Financial Crime World

Luxembourg’s Timeliness a Concern in Anti-Money Laundering Measures

Luxembourg, a major international financial hub, has raised concerns over the timeliness of its anti-money laundering (AML) measures. According to recent data, approximately 30% of incoming requests from the European Union’s Money Laundering Authority (MLA) requiring coercive measures take longer than seven months to execute.

Risk and General Situation

  • Luxembourg’s financial sector is a significant contributor to its economy, accounting for around 23% of GDP.
  • The country has a high incoming foreign direct investment stock, with assets under management reaching EUR 5,545 billion as of February 2022.
  • The banking sector is home to over 120 credit institutions from 24 countries, specializing in private banking, fund administration, and share distribution.

However, Luxembourg faces significant money laundering (ML) threats, particularly from foreign predicate offenses such as:

  • Fraud
  • Tax crimes
  • Corruption
  • Drug trafficking

The country’s vulnerability to ML is exacerbated by its position as an international financial center, with banks, investment firms, and payment institutions being the most vulnerable sectors.

Assessment of Risk, Coordination, and Policy Setting

  • Luxembourg has made significant efforts to improve its understanding of ML risks since its last Mutual Evaluation Report (MER).
  • The country has conducted risk assessments on various sectors, including banking, investment, and legal persons. However, the analysis could be improved by considering additional factors.
  • The TF Vertical Risk Assessment (2022) employed a sound methodology but required more support from additional considerations.

Overall Level of Compliance and Effectiveness

  • Luxembourg has strong technical compliance with the Financial Action Task Force (FATF) standards.
  • However, the country’s effectiveness in implementing AML/CFT measures is hindered by the prioritization of action items not being well-communicated to government stakeholders critical to their implementation.

Key strengths:

  • Strong domestic coordination and cooperation on AML/CFT issues at both policy and operational levels.
  • Results of risk assessments are extensively communicated to financial institutions, designated non-financial businesses and professions (DNFBPs), and virtual asset service providers (VASPs) in a proactive and consistent manner.

Conclusion

Luxembourg’s timeliness in executing MLA requests is a concern that requires immediate attention. The country must prioritize the implementation of AML/CFT measures and ensure better communication with stakeholders to ensure the effectiveness of its efforts. Despite its strengths, Luxembourg faces significant ML threats that require continued vigilance and improvement in its risk understanding and policy setting.