Financial Crime World

Luxembourg Financial Institutions Must Comply with Anti-Money Laundering and Counter-Terrorism Financing Requirements

Financial institutions operating in Luxembourg are subject to strict anti-money laundering (AML) and counter-terrorism financing (CTF) laws, which apply equally to regulated and unregulated investment funds. The investment fund sector has been identified as high-risk by Luxembourg’s 2020 National Risk Assessment.

Compliance Obligations

Under Article 4(1) of the AML Law of November 12, 2004, amended on May 20, 2021, professionals operating in the investment fund sector must:

  • Appoint a person responsible for compliance with all rules and regulations in the fight against money laundering and terrorist financing (Responsible du respect des obligations, or RR)
  • Designate a compliance officer at an appropriate hierarchical level (Responsible du controle du respect des obligations, or RC)

Consequences of Non-Compliance

Failure to comply with these requirements can result in severe penalties and enforcement actions, including:

  • Fines of up to €1.25 million
  • Imprisonment for up to five years for individuals involved in money laundering-related offenses
  • Fines amounting to tens of millions of euros for entities

Reputation Risk

Fund sponsors and fiduciaries must be aware of the reputational damage that can occur from being associated with a fund that breaches regulations or falls foul of sanctions regimes. Investors demand ever-higher standards of corporate governance, including a robust approach to AML compliance.

Appointment of RR and RC

The appointed RR must have authority and ability to effectively oversee AML compliance issues, while the RC should be an individual with:

  • The right experience and skill-set
  • Backed by institutional-grade infrastructure

Outsourcing the RC Role

Luxembourg-based fund managers and sponsors may find it compelling to outsource the RC role to a professional fiduciary services provider, such as Maples Group. By outsourcing this role, managers can ensure all relevant AML/CTF compliance standards are met.

Expertise of Maples Group

Maples Group’s experts fulfilling the RC role in Luxembourg:

  • Apply their knowledge of the global investment fund industry and AML Law
  • Proactively identify areas of potential risk before they materialize by:
    • Monitoring regulatory changes in other jurisdictions
    • Leveraging a global network and institutional infrastructure to anticipate any impact on the local industry or changes in market practice at an early stage

Regular Updates for Fund Directors

Directors of a fund can expect regular updates on developments in the legal and regulatory environment regarding AML/CTF, allowing them to make more informed decisions leading to higher governance standards.