FATF AML Deficiency List
Offshore Finance Center
US Dept of State Money Laundering assessment
Luxembourg is not on the FATF List of Countries that have been identified as having strategic AML deficiencies
Compliance with FATF Recommendations
The last Mutual Evaluation Report relating to the implementation of anti-money laundering and counter-terrorist financing standards in Luxembourg was undertaken by the Financial Action Task Force (FATF) in 2010. According to that Evaluation, Luxembourg was deemed Compliant for 1 and Largely Compliant for 9 of the FATF 40 + 9 Recommendations. It was Partially Compliant or Non-Compliant for 5 of the 6 Core Recommendations.
US Department of State Money Laundering assessment (INCSR)
Luxembourg was deemed a Jurisdiction of Primary Concern by the US Department of State 2016 International Narcotics Control Strategy Report (INCSR) but has not been included since. Key Findings from the last report are as follows: -
Despite its standing as the second-smallest member of the EU, Luxembourg is one of the largest financial centers in the world. It also operates as an offshore financial center. Although there are a handful of domestic banks operating in the country, the majority of banks registered in Luxembourg are foreign subsidiaries of banks in Germany, Belgium, France, Italy, and Switzerland. While Luxembourg is not a major hub for illicit narcotics distribution, the size and sophistication of its financial sector create opportunities for money laundering, tax evasion, and other financial crimes.
Hundreds of well-known multinationals have secured deals in Luxembourg that allow them to legally slash their taxes in their home countries. In some cases the Luxembourg subsidiaries of multinationals, that on paper handle hundreds of millions of dollars in business, maintain only a token presence or a simple front address. While corporate tax avoidance is technically legal, in many jurisdictions tax evasion is illegal and a predicate offense for money laundering. The international standards include tax crimes as designated predicate crimes for money laundering.
The Luxembourg Freeport is a highly secure warehouse adjacent to Luxembourg Findel Airport. It offers a variety of tax advantages because the goods warehoused are technically in transit. The Freeport is often used to store art and other valuable items without having to pay customs or sales tax. The services and confidentiality make the Freeport similar to an offshore financial center. With the Law of 24 July 2015, the licensed operators of the Luxembourg Freeport are now subject to the same know-your-customer obligations as apply to all other covered entities under the Law of 12 November 2004. The Law of 24 July 2015 also provides that the licensed operators of the Luxembourg Freeport are supervised by the Luxembourg Administration for Indirect Taxation regarding their AML/CFT obligations.
There are no international sanctions currently in force against this country.
BRIBERY & CORRUPTION
Rating (100-Good / 0-Bad)
Transparency International Corruption Index 80
World Governance Indicator – Control of Corruption 98
Corruption does not constitute a problem for businesses in Luxembourg. The country has a strong legal framework to curb corruption, and anti-corruption laws are effectively enforced. Nonetheless, some corruption cases have revealed conflicts of interest between the private and public sectors, tainting transparency in the country. The legal framework criminalises bribery, facilitation payments, gifts and abuse of office, among other offences. Neither bribery nor facilitation payments are widespread in Luxembourg. For further information - GAN Integrity Business Anti-Corruption Portal
This small, stable, high-income economy has historically featured solid growth, low inflation, and low unemployment. The industrial sector, initially dominated by steel, has become increasingly diversified to include chemicals, machinery and equipment, rubber, automotive components, and other products. The financial sector, which accounts for about 36% of GDP, is the leading sector in the economy. The economy depends on foreign and cross-border workers for about 39% of its labour force.
Luxembourg experienced uneven economic growth in the aftermath of the global economic crisis that began in late 2008. Luxembourg's GDP contracted 3.6% in 2009, rebounded in 2010-12, fell again in 2013-14, but recovered in 2015. Unemployment has remained below the EU average despite having increased from a historically low rate of 4% in the 2000s to 7.1% in 2014.
The country continues to enjoy an extraordinarily high standard of living - GDP per capita ranks among the highest in the world and is the highest in the euro zone. Luxembourg has one of the highest current account surpluses as a share of GDP in the euro zone, and it maintains a healthy budgetary position and the lowest public debt level in the region.
Luxembourg has lost some of its advantage as a favourable tax location because of OECD and EU pressure. In 2015, the government’s compliance with EU requirements to implement automatic exchange of tax information on savings accounts - thus ending banking secrecy - has depressed banking activity and dampened GDP growth. Likewise, changes to the way EU members collect taxes from e-commerce has cut Luxembourg’s tax revenues, requiring the government to raise additional levies and to reduce some direct social benefits.
Agriculture - products:
grapes, barley, oats, potatoes, wheat, fruits; dairy and livestock products
banking and financial services, construction, real estate services, iron, metals, and steel, information technology, telecommunications, cargo transportation and logistics, chemicals, engineering, tires, glass, aluminium, tourism, biotechnology
Exports - commodities:
machinery and equipment, steel products, chemicals, rubber products, glass
Exports - partners:
Germany 22.1%, Belgium 16.7%, France 16.6%, UK 4.7%, Italy 4.6%, Netherlands 4% (2015)
Imports - commodities:
commercial aircraft, minerals, chemicals, metals, foodstuffs, luxury consumer goods
Imports - partners:
Belgium 27.6%, Germany 22.9%, China 11.7%, France 9.5%, US 8.4%, Netherlands 4.2%, Mexico 4.1% (2015)
Investment Climate - US State Department
Luxembourg, the only Grand Duchy in the world, is a landlocked country in northwestern Europe surrounded by Belgium, France, and Germany. While the second-smallest European Union (EU) Member State (after Malta) with a population of only 560,000, Luxembourg is the richest country in the EU on a Gross Domestic Product (GDP) per capita basis. Over the past decade, Luxembourg’s economy has evolved and flourished significantly, through sectorial diversification and greater openness in both regulations and foreign direct investment opportunities. Diversification of the economy away from the historically-dominant financial industry (including banking and investment fund services) – after the decline of steel and iron-ore which made the fortunes of the country over a century ago - began in earnest in 2004. Key “future” (innovative) industries were selected and supported as economic growth vectors: logistics; information and communications technology (ICT); health technologies (including biotechnology and biomedical research); clean or “green” energy technologies (solar, wind, and alternative energy sources); and more recently, space technologies (focusing on satellite development and asteroid mining) and FinTech, the digitization of financial services, combining Luxembourg’s niche expertise in both finance and technology.
Luxembourg remains a financial powerhouse thanks to the exponential growth of the investment fund sector through the launch and development of cross-border funds, Undertakings for Collective Investments in Transferable Securities (UCITS), in the 1990s. Luxembourg is the world’s second-largest investment fund asset domicile, after the United States, with nearly $4 trillion of assets in custody in financial institutions.
The above dynamic sectors have fueled and sustained Luxembourg’s strong GDP growth rate (over 3%, or double the EU average) and offer a diverse and stable platform and outsized growth potential for a wide variety of U.S. investments and trade within the EU and beyond.
Luxembourg is consistently ranked as one of the world’s most open and transparent economies and has no restrictions on foreign-ownership.
Luxembourg is consistently ranked as one of the world’s most competitive and least-corrupt economies.
Luxembourg has successfully combatted money-laundering and terrorist-financing, as well as tax evasion, through major fiscal reforms over the past decade. These reforms, culminating in 2015 with the elimination of banking secrecy (for non-resident account holders), the implementation of the bilateral Financial Account Tax Compliance Act (FATCA) agreement to comply with that U.S. law, and the automatic exchange of financial account information, have been lauded by the Organization for Economic Cooperation and Development (OECD) and have served to counter Luxembourg’s historic “tax haven” image.
The Government of Luxembourg (GoL) is actively seeking logistics companies to expand the new logistics hub at Findel Airport, integrated into the Luxair Cargo Center, the leading air cargo hub in Europe, and connected via railway and trucking routes to the new multimodal logistics platform center in Bettembourg, near the French border. Luxembourg is home to Europe’s leading all-cargo airline, Cargolux, and is currently expanding its air passenger terminal to accommodate more flights and the accompanying increase in usage (over two and a half million passengers per year, close to the current capacity of three million). Luxembourg is also prospecting for ICT companies to use the existing high-security, state-of-the-art datacenters, affording high-speed internet connectivity to major international data hubs (Paris, Frankfurt, Amsterdam). U.S. biomedical research and biotechnology firms are already actively invested and working in the growing BioBank, co-founded with U.S. institutes of biomedical research in Phoenix, AZ and Seattle, WA in 2008. Luxembourg has positioned itself as “the gateway to Europe” to establish European company headquarter operations by virtue of its central European location and advanced road, railway, and air connectivity.
However, as Luxembourg continues to modernize its regulatory framework – reducing bureaucracy and streamlining processes for work visas and new company registrations – issues of the size of the domestic market, government centralization, and labor market rigidities.
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