultra-wealthy Russians, many of whom have bought villas on the French Riviera and yachts to sail on the Mediterranean.
Ill-begotten gains
US president Joe Biden made similar statements during his State of the Union speech this week, warning Russian billionaires and the business elite that the United States and its allies will “find and seize their yachts, their luxury apartments, their private jets”. “We’re coming for your ill-begotten gains,” Biden said to applause from both sides of the aisle.
In Luxembourg political leaders have been loud, too, in their criticism of the actions of Vladimir Putin, led by prime minister Xavier Bettel. Luxembourg’s foreign minister Jean Asselborn, talking to 100.7 radio, called for the “physical elimination” of the Russian president. He later, in a parliamentary debate, rowed back on these comments, saying that it was a mistake, but taking the view that the war in Ukraine will only end if Putin is stopped. Recently appointed Finance Minister Yuriko Backes has called for an end to the war and stated her solidarity with Ukraine.
No experience? Or lack of appetite?
But so far, there have been no statements about how Luxembourg will treat Russian oligarchs and their assets in Luxembourg’s financial ecosystem.
Luxembourg opposition politician Sven Clement, of the Pirate Party, gave his view on this.
“I think we have no experience in being robust when it comes to sanctions. So it might be that or it might be that the appetite to look too closely is simply not there.”
While Clement said he believed that banks and insurance companies are searching for assets under the Know Your Client and Anti-Money-Laundering frameworks, he pointed out that “the government could communicate more clearly what they plan on doing additionally”.
Luxembourg, matching the approach of Germany, has maintained a largely relaxed attitude towards Russia since the end of the Cold War, and has developed extensive Russian connections, which may explain some reticence.
UHNWI strategy
Over the past decades Luxembourg banks have switched away from the once famous “Belgian dentist” approach to clients bringing their wealth across the border, to dealing with the international ultra-wealthy – including Middle Eastern and Russian wealth – in part on the basis that by doing so it reduced Luxembourg’s negative image when it comes to tax, since those “Ultra High Net Worth Individuals”, or UHNWI clients, frequently didn’t even have to pay tax.
Some Russian oligarchs have discovered Luxembourg as a place to hold their assets, including their private jets, some registered in Luxembourg. One of them is Russian-Cypriot oligarch Vitaly Malkin, who made a fortune as co-founder of a Russian bank, Rossiysky Kredit, in the 1990s during the Yeltsin era. He is still listed in Luxembourg’s business register as owner of Crystal Vision Holdings SA, a company that entered into voluntary liquidation at the end of 2019, and still owns a villa in the centre of Luxembourg. Malkin holds a Cypriot passport and now lives in Monaco, according to Forbes magazine.
Some Luxembourg-based firms this week have received more questions from Russian clients than usual, said one person with knowledge of offshore banking. The new international sanctions are not targeting all Russians using financial services in the West but focus on about 400 people, members of Putin’s inner circle and parliamentarians who approved his aggressive move into Ukraine. It is not yet clear whether those listed have links to Luxembourg.
Residency-by-investment
Luxembourg since 2017 has been offering so-called “Golden Visa” to investors from outside the EU. The Grand Duchy is reluctant to provide data on this programme. A 2018 report by Transparency International said Luxembourg is among 12 EU member countries that issue residency-by-investment, just like the Netherlands and France. Transparency International at the time was not able to determine how many such visas were issued in Luxembourg and how much revenue the programme has generated.
The press office of the Luxembourg foreign ministry this week did not respond to repeated emails and phone calls asking for comment on the Grand Duchy’s Golden Visa programme.
Malta, Greece stop Golden Visa programme
Malta, which together with Cyprus, Bulgaria and Austria offer citizenship-by-investment, this week stopped the sale of citizenship and passports to applicants from Russia and Belarus, saying it could not carry out proper due diligence in the current turmoil, Reuters has reported. Greece this week stopped issuing residency permits for similar reasons.
Responding to a request by InvestmentOfficer, the Luxembourg Central Bank on Thursday confirmed that at the end of 2021, residents of the Russian Federation had some 18 billion euros invested in Luxembourg funds, or 0.3% of the total assets under management in Luxembourg. Luxembourg banks had financial dealings with residents of the Russian Federation in the amount of 4.3 billion euro, amounting to 0.45 percent of total bank assets.
With reporting by Raymond Frenken
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