Luxembourg

LUXEMBOURG HAS LONG been known as a tax haven. One of the major hallmarks of tax havens is a strict policy of banking secrecy. In the Grand Duchy of Luxembourg it is illegal to disclose details of banking customers unless there is strong evidence of fraud. The Grand Duchy maintains that there is no contradiction between bank secrecy, which is intended to protect the individual's privacy, and effective crime fighting.

In January 2003, European Union (EU) finance ministers in Brussels, Belgium, agreed after 14 years of negotiation to terms that were meant to level the playing field on taxes and end tax havens. The Tax Package was formally agreed to six months later. The core of the package is the Savings Tax Directive which is intended to ensure that individuals do not escape taxes by investing in other EU countries. Terms were to have gone into effect the beginning of 2004 but have been delayed for one year. Twelve of the 15 EU countries (2003) are to share non-residents' savings accounts information.

The other three, Luxembourg, Austria, and Belgium, refused to waive their banking secrecy regulations and exchange customer information. Instead, those three agreed to levy a withholding tax on savings interest. The withholdings from each of these countries is to be distributed with 25 percent going to the banking country which collected it, and 75 percent to the country of the customer, but with no identification as to who the customer is. The three also agreed to join the information exchange only if Switzerland, which is not an EU member, drops its tradition of banking secrecy. Switzerland has agreed to join in withholding taxes on savings of EU residents.

Many scholars perceive financial centers that surround themselves with secrecy to be breeding grounds for crimes such as money laundering, as well as money sources for terrorists and other criminals. Luxembourg was among the first countries to adopt measures against money laundering in 1989. The Grand Duchy advises that it cooperates fully at the international level. A Luxembourg governmental web site says the country is an active member of FATF (Financial Action Task Force) which specializes in the fight against money laundering, and that the task force testified in its last evaluation that Luxembourg had completely respected all its recommendations.

Additionally, legislation in Luxembourg requires very strict conditions regarding access to the financial sector. This is especially true regarding the identity and worthiness of shareholders and directors of financial institutions. The law specifically demands that professionals in the financial sector know their customers. Anonymous accounts do not exist.

Luxembourg declares itself to be among the European countries which have “most completely and swiftly implemented the measures advocated by the American authorities in the fight against the financing of terrorism.”