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The European Commission has begun legal action against Luxembourg for its failure to apply money laundering and tax avoidance laws

Author: Syedur Rahman  22 May 2020

Posted in : Anti-Money Laundering .

Syedur Rahman of business crime solicitors Rahman Ravelli hopes the action prompts other states to make sure they meet their obligations.

The European Commission has announced that it has begun legal actions against Luxembourg regarding the implementation of laws to prevent money laundering and tax avoidance.

New EU measures to enhance scrutiny of financial assets controlled by politicians and company owners were approved in May 2018 as part of an attempt to combat money laundering. But, according to the Commission, Luxembourg is among the EU states that has not applied them fully.

In a separate legal action, the EU executive arm has requested that the Grand Duchy changes a law that allows companies to cut their tax burden beyond what is acceptable under EU rules, as it leads to reduced tax revenues in other EU states.

EU legal actions can lead to a member state being fined if it does not apply common legislation. Luxembourg, which has a population of just 600,000 people, hosts as much foreign direct investment (FDI) as the United States and more than China. A 2019 International Monetary Fund report estimated that FDI in the Grand Duchy is worth $4 trillion – a tenth of the global figure. A large part of that money is in shell companies set up by multinationals that, according to the IMF, have no real business activities in Luxembourg.

The Commission has said that Luxembourg’s rules allowed firms “unlimited deductibility of interest” from tax bills, which is not in accordance with EU rules. A similar legal action has been brought against Portugal.

While Luxembourg will not welcome the action being brought, it is important for the European Commission to tackle the countries failing to pull their weight when it comes to preventing money laundering and tax avoidance.

The boost in recent efforts to tackle these issues will not work unless there is full commitment from each EU member state. Hopefully, bringing litigation against states that are lax in enforcing EU measures will ensure that all other members ensure that they are meeting all their obligations.

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Syedur Rahman is known for his in-depth experience of serious fraud, white-collar crime and serious crime cases, as well as his expertise in worldwide asset tracing and recovery, international arbitration, civil recovery, cryptocurrency and high-stakes commercial disputes.

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