FATF favourable report on Luxembourg … but the country must not rest on its laurels.

Overall, Luxembourg has achieved a good understanding of the money laundering and terrorist financing risks it faces …

• Interviews with obliged entities in most sectors did not reveal any serious concerns about the implementation of their AML/CFT requirements, and they have appropriate mitigation measures in place that are commensurate to their risks. Implementation is stronger for Financial Institutions (FIs), specialised PFS (Professionals of the Financial Sector) (Professionals of the Financial Sector), “professional du secteur de l’Assurance” (PSAs) and Trust and Company Service providers (TCSPs) than for other (Designated non-financial business and professions (DNFBPs) and Virtual Asset Service Provider (VASPs).

• It was recognised that supervisors identify and maintain an understanding of ML/TF risks in their supervised sectors and individual professionals. The CSSF and CAA (Commissariat aux assurances) have a well-informed ML/TF risk understanding at a national, sectoral and firms’ specific level.

• The key strength of the Luxembourg system is the robust domestic cooperation and coordination. Luxembourg’s Financial Intelligence Unit produces and disseminates a wide range of high-quality financial intelligence products but needs to ensure that it can continue to do so given its limited human resources and increasingly complex role.

• International cooperation is vital for Luxembourg It factors into all areas of its AML/CFT framework. Over the review period, Luxembourg consistently provided constructive and decent quality mutual legal assistance and extradition, as confirmed by the positive feedback received from the FATF Global Network. The extent to which supervisory authorities engage in other forms of international cooperation varies. The CSSF and CAA are particularly effective in their engagement with foreign counterparts.

… but FATF urged the country to strengthen measures in certain areas.

• Lack of effective supervision

  • Risk-based supervision of the non-financial sectors such as trust and company services, real estate, and notaries, is in the initial stages and further work needs to be done. Indeed, it is noted that Designated Non-Financial Businesses and Professions (“DNFBP) defined supervisors, including the Administration de Enregistrement, des Domaines et de la TVA (AED), have varied levels of money laundering understanding and a less sophisticated Terrorism Financing Risk understanding, being in the preliminary stages of developing their methodology for a risk-based approach to supervision.
  • To improve the overall risk understanding, the AED should deepen their understanding of TF risks at national and sectoral levels. The AED should also deepen its understanding of ML/TF risks of the real estate and TCSP sectors by conducting more thorough and systematic risk assessments for each sector it supervises. In that regard, the AED should increase staffing to enhance risk-based supervision. 

• Poor understanding of Terrorism Financing (TF) and Targeted Financial Sanctions risks

  • Overall, the country should increase the awareness of Terrorist Financing Risks, considering how the country’s status as an international financial centre can be exploited for larger scale terrorist financing. To do so, Luxembourg should enhance guidance and training by the relevant authorities and supervisors to ensure that Investment Firms, FIs, DNFBPs and VASPs have a better understanding of their foreign TF risk, methods and exposure, the scope of their obligations regarding Targeted Financial sanctions, their obligations, and the implementation of risk-based mitigating measures.
  • In that regard, it is also specifically recommended that the FIU (Financial Intelligence Unit), supervisory authorities and Self-regulated Bodies SRBs (Single Resolution Board) should increase training activities to target underreporting from non-banking financial and non-financial sectors and reporting of Terrorism Financing. Such activities should focus on improving Suspicious Transaction Reports quantity and quality.
  • While the country generally implemented measures to remedy gaps in the targeted financial sanctions regime, several measures were only recently put into place. Therefore, further development should be considered to demonstrate whether they are effective.
  • Supervisory authorities should develop typologies and conduct outreach to further raise awareness and understanding of TF among obliged entities.

• Few investigations leading to prosecution or conviction.

  • The country should substantially strengthen the detection, investigation, and prosecution of parallel Money Laundering investigations related to all higher risk predicate offences to ensure better alignment of investigations and prosecutions considering Luxembourg’s risk profile.
  • To adequately prioritise and respond to the increasing number of investigations, including major and complex ML (Money Laundering) and TF investigations, Luxembourg should ensure that the authorities are appropriately resourced, ensuring that the increasing workload is covered.
  • Luxembourg should enhance the judiciary’s understanding of the seriousness of the ML offence and the need for commensurate sentencing through the review of the application of suspended sentences and the current level of sentencing applied in practice to ensure that penalties imposed are proportionate and dissuasive.
  • Luxembourg should implement measures to develop and keep reliable, reconciled, and centralised data and statistics on ML investigations, prosecutions, and convictions as well as the risk profiles of the cases. Such a development will help the country in assessing its own performance in ML prosecutions and convictions, including investigations of predicate offences with ML components.

• Capacity enhancement on the asset recovery side
  • Luxembourg needs to focus more on domestic asset recovery, by enhancing the capacity-relevant asset offices to better carry out their mandates on asset investigations, post-conviction asset investigations, asset management and international cooperation.