Luxembourg Takes a Risk-Based Approach to Combat Money Laundering and Terrorist Financing
A Comprehensive System to Prevent, Detect, and Prosecute Financial Crimes
The Grand Duchy of Luxembourg has identified money laundering and terrorist financing as significant threats to its financial system, with the majority of cases linked to predicate offenses committed abroad. According to the country’s National Risk Assessment (NRA), a combination of national and international measures mitigates the inherent risks associated with these crimes.
AML/CFT Framework
Luxembourg’s Anti-Money Laundering/Countering the Financing of Terrorism (AML/CFT) framework is designed to prevent, detect, and prosecute money laundering and terrorist financing. The country has implemented a comprehensive system that covers prevention, detection, prosecution, and asset recovery. The Law of 12 November 2004 on the fight against money laundering and terrorist financing serves as the cornerstone of this system.
Risk-Based Approach
The risk-based approach is at the heart of Luxembourg’s supervisory activities, with financial sector supervisors dictating their actions based on identified risks. This approach has led to a significant increase in the level of engagement between supervisors and professionals, with over 250 on-site inspections conducted in 2019 alone.
Due Diligence Obligations
Professionals advising and assisting groups or fund managers in the creation of new companies are subject to AML/CFT legislation and must comply with due diligence obligations. They must:
- Identify their clients
- Assess and understand the purpose and nature of the business relationship
- Conduct ongoing due diligence
Reporting Suspicious Transactions
In addition, professionals are required to report suspicious transactions to the Financial Intelligence Unit (CRF), regardless of the amount of the transaction. The CRF receives and analyzes these reports, disseminating the results to competent national authorities and foreign counterparts.
Effectiveness of AML/CFT System
According to recent data:
- 361 individuals were convicted for money laundering in Luxembourg in 2019
- 217 received prison sentences
- Over €311.5 million was seized in asset recovery operations between 2017-2019
Luxembourg’s AML/CFT system has been praised for its effectiveness, demonstrating the country’s commitment to combating financial crime.
Ongoing Efforts and International Cooperation
Luxembourg continues to strengthen its AML/CFT framework, with ongoing efforts to adapt to the evolving ML/TF risks and international standards. The CRF plays a critical role in combating money laundering and terrorist financing, operating a secure portal for communication with regulated professionals and competent authorities.
The country’s commitment to combating financial crime is reflected in its cooperation with international organizations such as the Financial Action Task Force (FATF). Luxembourg’s risk-based approach has been recognized as best practice, demonstrating its commitment to protecting the integrity of its financial system.