The amendments of the law of 12 November 2004 are initially driven by the FATF recommendation to reduce legal insecurity for professionals when applying the national regulation where divergent interpretations occur. It aims, amongst other changes, at enlarging the scope of professionals and products subject to the Law. It also brings additional measures and constraints for business relationships where enhanced due diligence is applied. It is worth noting that in certain areas the amended Law goes beyond requirements of AML5D by directly implementing certain FATF requirements that were not part of AML5D.
In addition, this Law enforces the means and powers of the national authorities strengthening their cooperation in the EU. The national authorities, i.e. the Commission de Surveillance du Secteur Financier, the Commissariat aux Assurances for Luxembourg and the Registration Duties, Estates and VAT Authority; and the Cellule de Renseignement Financier will be able to cooperate more efficiently in the European context.
The definition of the beneficial owner has been extended to explain how to determine the beneficial owner having the control “by any other means” with a reference to the Commercial Law (art. 1 (7) a) ii));
The specific time-frame within which a Politically Exposed Person (“PEP”) continues to be treated as a PEP with enhanced due diligence measures has been removed, i.e. the relation remains high risk until the particular risk is no longer present (art. 1 (9) and art. 3-2 (5));
Professionals active in virtual currencies or virtual assets are now in scope of the Law (art. 1 (20bis to 20 sexies));
The definition of the high-risk countries has been added (art. 1 (30));
Real Estate agents, including when they act as letting agents when involved in transactions higher than EUR 10.000 per month have been added to the scope (art. 2 (10)) as well;
Real Estate promoters, including when they are involved in buying or selling real estate (art. 2 (10bis)).
The CSSF supervises for AML/CTF compliance those entities that are supervised but also entities that are authorised or registered by the CSSF and the ones notified to the CSSF and not supervised (art 2-1 (1)).
In addition to identifying and assessing its AML/CTF risk exposure, the professional is also called to understand the risk (art. 2-2 (1));
The overall risk must be determined considering all relevant factors with a clear description of the mitigating measures, using the available national and supranational risk assessments in the analysis (art. 2-2 (2)).
The waterfall principle of the criteria included in the definition of the beneficial owner has been confirmed, if after exhausting all means, the ultimate beneficial owner is the SMO, this is defined as the “dirigeant principal” (art. 3 (2) b));
The identity of beneficial owners must be verified based on reliable and independent information or data (art. 3 (2) b));
For all clients who are legal persons, the person(s) who purport to act on behalf of the client must be identified and their identity verified (art. 3 (2) sub a) detailing the requirements of the a) and b) points of this article 3(2));
The purpose and the nature of the client relationship need not only to be assessed but also to be understood with the appropriate level of information on file (art. 3 (2) c));
The risk-based approach should include as a minimum the risks linked to the clients, countries, services & products and distribution. Furthermore, the determination of the overall risk could be a combination of multiple criteria to develop (art. 3 (2bis));
Further specifications have been given for life insurance products. The identity of beneficial owners of beneficiaries which are legal structures with higher risk must be verified (art. 3 (2ter));
For new business relationships, the evidence of the registration to the national register of beneficial owners has to be included in the Know Your Client files, if applicable (art. 3 (4));
Further specifications given for the use of electronic identification and verification means for customers and/or beneficial owners or proxies by using trusted services as listed in Regulation (EU) 910/2014 or other electronic means approved by competent national authorities (art. 3-3 (2));
Further specifications given for third parties that are used for reliance purposes, if those are part of the same group. It is required to ensure that those apply appropriate measures to mitigate risks in relation to high-risk countries (art. 3-3 (4) d)).
The definition of a transaction leading to systematic enhanced due diligence has been enlarged with 4 conditions (non-cumulative) (art. 3-2 (1)):
Unusual high amount of transaction,
Unusual scheme transaction and
No apparent economic object or no apparent lawful object transaction.
The expectations of requirements for clients and transactions with high risk countries are now clearly stated (art. 3-2 (2)):
Obtain additional information and more regularly update the identification data of the client and beneficial owner;
Obtain additional information on the expected nature of the relationship;
Obtain information on the source of funds and source of wealth for the client and the beneficial owner;
Obtain information on the reasons of the realised and expected transactions;
Obtain from a member at the appropriate hierarchical level the approval to accept or maintain the relationship;
Implement an enhanced monitoring of the business relationship by increasing the number and the frequency of the controls and setting the transaction schemes which lead to an enhanced review.
The first payment should also be performed via an account opened in the name of the client in a bank subject to equivalent rules.
Enhanced due diligence measures for correspondent banking relationships are now applicable irrespective of which country (i.e. EU member or not) the correspondent banking relationship is originating from (art. 3-2 (3)).
Credit institutions and financial institutions as well as professionals listed in Art. 2 (1) points 8,9,11,12 and 13 (Art. 5(5)) can share information if they are dealing with the same person and the same transaction. The word “client” was replaced by “person” (art. 5 (5)).
AML/CTF is high on the Luxembourg AML/CTF regulatory agenda and swift actions are recommended:
preliminary impact assessment on current AML/CTF risk assessment methodology, the definition of your risk appetite framework, your policy and procedures and business processes;
update your AML/CTF governance framework documents, plan for updates in systems and train staff;
assess the requirement and impact to refresh the documentation of your client and business relationship files. Plan appropriately to reach full compliance within a targeted time frame.
The PwC AML/CTF Services team is ready to support you with its industry specialised teams for banking, AWM (UCITS and Alternatives), insurance and virtual currency and asset providers.
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AML Services Partner, Asset and Wealth Management, PwC Luxembourg
Tel: +352 49 48 48 5687
Partner, Forensic Services and Financial Crime Leader, PwC Luxembourg
Tel: +352 49 48 48 4153
AML Services Partner, Bank and PFS, PwC Luxembourg
Tel: +352 49 48 48 2451