Financial Crime World

Luxembourg’s Efforts to Combat Financial Crimes Fall Short

A recent review has highlighted several shortcomings in Luxembourg’s efforts to combat financial crimes, including the timely application of sanctions and limited criminal fines for non-compliance.

Timeliness Issues with Sanctions

According to the report, Luxembourg’s international cooperation is vital given its status as an international financial center. However, timeliness is an issue when it comes to processing incoming mutual legal assistance (MLA) requests requiring coercive measures, with around 30% taking longer than seven months to execute.

Inadequate Detection and Investigation of Financial Crimes

Furthermore, most competent authorities in Luxembourg have failed to effectively detect and investigate parallel money laundering investigations related to higher-risk predicate offenses. This has resulted in a lack of alignment between investigations and prosecutions with the country’s risk profile.

Limited Capacity of Key Offices

The report also criticizes the limited capacity of key offices, including:

  • The Asset Recovery Office
  • The Asset Management Office
  • The Office of the Investigative Judge

to carry out their mandates on asset investigations, post-conviction asset investigations, and international cooperation.

Inadequate Understanding of Terrorist Financing Risks

Additionally, Luxembourg has been criticized for its inadequate understanding of terrorist financing risks and vulnerabilities, particularly in relation to the misuse of legal persons for terrorist financing purposes. This lack of understanding has led to a poor understanding of TF risk among public and private stakeholders.

Recommendations for Improvement

The report recommends that Luxembourg:

  • Strengthen its risk-based anti-money laundering (AML) and counter-terrorism financing (CFT) supervision, including by increasing supervisory resources and improving off-site monitoring and on-site inspections.
  • Enhance the detection, investigation, and prosecution of parallel ML investigations related to higher-risk predicate offenses.
  • Develop a better understanding of TF risks and vulnerabilities, particularly in relation to the misuse of legal persons for TF purposes.
  • Ensure that penalties and remedial measures are proportionate, dissuasive, and applied in a timely and effective manner.
  • Reduce delays in the execution of incoming MLA requests requiring coercive measures.

Key Recommendations

  1. Strengthen the detection, investigation, and prosecution of parallel ML investigations related to higher-risk predicate offenses.
  2. Enhance the capacity of key offices to carry out their mandates on asset investigations, post-conviction asset investigations, and international cooperation.
  3. Develop a better understanding of TF risks and vulnerabilities, particularly in relation to the misuse of legal persons for TF purposes.
  4. Ensure that penalties and remedial measures are proportionate, dissuasive, and applied in a timely and effective manner.
  5. Reduce delays in the execution of incoming MLA requests requiring coercive measures.

Effectiveness Ratings

  • Risk, policy, and coordination: Moderate
  • International cooperation: Substantial
  • Supervision: Moderate
  • Preventive measures: Substantial
  • Financial intelligence: Substantial

Technical Compliance Ratings

  • Assessing risk and applying a risk-based approach: C
  • National cooperation and coordination: C
  • Money laundering offence: C
  • Confiscation and provisional measures: LC
  • Terrorist financing offence: C
  • Targeted financial sanctions - terrorism and terrorist financing: LC

Note: Effectiveness ratings can be either High (HE), Substantial (SE), Moderate (ME), or Low (LE) levels of effectiveness.