Financial Institutions Warned of Increased Risk of Illicit Activity Amid Pandemic

Luxembourg Regulatory Authority Issues Guidance on Anti-Money Laundering and Combating the Financing of Terrorism Controls

As the world continues to grapple with the ongoing COVID-19 pandemic, financial institutions are being cautioned about an increased risk of illicit activity, including money laundering and terrorist financing (ML/TF). The Luxembourg Financial Regulatory Authority (CSSF) has issued guidance to supervised professionals, urging them to remain vigilant and adapt their anti-money laundering and combating the financing of terrorism (AML/CFT) controls to the new reality.

Increased Risk of Illicit Activity

The CSSF warns that the pandemic has created a perfect storm for ML/TF risks, with many individuals and businesses facing financial difficulties and seeking alternative ways to access funds. This has led to an increased risk of illicit activity, including the misuse of charitable donations to launder illegal funds.

Mitigating Risks

To mitigate these risks, the CSSF is encouraging supervised professionals to implement robust systems and controls to prevent the abuse of their services for ML/TF purposes. This includes:

• Ensuring business continuity in AML/CFT controls, even when staff are working remotely
• Conducting thorough customer due diligence (CDD) and monitoring transactions for suspicious activity
• Implementing effective risk assessment processes to identify potential ML/TF risks
• Cooperating closely with authorities to report any suspicious activity

Recent Guidance from the Financial Action Task Force (FATF)

The CSSF is also urging professionals to consult recent guidance from the FATF on COVID-19 typologies, which highlights several indicators of suspicious activity.

Cyber Risk Controls

In addition, the authority is warning about the importance of maintaining robust cyber risk controls, particularly in light of the increased remote working arrangements. Professionals are advised to review their access arrangements and controls, as well as their monitoring, logging, and data loss prevention arrangements, to ensure they are adequate and functioning correctly.

Conclusion

The CSSF’s guidance comes as many countries struggle to balance public health measures with economic stability, creating an environment that is ripe for illicit activity. As the pandemic continues to unfold, financial institutions must remain vigilant and take proactive steps to prevent their services from being abused for ML/TF purposes.