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Luxembourg Fails to Effectively Combat Money Laundering and Terrorist Financing
A recent review has highlighted several shortcomings in Luxembourg’s efforts to combat money laundering (ML) and terrorist financing (TF). Despite being an international financial center, the country’s enforcement measures have been deemed “dissuasive but public” by the Financial Intelligence Unit.
Limited Transparency and Beneficial Ownership Information
The Commissariat aux Assurances (CAA) has made limited use of its sanctioning power, while sanctions for non-compliance in the DNFBP sectors are not considered effective. The review also found that transparency around beneficial ownership information is lacking, with only 30% of incoming mutual legal assistance requests requiring coercive measures being executed within a timely manner.
International Cooperation
Luxembourg has been praised for its constructive and good-quality international cooperation, including mutual legal assistance and asset recovery. However, timeliness is an issue in some cases, with approximately 30% of incoming MLA requests requiring coercive measures taking longer than seven months to execute.
Priority Actions
To address these shortcomings, the review recommends several priority actions:
- Strengthen the detection, investigation, and prosecution of parallel ML investigations related to higher-risk predicate offenses.
- Enhance the capacity of the Asset Recovery Office (ARO), Asset Management Office (AMO), and Office of the Investigative Judge to better carry out their mandates on asset investigations and international cooperation.
- Develop a better understanding of TF risks and vulnerabilities, including misuse of legal persons for TF purposes.
- Ensure that the Ministry of Foreign Affairs develops procedures to apply risk-based approach to its oversight of non-profit organizations (NPOs).
- Strengthen risk-based AML/CFT supervision of DNFBPs by enhancing comprehensiveness of off-site monitoring and on-site inspections.
Effectiveness and Technical Compliance Ratings
The review has assigned effectiveness ratings for Luxembourg’s anti-money laundering and counter-terrorist financing measures, with a substantial rating in several areas, including legal persons and arrangements, financial intelligence, and ML investigation and prosecution. However, there is room for improvement in other areas, such as TF investigation and prosecution.
Technical compliance ratings have also been assigned, highlighting areas where Luxembourg needs to improve its laws and regulations, including assessing risk and applying a risk-based approach, national cooperation and coordination, and targeted financial sanctions.
Conclusion
Luxembourg’s efforts to combat money laundering and terrorist financing are not yet effective, despite being an international financial center. To address these shortcomings, the country must take concrete steps to strengthen its enforcement measures, improve transparency around beneficial ownership information, and enhance its international cooperation.