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  • Writer's pictureEtude Maître Laurent Ries

Police lead crackdown on letterbox businesses with searches

Updated: Aug 4, 2022

LUXEMBOURG TIMES by Yannick LAMBERT 28.07.2022

Firms warned of liquidation if they cannot be located at designated address, as Luxembourg battles reputation as safe haven for dirty money

Luxembourg's police said the searches will continue throughout the summer

Luxembourg police are leading a summer crackdown on letterbox companies with searches of premises throughout the country to check compliance with the country's business registry, amid efforts to tackle the Grand Duchy's global reputation as a soft touch for those wishing to hide illicit funds.

Up to 200 police officers, accompanied by representatives of the Public Prosecutor's Office in Diekirch and Luxembourg, have been deployed to carry out searches of company addresses, police said in an update posted earlier this month.

As part of the checks, more than 100 warnings have so far been issued to companies which failed to register with the Luxembourg Business Register (RBE) within the required deadline.

The checks, first announced on July 1, will "continue throughout the summer", police said. Breaches of the RBE law, the register which obliges companies to list details of beneficial owners, can lead to fines of between €1,250 to €1,250,000. Firms which cannot be located at their designated address could face proceedings leading to their liquidation, police said.

Several omissions relating to companies' annual accounts have also been uncovered during the searches and reported to the public prosecutor's office, the police said in its latest update on July 15.

European anti-money laundering requirements led Luxembourg to establish a so-called ultimate beneficial owners (UBO) register in 2019, which discloses anyone who holds at least 25% in a company in a publicly searchable online database.

Another proposed EU directive, which is yet to be adopted by the bloc, could have a major impact on Luxembourg's set-up. The directive, called Unshell, plans to strip holding companies of their tax advantages unless they can prove they are more than empty shells - entities with little or no staff and carrying out no real business activities - that were set up for tax purposes.

The prosecutor's office did not immediately respond to a request for the most up-to-date list of fines and referrals.

Luxembourg has long struggled to overcome a reputation for financial secrecy, particularly after the 2014 Luxleaks disclosures showed global corporate giants had received sweetheart tax deals from former Prime Minister Jean-Claude Juncker's government.

Another journalistic investigation, OpenLux, published in February 2021 by more than a dozen media outlets across the globe, detailed how Russian mafia bosses, people close to the Venezuelan regime and individuals with ties to organised crime in Italy were among those hiding money in the Grand Duchy.

At the time of the OpenLux exposé, Luxembourg said it had handed out fines to more than 600 businesses for failing to provide details to the country’s business register.

A separate report earlier this year also showed that hundreds of children, including a one-year-old baby in Mongolia, are listed as beneficial owners or shareholders of companies based in Luxembourg, raising questions over loopholes in the country’s business registry.

The database does not allow a search by the name of potential owners, forcing anyone checking if a celebrity or foreign government official has a share of a corporate entity to scour more than 100,000 listed entities.

Sanctions against Russian businessmen following the country's invasion of Ukraine revealed many who are beneficial owners of companies in Luxembourg, such as Vladimir Yevtushenkov, Gennady Timchenko and Mikhail Fridman.

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