Financial Crime World

FATF Urges Luxembourg to Step Up Efforts on Anti-Money Laundering and Counter-Terrorist Financing

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Luxembourg, a major international financial hub, has been urged by the Financial Action Task Force (FATF) to intensify its efforts in tackling money laundering and terrorist financing. Despite having a solid anti-money laundering and counter-terrorist financing (AML/CFT) framework in place, Luxembourg needs to focus more on investigations, prosecutions, asset recovery, and supervision of non-profit organizations and certain non-financial sectors.

Key Findings

  • Luxembourg faces significant risks due to its large international financial flows, high-risk products and services in the banking and investment sectors, as well as foreign predicate offenses such as tax crimes, corruption, and fraud.
  • The country’s financial supervisor has prioritized the banking and investment sectors, using a risk-based approach of off-site supervision and on-site inspections.
  • However, Luxembourg needs to improve its risk-based supervision of non-financial sectors, including trust and company services, real estate, and notaries.

Challenges and Recommendations

Risk-Based Supervision

  • Luxembourg needs to focus more on sectors exposed to significant money laundering risk such as real estate and professionals offering trust and company services.
  • The country requires improvement in its detection, investigation, and prosecution of complex money laundering cases.

Domestic Cooperation and Coordination

  • Luxembourg has been praised for its robust domestic cooperation and coordination, with authorities having timely access to beneficial ownership information and cooperating extensively with international counterparts.
  • However, the country should focus more on sectors exposed to significant money laundering risk such as real estate and professionals offering trust and company services.

Asset Recovery and Oversight

  • Luxembourg requires improvement in domestic asset recovery and oversight of non-profit organizations, which has been criticized for having a poor understanding of terrorist financing risk.
  • The country needs to address gaps in its targeted financial sanctions regime and improve its response to requests from foreign counterparts to freeze, seize, or confiscate assets linked to crimes committed abroad.

Proactive Approach

  • Luxembourg is urged to continue identifying and investigating terrorist financing activity alongside terrorism-related investigations, which have not yet led to prosecutions or convictions due to mitigating measures.
  • The country’s proactive approach in addressing these issues demonstrates its commitment to tackling money laundering and terrorist financing, but further efforts are needed to ensure effective implementation of its AML/CFT framework.

Conclusion

While Luxembourg has made significant progress in implementing its AML/CFT framework, the country needs to step up its efforts to address the challenges highlighted by the FATF. By focusing on investigations, prosecutions, asset recovery, and supervision of non-profit organizations and certain non-financial sectors, Luxembourg can further reduce the risk of money laundering and terrorist financing in its financial system.