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Luxembourg’s Corporate Environment: Vulnerabilities Exploited for ML/TF Purposes

A recent study has highlighted the inherent vulnerabilities of Luxembourg’s corporate environment, which could be exploited by money launderers and terrorist financiers (ML/TF). The research focused on the legal structure of Luxembourgish legal persons and arrangements, identifying specific characteristics that may hamper transparency and facilitate anonymity.

Inherent Vulnerabilities

The study analyzed the inherent vulnerabilities of six general categories of legal persons and arrangements in Luxembourg: Sociétés commerciales, sociétés civiles, ASBLs, fondations, “other legal persons”, and legal arrangements. The research found that certain characteristics, such as:

• Nominee arrangements
• Complex ownership and control structures
• Bearer shares
• Legal persons used as investment or asset holding vehicles may create obstacles to obtaining beneficial ownership (BO) information.

Threats

The study also assessed the threats posed by ML/TF activities in Luxembourg. The threats were categorized into five levels: Very Low, Low, Medium, High, and Very High. The assessment considered a range of predicate offences, including:

• Money laundering
• Tax crimes
• Corruption and bribery
• Fraud and forgery
• Drug trafficking
• Participation in an organized criminal group
• Racketeering
• Terrorist financing

The research found that Luxembourg is more exposed to ML/TF threats from abroad than domestically.

Methodology

The study used a scorecard approach to assign scores to each inherent vulnerability, ranging from “Very Low” to “Very High”. The overall inherent vulnerability score was computed as the average of these scores. For threats, the study used a weighted average between domestic and foreign exposure, with 25% weight for domestic exposure and 75% weight for foreign exposure.

Conclusion

The research highlights the need for increased vigilance in addressing ML/TF risks in Luxembourg’s corporate environment. The inherent vulnerabilities and threats identified in this study emphasize the importance of strengthening transparency measures and improving BO disclosure requirements to prevent abuse by criminals. The findings of this study can inform policymakers, financial institutions, and other stakeholders in their efforts to combat ML/TF.

Tables

Table 2: Inherent Vulnerability Scores

Table 3: Threat Levels

Source: [Insert source or author]