PANA Inquiry Committee met in Tax Haven Luxembourg

The PANA Inquiry Committee met on March 2 and 3 in Luxembourg with Finance Minister Pierre Gramegna, Justice Minister Felix Braz; the Finance Committee in Luxembourg’s Chamber of Deputies; Fabien Grazier, from Le Quotidien Luxembourg; Anthony Simic, Managing Director Head of Private Banking in HSBC Luxembourg; Claude Marx, and Claude Simon from the Financial Sector Surveillance Commission (CSSF); François Prum, head of Luxembourgish Bar; and Wim Piot, from PwC Luxembourg.

GUE/NGL had requested that the PANA Committee invited Marius Kohl, former government official signing the illegal secret tax rulings leaked in 2014. After not receiving a reply from Marius Kohl, GUE/NGL requested PANA Secretariat to invite Jean-Claude Fautsch, adjoin official working with Marius Kohl; and Jean-Claude Limpach, new Director de Bureau 6 -replacing Marius Kohl-. None of them replied to the invitation sent by the PANA Secretariat.

Mr Carlos Zeyen, who had been President of 15 offshore companies and vice-President of Eurojust, refused to meet with the PANA delegation.

When asked about the absence of these persons Gramegna replied that it was a free country.

  • Why did the European Committee go in a Mission to Luxembourg?

This was an actual question made by Pierre Gramegna himself to the PANA Inquiry Committee in March 2, 2017.

Luxembourg plays a structural role in the European Union attracting overseas capital, in the same way as Delaware, Nevada and even Panama for the US; and overseas territories for the UK; but even more because of its symbolic role in the construction of the European Union.

However, the same policies designed to attract financial and non-financial assets from non-European countries, attract European capital as well, and the legislation in Luxembourg serves the purpose of providing space for tax arbitration, enabling tax evasion and tax avoidance; and providing confidentiality to beneficial owners favouring money laundering; increasing the development gap among European countries.

The Panama Papers disclosed information on a more than 14.000 enablers and promoters, being the majority of the European located in the UK, Luxembourg and Cyprus. The figures are a bit confusing, as they mix trusts, which are structural parts of economic groups, or entities constituted for the purpose of hiding and protecting the assets of very wealthy individuals, with banks, legal advisors and tax advisors; which are the actual promoters and enablers of such elusive structures.

Of all these cases exposed, the Luxembourgish prosecutor informed the PANA Committee that the investigative judge is handling 5 cases. In addition, Luxembourg´s judicial authorities have received 5 mutual legal assistance requests in relation to the Panama Papers. 2 have already been executed, 2 others are currently being executed and the last one has been withdrawn by the requesting authority.

However, in the Panama Papers revelations featuring Luxembourg things seem to be quite clear: of the 10 main banks requesting offshore companies for their clients, 4 were from Luxembourg:

  • Experta Corporate & Trust Services
  • Banque J. Safra Sarasin – Luxembourg SA
  • Société Générale Bank & Trust Luxembourg
  • Landsbanki Luxembourg S.A.

According to the information revealed in the PANA hearing held in September 27, 2016, an employee of Mossack Fonseca in Luxembourg created 115 companies for final clients or banks in one week. And Luxembourg International Consulting SA (Interconsult), a legal advisor located in Luxembourg, is connected to 5 offshore companies created by Mossack Fonseca (one of them that of Gunnlaugsson, the former Prime Minister of Iceland who had to quit after appearing in the Panama Papers).

Oxfam has recently ranked Luxembourg in the 7th place among Tax Havens due to its tax incentives, 0% witholding tax, and evidence of high scale profit shifting.

TJN’s 2015 Financial Secrecy Index (FSI) ranked Luxembourg in a 6th place due to its financial secrecy (moderate) and the very big weight it had in global offshore financial markets.

Luxembourg promotes the registry of holding companies of corporate transnationals and facilitates the creation of structures – taking advantage of tax rulings- that help companies evade and avoid taxes. The only purpose of such holdings is to hold assets located in other parts of the world (FSI). These secret tax rulings approved by the government, enabling companies to reduce their tax obligations throughout the world, were brought to light by the LuxLeaks, in 2014.

The legal basis for tax rulings from 1989 to 2015 clearly stated that such rulings could not be used for tax optimization. The Krecke report, kept in the darkness for 18 years and revealed by Juncker during the European’s Parliament TAXE Committee because of GUE/NGL’s pressure says, already in 1997, that the government should monitor tax rulings more carefully.

In the European’s Parliament TAXE Committee Mission to Luxembourg, Minister Gramegna commented that Luxembourg had exchanged information with Germany and other countries, and answered the same thing in a letter replying PANA Committee Chair, Werner Langen, clarifying that Luxembourg has been sharing information on tax rulings since 2016. GUE/NGL MEP Fabio de Masi made several Parliamentary requests of information on this, but could not find any evidence that such tax rulings had been exchanged. During the PANA Inquiery Committee’s Mission to Luxembourg, GUE/NGL’s MEP Miguel Urban Crespo (Podemos) asked Minister Gramegna about proof of such spontaneous exchanges of information. Mme Pascale Tossing (Director of the Administration of Direct Taxation), replied that she did not think this was the place for such question to be asked (it makes you wonder, when did Mme Pascale Tossing think was the place for it?), but that in any case rulings had been exchanged. Given that this is not the first time such question is replied positively without any evidence to confirm it, GUE/NGL has requested such proofs in written.

Financial Action Task Force (FATF) declared Luxembourg non-compliant in 2013. Though, in honour to the truth, FSI also clarified that a lot of improvement had been achieved after Juncker finished his mandate as Prime Minister. However, Luxembourg is still by no doubt an offshore -even when located onshore- financial service provider and has recently diversified to host a Freeport located only meters away from its airport.

Riondet, Europol Business manager – Head of the Financial intelligence Group (EUROPOL, including FIU.net), informed to the PANA Inquiry Committee in November 2016 that reporting figures of Suspicious Transaction Reports (STRs) across the EU do not always appear to be commensurate with the activities of the regulated sector in particular jurisdictions: notably Cyprus and Malta and Luxembourg receive very few reports given the significance of these jurisdictions in offshore financial services and the online gambling industry. Furthermore, the vast majority of reports filed with Luxembourg stem from a single electronic bank/payment service provider, in spite of the fact that other sectors, such as private banking and offshore financial services, offer significant scope for money laundering activities and tax crimes.

Moreover, 38% of all STRs filed with FIUs are triggered by the use of cash; however Luxembourg, where cash issuance is almost double its GDP, is one FIU which does not report the use of cash as a common reason for reporting.

Even when Luxembourg’s Ministers repeatedly said during the meeting that they had the best organizations in the world to control the Freeport, the reality is that its’ mere existence is a problem, as it purpose its’ to grant secrecy for high-worth goods that are extremely difficult -art, among them- to value, and because they are in a warehouse adjacent to the Airport, the goods are technically in transit.

During the Mission, Minister Gramegna and Minister Braz made an extensive presentation on all the reforms that Luxembourg had made in order to better follow FATF’s recommendations, implement OECD recommendations, and transplant EU directives on anti-money laundering and anti-tax avoidance into local legislation. The changes detailed were so many, and the amount of times the Ministers affirmed that Luxembourg had now state-of-the art legislation against money laundering and tax evasion, that it seemed the PANA Inquiry Committee had mistaken this country for another one.

In this context, GUE/NGL MEP Miguel Urban Crespo (Podemos) asked Ministers Gramegna and Braz if they could provide us a definition of what a tax haven was, given the fact that in spite of the enormous evidence of Luxembourg being a tax haven, it’s government still denies it. Of course the Ministers did not answer the question, only laughed about the contradiction between their speech and the general understanding of the problem.

  • The role of enablers and promoters in Luxembourg

The evidence on the role of enablers and promoters of tax avoidance, tax evasion and money laundering from Luxembourg appearing in the Panama Papers is quite vast.

The German Wuppertal Finance Office for Tax Crime and Tax Investigations bought information leaked from Mossack Fonseca showing that the Luxembourg subsidiary of German Commerzbank had helped clients on a routine and systematic basis to set up shell companies for its German clients with the help of Mossack Fonseca. So, Commerzbank established shell companies (91 shell companies, most of which have already been disolved) for its EU clients in Panama. As offshore companies are not EU citizens, the EU savings Tax Directive did not apply and their revenue was exempted from tax. Apparently, this information would be less up-to-date than the one revealed on the Panama Papers (Obermayer and Obermaier, 2016: p.39-40).

According to the information provided to the PANA Inquiry Committee by Naulin, Head of the special investigation unit “EOKS” (Investigation Group Organised Crime – Tax Fraud) of the North Rhine-Westphalia tax authorities who analyse leaked data from which had some similarities to that leaked in the Panama papers:

  • The offshore companies found are all, economically speaking, inactive. They were only used to register accounts with banks. These accounts were used to store assets, wealth and money. In most of these cases (above 90%) it concerns tax evasion. In 95% of the cases, the accounts of the offshore companies were registered with banks in Luxembourg, mostly subsidiaries of German banks.

Jan Strozyk declared in the PANA hearing held in September 27, 2016, that “of the ten biggest intermediary banks, i.e. the ten most important intermediary banks, four were from Luxembourg, three from the Channel Islands, two from Switzerland and one from Monaco.”

Experta was a Luxembourg company that played the role of enabler/ promoter between the final customers on the one hand and Mossack Fonseca on the other. Experta turned out to be the number one offshore company setting up offshores with over 1,600 companies.

There are more or less 400 offshore companies just from the Luxembourg Nordea office. These are offshore companies in Panama and some in British Virgin Islands. Among other things, Nordea has asked Mossack Fonseca to backdate a power of attorney document by two years, something which probes to be possible for Mossack Fonseca.

Deutsche Bank figures in the books of Mossack Fonseca with a total of eleven different intermediary profiles, for example: Deutsche Bank Switzerland, Duestche Bank Luxembourg, and Deutsche Bank AG, branches in Jersey, Guernsey, Mauritius, Beijing and Shangai, among others. (Obermayer and Obermaier, 2016: 246-249)

Berenberg Bank arranged with Mossack Fonseca the creation of offshore companies for its clients from its offices in Luxembourg and Switzerland. An important number of the accounts officially designated as belonging to different companies are administered by Mossack Fonseca. (Obermaier y Obermayer, 2016)

Brooke Harrington mentioned in the PANA hearing held in January 24, 2017 that the financial centres traditionally used for wealth management are Switzerland, Luxembourg and the United Kingdom. Although there has been a gradual movement to Singapore in recent years.

According to the information provided by Philippe de Koster, President of the CTIF-CFI, Belgian Financial Intelligence Unit (FIU), to the PANA Inquiry Committee, one of the schemes identified is the placement of illegal / illicit funds in an offshore structure for some years, then investing the money in a life insurance product in Luxembourg/Switzerland for 8 years and finally reinvesting the funds in Belgian real estate. In these sorts of cases, it is very difficult to get to the real origin of the funds or to prove tax fraud as most of the time the tax fraud itself is statute-barred.

Luxembourg´s tax administration sent around 100 requests for information to intermediaries about clients appearing in the Panama Papers, in order to identify beneficial owners of offshore structures in the Panama Papers, focusing on tax issue (scope). The tax administration and the Luxembourg Bar are currently discussing the interpretation of the lawyer-client privilege, as the Luxembourg Bar observes defends the confidentiality of the beneficial owners using the argument of the lawyer-client privilege . Some lawyers have responded to the requests but the procedure is still ongoing.

Journalist Fabien Grasser mentioned to the PANA Inquiry Committee during the Mission to Luxembourg that for journalists it is not easy to deal with Luxembourg´s government, especially when entering into contact with the tax administration, due to lack of transparency. He said that in Luxembourg there are also people quite happy that the country is not more transparent.

When asked by MEP Miguel Urban Crespo about the role of PwC exposed by Raphael Halet, who had mentioned that PwC wrote the response letter on rulings for the government, he mentioned that PwC replied that this was a service provided for their clients. However, the government denied it then and so does now. Therefore, the tax administration seems to be less transparent than the companies.

From all the information on good practices presented during the mission, it is remarkable that it was Fabien Grasser the only one pointing out that Luxembourg is one of the 3 European countries not having a law on access to information (only a circular).