In a recent report, the Financial Action Task Force (FATF) has acknowledged Luxembourg's "solid anti-money laundering and counter-terrorist financing framework." However, the international watchdog has called for further enhancements in several critical areas, particularly in robust investigations and prosecutions.
According to the FATF Mutual Evaluation report, Luxembourg demonstrates a "strong understanding" of its money laundering risks and a "reasonable understanding" of terrorist financing risks. While progress has been made in recent years, there is still room for improvement.
The FATF observed that most authorities focus their "risk understanding" on smaller-scale terrorist financing, whereas Luxembourg's emphasis is on larger-scale terrorist financing. However, it noted that findings related to larger-scale terrorist financing had not been adequately communicated to relevant stakeholders.
The report praised Luxembourg's cooperation on anti-money laundering (AML) and counter-terrorist financing (CTF) issues, both at the policy and operational levels. Nevertheless, it expressed concern about the effectiveness of the Financial Intelligence Unit (FIU) in performing its functions in the future.
Despite Luxembourg's commitment to investigating and prosecuting money laundering, the report pointed out resource limitations in investigative and judicial authorities. The FATF recommended substantial strengthening of the detection, investigation, and prosecution of money laundering cases related to higher-risk offenses.
Luxembourg has been effective in freezing and seizing criminal assets and the proceeds of crime, but management of frozen property has raised issues. However, a dedicated asset management body has been established to address these concerns.
The report highlighted the need for improved risk-based supervision in key sectors such as real estate, notaries, and professionals providing trust and company services. Additionally, it called for a "risk-based approach" to monitoring the non-profit sector to enhance understanding of terrorist financing risks.
Gaps were identified in Luxembourg's Terrorist Financing Suppression (TFS) regime, but measures have been taken to address these deficiencies. However, further development of these functions is required.
The report also noted a lack of state recognition regarding the importance of taking AML precautions more seriously. It cited the Ministry of Foreign Affairs' failure to apply a risk-based approach in monitoring "at-risk" non-governmental organizations (NGOs) as a concern.
Real estate agents, along with precious metal and stone dealers, were found to have a weak understanding of money laundering and terrorist financing risks and obligations. The report emphasized the need for enhanced understanding of terrorist financing risk across various sectors.
Many Designated Non-Financial Businesses and Professions (DNFBPs) submitted a low number of suspicious transactions, with some reports only emerging after media exposure. This discrepancy did not align with Luxembourg's risk profile as an international financial center.
While Luxembourg cooperated with international authorities, the report highlighted that processes could be cumbersome, particularly in the execution of Mutual Legal Assistance (MLA) requests. Approximately 30 percent of incoming MLA requests, requiring coercive measures, exceeded a seven-month timeframe.
Sylvia Ivanova, a financial crime compliance expert in Luxembourg, welcomed the report, emphasizing the country's commitment to addressing recommendations and strengthening its AML/CTF regime. She praised the government, regulatory bodies, and financial institutions for collaborating on necessary reforms to uphold financial integrity.
The FATF recognized Luxembourg's solid legal framework to combat money laundering and terrorist financing, particularly in areas like transparency of legal entities, financial intelligence utilization, and international cooperation. However, it emphasized the need for improvements in supervision within non-financial sectors, money laundering prosecutions, and asset recovery.
Despite being geographically small, Luxembourg's significant international financial services sector makes it a crucial player in the global fight against money laundering and terrorist financing. The country's commitment to cooperation, coordination, and growth in its financial intelligence unit has garnered positive recognition, with its 2022 TF Vertical Risk Assessment considered a positive development, albeit with some methodological concerns.
In conclusion, Luxembourg's efforts in combating money laundering and terrorist financing are recognized, but the report underscores the importance of ongoing improvements and vigilance in key areas of its AML/CTF framework.
By fLEXI tEAM