Luxembourg Fights Money Laundering and Terrorist Financing with Mixed Results: FATF Report

Introduction

A recent report by the Financial Action Task Force (FATF) has evaluated Luxembourg’s efforts to combat money laundering and terrorist financing, highlighting both progress and areas for improvement. As a significant international financial hub, Luxembourg is expected to maintain robust anti-money laundering (AML) and counter-terrorist financing (CTF) measures.

Main Money Laundering Threats

Luxembourg’s main money laundering threat comes from foreign predicate offenses such as:

• Tax crimes
• Corruption
• Fraud

These threats primarily affect the banking and investment sectors, which are particularly vulnerable to high-risk products and services. To mitigate these risks, the financial supervisor (CSSF) has implemented risk-based supervision, using off-site monitoring and on-site inspections.

Strengths

Luxembourg’s domestic cooperation and coordination are key strengths:

• Authorities have timely access to beneficial ownership information
• Extensive international cooperation with counterpart authorities
• The Financial Intelligence Unit (CRF-FIU) produces high-quality financial intelligence products

However, the CRF-FIU faces challenges in maintaining its capacity due to limited human resources.

Areas for Improvement

Luxembourg still needs to focus on sectors exposed to significant money laundering risks, including:

• Real estate
• Trust and company services provided by non-financial sector professionals

The country should also improve detection, investigation, and prosecution of complex money laundering cases.

Terrorist Financing Risks

While some Luxembourg authorities demonstrate a good understanding of terrorist financing risks, the country still needs to develop and communicate its strategy for tackling this threat. This includes:

• Implementing a risk-based approach to oversight of non-profit organizations
• Improving public and private sector awareness of terrorist financing risks

Asset Recovery and Sanctions Regime

Luxembourg should improve domestic asset recovery and address gaps in its targeted financial sanctions regime. While the country effectively uses tools to freeze, seize or confiscate assets involving crimes committed abroad, it still needs to focus on recovering assets within its own jurisdiction.

Conclusion

While Luxembourg has made progress in combating money laundering and terrorist financing, there is still work to be done to address remaining weaknesses identified by FATF. The country’s authorities will need to continue prioritizing these efforts to ensure the integrity of its financial system and prevent the use of its financial sector for illegal activities.