Combating the Financing of Terrorism in Luxembourg: A Review of Progress and Challenges

Luxembourg, a major international financial hub, faces significant challenges in preventing money laundering and terrorist financing. As a member of the Financial Action Task Force (FATF), the country has made progress in combating these threats, but there is still much work to be done.

FATF Assessment

In its latest assessment, the FATF praised Luxembourg’s solid anti-money laundering and counter-terrorist financing framework, as well as its effective co-operation with international counterparts. However, the report also highlighted areas where improvement is needed to effectively combat the financing of terrorism.

Challenges in Preventing Money Laundering and Terrorist Financing

• Large and diverse financial sectors: Luxembourg’s large and diverse financial sectors, including banking, investment, and trust and company services, make it vulnerable to money laundering and terrorist financing threats.
• Foreign predicate offences: Foreign predicate offences, such as tax crimes, corruption, and fraud, are identified as the main money laundering threat.

Progress and Challenges

While Luxembourg’s financial supervisor has made progress in supervising the banking and investment sectors, further work is needed to address risk-based supervision of non-financial sectors, including real estate and notaries. The country also needs to improve its detection, investigation, and prosecution of more complex money laundering cases.

Additionally, Luxembourg should focus on:

• Improving asset recovery: particularly domestically, and taking a risk-based approach to oversight of the non-profit organizations sector.
• Producing high-quality financial intelligence products: despite resource constraints, Luxembourg’s financial intelligence unit must continue to produce high-quality financial intelligence products.

Combating Terrorist Financing

Luxembourg has made significant progress in combating terrorist financing, but there is still more work to be done. The country needs to:

• Develop targeted financial sanctions and measures: to remedy gaps in the regime.
• Improve communication of terrorist financing risks: Luxembourg’s authorities have demonstrated a good understanding of terrorist financing risks, but more needs to be done to communicate this effectively to public and private sector stakeholders.

Conclusion

While Luxembourg has made significant progress in combating money laundering and terrorist financing, there is still much work to be done. The country must continue to focus on:

• Improving risk-based supervision: of non-financial sectors, including real estate and notaries.
• Asset recovery: particularly domestically, and taking a risk-based approach to oversight of the non-profit organizations sector.
• Developing targeted financial sanctions and measures: to remedy gaps in the regime.

By addressing these challenges and continuing to improve its anti-money laundering and counter-terrorist financing framework, Luxembourg can effectively combat the financing of terrorism and maintain its status as a major international financial hub.