Caritas Luxembourg received millions in bank loans in midst of fraud

Loans totaling as much as the charity’s entire cash reserves were approved as millions were being embezzled from its accounts

Two banks approved tens of millions of euros in loans for a Catholic charity while it was in the midst of a multi-million euro fraud. 

The funds, totaling as much as the charity’s entire cash reserves, could account for as much as half the money believed to have been embezzled from its accounts earlier this year.

The headquarters of Caritas Luxembourg in Luxembourg City. Bdx via Wikimedia (CC BY-SA 4.0).

Caritas Luxembourg applied for and was granted emergency loans amounting to more than 30 million euros early this year, according to new reporting from the Luxembourg news website Reporter.lu.

Two loans totalling 23 million euros were approved by BGL BNP Paribas earlier this year, with the charity offering as security future state funding it was set to receive. Spuerkeess Bank separately agreed a loan of 10 million under the same terms, according to the Reporter.

The timing and manner in which the loans were approved raises new questions about in-house safeguards and processes at Caritas Luxembourg, which has been embroiled in a massive financial scandal since the revelation that more than 60 million euros had been embezzled from the organization since the beginning of the year.

Caritas Luxembourg likely lost around 61 million euros ($67 million) due to “fake president fraud,” according to the local public prosecutor’s office. The money was transferred from the charity to Spanish accounts in installments of less than 500,000 euros between February and July this year.

According to 2023 financial filings, the charity maintained reserves of only 30 million euros, meaning more than half of the embezzled funds are now believed to be borrowed money.

The transfers were reportedly listed as going to a Turkish-based charity, a legitimate partner of Caritas with an annual budget of just 2 million euros, but instead the funds were sent to two accounts in Spain in a flurry of transactions of less than 500,000 euros each between February and July of this year.

One person, locally reported to be Caritas’ chief financial officer, has been arrested and released on bail. 

Prosecutors are investigating the possibility the charity was hit by a so-called “fake president” scam in which an employee authorized to make payments to an organization is tricked into paying a false invoice or making an unauthorized money transfer.

“The duped employee may also be asked to disregard the entity’s ordinary authorization procedures, with the aim of enabling an allegedly unusual operation or secret mission, such as a tax audit or an imaginary merger or acquisition,” prosecutors have theorized.

The transfers reportedly required the electronic signatures of the financial director and two other members of the management team. The authorities have not confirmed the reports.

News of the emergency loans from two banks is likely to raise further questions about internal financial safeguards at the charity, since they involved banks from which the embezzled funds were sent.

According to local news reports, Caritas’ finance director applied for several multi-million euro loans at the same time as the embezzled funds were being transferred out. 

The Luxembourg Times reported this week that BGL BNP Paribas approved the 23 million in loans following applications for first 16 million and then a further 7 million euros, agreed by a contract offering future government funding — meant to total 1 million per year — as security.

However, the Times reported, the loan application was pushed through while the charity’s director was on vacation, and the contract was not properly countersigned by Caritas officials.

The “Caritas affair” has generated substantial media coverage in Luxembourg, a prosperous country with a large banking sector.

After Caritas Luxembourg filed a complaint July 16, the public prosecutor’s office requested the opening of a judicial investigation into suspected forgery, fraud, breach of trust, and money laundering, among other crimes.

Luxembourg’s Prime Minister Luc Frieden has insisted that the charity, which provides services for the homeless and refugees with state money, will not receive “a single euro” more of public money amid the scandal.

Frieden discussed the crisis Aug. 5 with the country’s deputy prime minister and foreign minister, education minister, family minister, finance minister, and health minister.

The government officials “discussed various issues and options relating to the continuation of the activities provided by Caritas on behalf of the state,” according to an Aug. 6 press release.

After forming a “crisis committee” to deal with the fallout of the affair, Caritas Luxembourg announced earlier this month that it will create two new structures. One will take over “all national activities,” while the other will oversee “all international cooperation activities.”

The scandal has raised doubts about whether the charity — one of the country’s largest charities and a member of the Caritas Internationalis network — can continue to pay the salaries of its almost 500 employees, who provide services to some of the poorest people in Luxembourg and around 10 other countries.