Luxembourg Strengthens Anti-Money Laundering Measures

In an effort to combat money laundering and terrorist financing, Luxembourg has implemented enhanced customer due diligence measures in high-risk situations.

Enhanced Customer Due Diligence

According to Article 3-2 of the Luxembourg AML Law, financial institutions (FIs) are required to apply these measures in cases where there is a higher risk of money laundering or terrorist financing. This includes:

• Non-face-to-face business
• Foreign Politically Exposed Persons (PEPs)
• Cross-border correspondent banking relationships with respondent institutions from non-EU countries

For FIs dealing with PEPs, enhanced customer due diligence involves implementing an appropriate risk-based procedure to detect such individuals, including:

• Senior management involvement in the customer’s acceptance
• Verifying the source of wealth/income
• Ongoing monitoring of the relationship

Correspondent Banking Relationships

Correspondent banking relationships require specific measures, including:

• Gathering sufficient information about the respondent institution
• Assessing its AML/CTF controls
• Obtaining approval from senior management before establishing new relationships
• Documenting responsibilities
• Ensuring the respondent credit institution has performed due diligence on customers with direct access to accounts

Reporting Requirements

Suspicious activity reports (SARs) must be made to the Luxembourg Financial Intelligence Unit (FIU), while all suspicious transactions, regardless of amount, are subject to reporting. Failure to comply can result in fines up to EUR 1.25 million and administrative sanctions.

Monitoring Transactions

Professionals must refrain from executing transactions suspected of being related to money laundering or terrorist financing until instructed otherwise by the FIU. If execution is impossible or likely to frustrate efforts to pursue beneficiaries, professionals must submit necessary information immediately afterwards.

Data Protection and Confidentiality

Professional confidentiality prohibits monitoring transactions outside Luxembourg’s jurisdiction. However, credit institutions and financial sector professionals may be required to provide access to information for global risk management purposes.

Annual Reporting and Auditing

There is no requirement for an external report on a bank’s AML systems and controls, nor is there a legal obligation to use automated suspicious transaction monitoring tools. Data protection laws and regulations are in place, but details regarding their application are not publicly available.

Key Takeaways

• Enhanced customer due diligence measures are required in high-risk situations.
• Correspondent banking relationships must meet specific requirements.
• All suspicious transactions, regardless of amount, must be reported.
• Failure to comply can result in fines and administrative sanctions.
• Automated suspicious transaction monitoring technology is highly recommended but not mandatory.

Sources

• Luxembourg Law of October 27, 2010
• FATF Recommendations
• Luxembourg Financial Intelligence Unit (FIU) guidelines