Luxembourg Finalizes First Vertical Risk Assessment on Terrorist Financing
A Significant Move to Combat Terrorist Financing
In a major effort to combat terrorist financing, Luxembourg has completed its first-ever vertical risk assessment on the phenomenon. The report, adopted by the Anti-Money Laundering and Terrorist Financing Prevention Committee (BC/TF Prevention Committee) on May 17, 2022, provides a comprehensive overview of the risks associated with terrorist financing in the country.
Key Findings
The vertical risk assessment identified non-profit organizations (NPOs) conducting development and humanitarian projects abroad as posing the highest level of risk. This is due to both the donations they receive and the destination of their funds. Although typologies observed at a global level have not been detected in relation to Luxembourg-based NPOs, they remain at risk due to the location of their activities.
- Other sectors identified as vulnerable include:
- Retail and merchant banks: susceptible to lone actors, small terrorist cells, or foreign terrorist fighters who might misuse their products and services.
- Money or value transfer services: easy access to cross-border transactions makes them susceptible to abuse by similar entities.
Private Banking and Investment Sectors
Private banking and investment sectors were deemed less vulnerable due to the nature of their products and services. However, there is concern that wealthy international terrorist financiers may be using these sectors to shelter all or part of their wealth.
Recommendations
The report highlights the importance of effective risk mitigation measures, emphasizing the need for:
- Robust supervision
- Detection
- Prosecution
- Investigation
- Recovery mechanisms
The BC/TF framework in Luxembourg is built on five pillars:
- National strategy and coordination
- Prevention and supervision
- Detection
- Prosecution, investigation, and recovery
- International cooperation
Conclusion
While there is little evidence of private banking and investment sectors being used for terrorist financing purposes, they are still vulnerable to abuse by wealthy international terrorist financiers. The report concludes that a comprehensive legal framework, in line with the FATF Recommendations and the EU’s Fourth and Fifth Money Laundering Directives, is crucial in combating terrorist financing.
Next Steps
The Ministry of Justice has released a press statement announcing the completion of the vertical risk assessment and highlighting its significance in the fight against terrorist financing. The report provides valuable insights into the risks associated with terrorist financing in Luxembourg and serves as a critical tool for policymakers, financial institutions, and law enforcement agencies to enhance their efforts to combat this menace.