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15th Apr 2024

Luxembourg may loosen bank secrecy

  • Luxembourg's finance minister Luc Frieden says the country may introduce greater transparency in the banking sector (Photo: OECD Organisation for Economic Co-operation and Development)

Luxembourg may consider opening up its massive banking sector to greater scrutiny following concerns people are stashing away wealth from foreign tax inspectors.

Luxembourg’s finance minister Luc Frieden told Germany's Frankfurter Allgemeine Sonntagszeitung on Sunday (7 April) that the country wants “to strengthen cooperation with foreign tax authorities”.

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The 500,000-strong nation has a banking and financial sector around 20 times greater than its annual economic output.

The government says it hosts 141 banks from 26 countries and 3,840 investment funds sold in 70 other countries.

The investments fund assets are alone worth €2.5 trillion or about 55 times the country's gross domestic product, reports the Associated Press.

But some EU regulators and politicians are drawing comparisons with Cyprus and its oversized banking sector. The banking hub in Cyprus was eight times greater than its economic output before it collapsed in March.

The Mediterranean island nation is now undergoing a botched international deal to restructure its banks after it failed to come up with enough cash on its own to bail them out.

European Central Bank chief Mario Draghi last week described countries with oversized banking sectors as more vulnerable to financial shocks.

Others, including Germany, say foreign depositors use Luxembourg to avoid paying taxes.

Such statements have put Luxembourg on the defence.

"There are no parallels between Cyprus and Luxembourg, and we don't allow any parallels to be forced on us," said Prime Minister Jean-Claude Juncker last week.

Luxembourg says its banking and financial institutions are secure but has admitted that some transparency could help tax collectors track down tax dodgers.

"The international trend is going toward an automatic exchange of bank deposit information. We no longer strictly oppose that,” said Frieden.

Frieden said banks could possibly hand over interest payments accrued on accounts held by foreign depositors.

He noted that foreign finance entities and people are drawn to Luxembourg because of its high standards in the sector.

German Finance Minister Wolfgang Schaeuble welcomed Frieden’s comments.

“We are in close consultations with Luxembourg and discussed the issue a few weeks ago during a meeting of the German-speaking finance ministers in Berlin,” said Schaeuble, reports AFP.

Meanwhile, both France and Germany are set to put forward a plan to track down money-launderers and tax dodgers.

France’s minister of finance Pierre Moscovici over the weekend said Europe needs a system that will automatically exchange bank information.

He cited the US Foreign Account Tax Compliance Act (Fatca) as an example that could be adopted at the EU level.

The act requires over-sea deposit holders to report their savings to the US tax authorities and is designed to curb offshore tax evasion.

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