“All the big US multinationals in one way or another operate in Luxembourg”

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By far the biggest independent law firm in Luxembourg with 41 partners and 500 staff, Arendt & Medernach has worked with a wealth of investors in the Grand Duchy. Paul Mousel, a founding partner at the firm, believes that US investment will continue to arrive in the investment fund and fintech space.

Can you give us an overview of the legal industry supporting the financial sector in Luxembourg?
The legal industry in Luxembourg has grown alongside with the financial sector. If the financial sector hadn’t developed so quickly, the local law firms wouldn’t have grown at that speed either, and the foreign law firms would have moved in to Luxembourg. There are only two law firms who survived the series of M&As that took place in Luxembourg: Arendt & Medernach, and Elvinger, Hoss & Prussen. We are the only two main independent law firms remaining in Luxembourg. The financial sector is essentially covered by ourselves and Elvinger, Hoss & Prussen. Very early in the 1980’s, international firms started to come to Luxembourg and absorb local law firms. In the early 2000’s a second tier of English law firms came to Luxembourg, as well as the first law firm from the US – yet in a very modest way, with only two or three partners.

What are your main fields of expertise and to what do you attribute your success?
We qualify ourselves as a comprehensive advisory firm serving institutional clients. We don’t do family law, successions and criminal defense – with the exception of white-collar criminal cases. Our clients mainly are institutions. I believe our success is due first to the specialization of our firm. We offer comprehensives services, but our business units are also highly specialized in their respective areas. Secondly, our success is due to the close relationship with have both with the Government and the regulator. Our firm has always kept very good relations with the Government and Government’s authorities, so that if a bank has a problem with a financial regulator, we can directly call and arrange a meeting. Thirdly, our success is due to our internationalization strategy, which drives our mission to open offices abroad.

What have been the biggest cooperation areas between you and the US?
The US is for us the most important foreign market, because all the big US multinationals in one way or another operate in Luxembourg – including Google, Amazon, Paypal, Starbucks and McDonald’s. Some firms like Goodyear have industrial activity in Luxembourg. Likewise there are many US banks here, such as J.P. Morgan and BNY Mellon. There continues to be big American interest in Luxembourg, especially following Brexit.

What kind of synergies could be created between American firms and Luxembourg?
In the beginning it was American manufacturers who came to Luxembourg like Goodyear or Guardian. Second, the banks came, and in the 1980’s all the big American banks were in Luxembourg, but that was before the euro currency was launched. That activity has stopped but then, and in a third round, big multinationals companies from the US came to Luxembourg to structure investment vehicles.

How do you perceive the appetite of US asset managers coming to Luxembourg?
For the moment the model is that Luxembourg plays the role of a back office. Look at the investment fund and alternative fund industry: the head offices are in Luxembourg, the administration is in Luxembourg, the incorporation is in Luxembourg, but the assets are managed outside of Luxembourg, sometimes in Paris or London, but most of the time in the US. We have been living perfectly fine with that model for the past 40 years; it has worked very well and still works very well.

How is Luxembourg navigating through the new EU regulations?
There is clearly a shift of paradigm. Up until 20 years ago, banking secrecy was used mostly for tax reasons. Many people came to us complaining they were paying too many taxes and asking us for solutions, and we accommodated them. Today that has changed. The mentality today is that you have to pay your taxes. We have changed our rules and banking secrecy accordingly; however, that doesn’t mean we have abolished it. From a civil law and criminal law point of view, banking secrecy is completely maintained because we believe it is part to the right of privacy. Nobody needs to know where my bank accounts are, and let alone what is on the accounts. What we have changed is, if the bank account is used for illegitimate activities – such as hiding money from the taxman, financing terrorism, or laundering money, we take the banking secrecy away and authorize not only Luxembourg authorities, but also foreign authorities to have a look at what is on the bank account. Therefore, we have established more transparency and more citizenship. Everybody has to pay taxes, and so do multinationals; we align with that, but banking secrecy certainly hasn’t disappeared in Luxembourg.

How do you see the impact of Brexit in Luxembourg?
For Europhiles, Brexit is a catastrophe, and for Euro-skeptics, it the proof that the EU cannot work. From a law firm perspective, there are some good consequences; for example, we have all these insurance companies who have already announced they are coming to Luxembourg. The banks will follow, they will take the decision in spring next year because they want to have visibility into what will happen, but more will come. However, my opinion is that if we have a hard Brexit, to punish the British, it will make access to the EU market much more difficult to third countries, and Europe will be shooting itself in the foot. That’s where I see the biggest danger in Brexit.