On Wednesday 23 February 2022, Luxembourg's Ministry of Justice announced the its first vertical assessment of money laundering (ML) and terrorist financing (FT) risks related to legal persons and legal arrangements.

This vertical risk assessment was carried out under the direction of the Ministry of Justice and adopted on 11 February 2022 by the Committee for the Prevention of Money Laundering and Terrorist Financing (BC/FT Prevention Committee). It complements the national risk assessment updated in December 2020 (ENR 2020).

This work falls within the framework of Recommendations 24 and 25 of the Financial Action Task Force (FATF) relating to transparency and the beneficial owners of legal persons and legal arrangements. More specifically, this vertical risk assessment responds to the interpretative note to Recommendation 24 which states that “(a)s part of the process of ensuring satisfactory transparency of legal persons, countries should have mechanisms in place that (…) assess the money laundering and terrorist financing risks associated with the different types of legal persons created in the country”.

The methodology of this vertical risk assessment is closely linked to the ENR 2020 but with some adjustments.

Risk analysis takes place at two levels:

  •     At the first level, the risk of misuse of Luxembourg companies for ML/FT purposes (the risks linked to the corporate sector) is assessed according to Luxembourg's ability to obtain and keep basic and beneficiary information. membership of legal persons and legal arrangements;
  •     At the second level, the risk factors specific to certain types of legal persons and legal arrangements (the risks specific to the types of entities) are analysed.

The assessment of the inherent risk of the business sector follows the methodology of the ENR 2020. It is defined according to the inherent threats and vulnerabilities. Entity type specific inherent risk is defined based on the inherent vulnerabilities of each type of legal person and legal arrangement and the likelihood that these vulnerabilities will be used for ML/FT purposes. The mitigating factors are assessed and taken into account at each level to obtain the residual risk.

The main findings of this vertical risk assessment are as follows:

  •     The analysis of the risks related to the business sector leads to the following results:
    •         Commercial companies and legal arrangements present a very high level of inherent risk. The impact of the mitigating factors reduces this very high inherent risk level to a medium residual risk level;
    •         Partnerships, other legal persons and foundations present a high inherent risk. The impact of mitigating factors reduces this high inherent risk level to a low residual risk level;
    •         Finally, non-profit organisations present the lowest risk category, with an average inherent risk and a very low residual risk.
  •     The analysis of the risks specific to the types of entities leads to the following results:
    •         Trusts are the riskiest type of entity with very high inherent and residual risk, despite mitigating measures;
    •         SAs and SARLs present a high inherent risk and a medium residual risk, after taking into account the mitigating measures;
    •         SAS, SE, SCA, ASBL and foundations present an average inherent risk and a low or very low residual risk;
    •         Finally, the inherent and residual risks of other types of entities are low or very low.

An English version of the vertical risk assessment is available online on the Ministry of Justice website at https://mj.gouvernement.lu/fr/dossiers/2020/lutte-blanchiment.html and a French translation will be put online in the coming weeks.