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Terrorist Financing: A Growing Concern for Luxembourg’s Financial Centre

In the wake of global terrorism, Luxembourg has been scrutinizing its financial flows to prevent the misuse of its institutions by terrorist organizations and their financiers. A recent analysis reveals that while the threat posed by ISIS is significant, Luxembourg’s financial centre remains largely immune to terrorist financing (TF) due to robust regulatory frameworks and strict anti-money laundering (AML)/combating the financing of terrorism (CFT) measures.

Insight into Financial Requirements

The analysis revealed that terrorist actors have different financial requirements. Lone actors and small cells require relatively small amounts (<€10,000), mostly funded through legitimate activities. In contrast, international terrorist organizations and “corporate” groups require higher financial resources to execute their operations.

Luxembourg’s financial centre is vulnerable to TF due to its retail banking products, private banking services, and mobile payment transaction systems (MVTS). Retail banks are particularly susceptible to TF by lone actors and small cells misusing debit/credit cards, wire transfers, and ATM withdrawals. Private banks, with their international exposure and high-net-worth clients, may be more attractive to wealthy terrorism sponsors seeking to harbour their assets.

Sectoral Vulnerabilities

The study identified several sectors vulnerable to TF, including:

• Traditional Banking Products: Retail and business banking activities are focused on a local clientele but are susceptible to cross-border transactions by lone actors or small cells.
• Private Banking: High-net-worth clients and international exposure make private banks attractive to wealthy terrorism sponsors seeking to harbour their assets.
• Mobile Payment Transaction Systems (MVTS): The sector’s focus on fast and convenient cross-border transactions makes it vulnerable to being abused by FTFs, lone actors, or small cells operating within the EU.

Conclusions

While Luxembourg’s financial centre is exposed to TF risks, the country’s robust regulatory frameworks and strict AML/CFT measures have mitigated these risks. The study concludes that the volume and nature of financial flows between Luxembourg and its partner countries do not reveal a material threat to the country’s financial centre with respect to TF.

Luxembourg’s authorities must continue to monitor the situation and address vulnerabilities in the sectors identified above to prevent the misuse of its financial institutions by terrorist organizations and their financiers.