Financial Crime World

Luxembourg’s AML/CFT Efforts Fall Short, Risk Assessment Lags

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Despite being a major financial hub, Luxembourg’s ability to effectively combat money laundering and terrorist financing is falling short. According to a recent report, approximately 30% of incoming MLA requests requiring coercive measures take longer than seven months to execute.

Luxembourg’s Financial Sector: A Prime Target for Money Launderers

Luxembourg’s financial sector is one of its largest economic contributors, accounting for around 23% of the country’s GDP. The country is home to over 120 credit institutions from 24 countries, and has a significant presence in private banking, investment funds, and payment systems. This makes it an attractive target for money launderers and terrorist financiers.

Money Laundering Threats: Foreign Predicate Offences

The report highlights that foreign predicate offences are the main source of money laundering threats in Luxembourg, with fraud, tax crimes, corruption, and drug trafficking being among the most common offenses. The country’s banking sector, investment funds, payment institutions, and legal persons are particularly vulnerable to these risks.

Challenges in Implementing Anti-Money Laundering and Counter-Terrorism Financing Measures

While Luxembourg has made progress in implementing anti-money laundering and counter-terrorism financing measures, there are concerns over the effectiveness of these efforts. The report notes that some initiatives have only recently been implemented and require more time to become operational.

Lack of Transparency in Risk Assessments

Luxembourg’s risk assessments have also been criticized for being incomplete and lacking transparency. The country’s 2022 TF Vertical Risk Assessment employed a sound methodology but could have benefited from additional considerations. Furthermore, the analysis has not been adequately disseminated across all authorities and the private sector, leading to concerns over the overall effectiveness of the country’s AML/CFT efforts.

Key Takeaways

  • Approximately 30% of incoming MLA requests requiring coercive measures take longer than seven months to execute.
  • Foreign predicate offences are the main source of money laundering threats in Luxembourg.
  • The country’s banking sector, investment funds, payment institutions, and legal persons are particularly vulnerable to AML/CFT risks.
  • Luxembourg’s risk assessments have been criticized for being incomplete and lacking transparency.
  • Prioritization of AML/CFT activities and communication with government stakeholders and the private sector are crucial for effective implementation.

Recommendations

Improve MLA Request Process

  • Streamline the process and reduce response times to improve effectiveness.

Enhance Risk Assessments

  • Include more comprehensive and informative findings on larger-scale TF threats in risk assessments.

Prioritize AML/CFT Activities and Communication

  • Prioritize AML/CFT activities and communicate effectively with government stakeholders and the private sector.
  • Ensure that measures are effective in combating money laundering and terrorist financing.

Conclusion

Luxembourg’s AML/CFT efforts must be strengthened to ensure that the country remains a safe and secure financial hub. The country must prioritize its AML/CFT activities, improve risk assessments, and enhance communication with government stakeholders and the private sector. Only through effective implementation of these measures can Luxembourg effectively combat money laundering and terrorist financing.