02/07/20

LUXEMBOURG: Jurisdiction tightens screws on trusts with EU rules.

As published on luxtimes.lu, Wednesday 1 July, 2020.

Parliament decided to set up a list of who gets to benefit from trusts in a unanimous vote on Wednesday, putting in place a tool to shine more light on the financial industry required under European Union rules.

The EU in 2018 adopted stricter rules for trusts - fiduciary arrangements whose assets are nominally owned by a trustee on behalf of beneficial owners - as part of an action plan against terrorist financing.

"The aim is to apply the strictest rules and strengthen the reputation of our financial centre," said André Bauler of the Democratic Party (DP) who presented the law in parliament on Wednesday.

The EU's fifth anti-money laundering directive (AMLD5) follows a set of journalistic revelations of the Panama Papers that uncovered a vast network of offshore tax avoidance arrangements.

Trusts will now have to come clear on all the parties involved in these particular structures, including the person who set up the trust, the trustee, and the beneficiaries the assets really belong too. Failing to comply with the new law could lead to fines of up to €1.25 million.

A global anti-money laundering watchdog, the Financial Action Task Force (FATF), criticised the lack of rigour in identifying who was behind trusts in its 2014 review of Luxembourg's anti-money laundering rules.

The Grand Duchy is trying to avoid another wrap from FATF at all cost now that next review is due to take place, even if the process has been delayed because of the coronavirus pandemic.

Luxembourg requires trustees to obtain information on beneficial owners since 2018, and the register will complete the translation of AMLD5 into national law, a spokesman for the finance ministry said.

Luxembourg is late in updating its laws, as the directive should have been fully in place by 10 January this year, and the register for trusts was supposed to be up and running by 10 March 2020.

But Luxembourg is not the only country behind schedule, with fewer than half of the bloc's nations having fully adopted the directive, the spokesman said.

Unlike the beneficial owners' register established for businesses, the register of trusts will not be made public and can only be accessed after filing a request with the Administration de l'enregistrement, des domaines et de la TVA (AED), one of Luxembourg's three tax authorities.

The Chamber of Commerce – a business lobby group – had criticised that the law did not include an estimate of losses the new rules could mean for the financial centre as trusts moved to other jurisdictions.

Trusts can apply for exemptions if the beneficiaries are at risk of fraud, kidnapping, blackmail, extortion, harassment, violence or intimidation, or if the beneficial owner is a minor or legally incapable.

The country has until March next year to connect the register to a central platform for exchange of information with other EU countries.