Luxembourg's new law governing non-profit associations (ASBLs) intended to modernise the non-profit sector and prevent money laundering, but has drawn sharp criticism for creating heavy administrative burdens regardless of NGO size.

The reform, which officially came into full force on 23 September after a two-year transition period, was meant to modernise the framework for associations and bring the country in line with international anti-money-laundering standards. However, many see it as overly rigid and poorly adapted to the reality of small community groups.

According to the Ministry of Justice, only 37% of Luxembourg's 9,300 associations are currently compliant. The low rate comes as no surprise to those in the sector, who describe the process as a bureaucratic ordeal.

Long bureaucratic process

The law's journey has been a long one: the first draft dates back to 2009, when Luc Frieden was justice minister. After years of delay, it was finally adopted in June 2023 with overwhelming parliamentary support: 54 votes in favour, with only the Alternative Democratic Reform Party (ADR) and The Left (déi Lénk) voting against. The sudden acceleration was prompted by a report from the Financial Action Task Force (FATF) warning that Luxembourg risked landing on a grey list if it didn't tighten its oversight of associations.

Anne Hoffmann, managing director of the volunteering association Agence du Bénévolat, which operates under the Ministry of Family Affairs, acknowledged that action was necessary but believes the reform was rushed and too broad in scope.

She pointed out that the law treats all associations, from small local associations to multimillion-euro NGOs, under the same strict rules. In her view, that lack of selectivity has created major challenges for smaller organisations with limited budgets and no staff, which now face the same reporting and auditing obligations as large, professionalised structures.

According to Hoffmann, many small associations are struggling in particular with the requirements for obtaining public utility status, as they cannot afford to hire certified auditors. Critics argue this shows that stakeholders on the ground were not adequately consulted before the law was finalised.

Hoffmann explained that writing new articles of association has not been the main issue, as numerous model documents were made available online through the Agence du Bénévolat. The real difficulty, she noted, was registering updated articles of association with the Luxembourg Trade and Companies Register (RCS). She said the RCS's outdated IT system and strict formatting rules caused unnecessary frustration.

Even minor layout issues, such as the presence of a logo, a signature, or margins of the wrong width, led to rejections. She noted, however, that the RCS has since launched a new platform and now offers a free helpline, where staff provide friendly and efficient support.

Hoffmann stated that associations that remain non-compliant will soon receive official letters from the RCS reminding them to bring their articles of association in line with the law. She added that those who ignore these notices will be contacted again, and could eventually face dissolution procedures. Hoffmann also noted that some smaller village associations have already decided to shut down entirely, citing excessive administrative burdens.

The Agence du Bénévolat is currently compiling a list of problematic aspects of the new law and plans to submit recommendations to the Ministry of Family Affairs, hoping they will then be forwarded to the Ministry of Justice for review. Despite the criticism, Hoffmann highlighted at least one positive outcome of the reform: committee members can now attend meetings remotely, an option that reflects the way many associations operate today.