FATF Says Still Room for Improvement of Luxembourg Anti-Money Laundering Measures

On Wednesday 27 September 2023, the Financial Action Task Force (FATF) on money laundering published the fourth mutual evaluation report on Luxembourg.

This report summarises the anti-money laundering and counter-terrorist financing (AML/CFT) measures in place in the Grand Duchy (at the time of an on-site visit in November 2022). It analyses compliance with previous FATF recommendations and the effectiveness of Luxembourg's AML/CFT system, as well as providing additional recommendations on how to strengthen this system.

Among the key findings was the recognition that Luxembourg had made efforts to improve its AML/CFT system (e.g. improvements to the legal framework and the creation of new agencies) since its first national risk assessment in 2018, although it should "maintain a sustainable path" to keep up its efforts and "align them with its role as international financial hub with significant cross-border financial flows, international clientele and high-risk products and services."

Overall, Luxembourg was found to have a "strong understanding" of its money laundering risks and a "reasonable understanding" of its terrorist financing risks. The report also recognised that Luxembourg has proven its commitment to investigating and prosecuting money laundering at the policy level, although "resource limitations in investigative and judicial authorities, and the Council Chamber hamper effectiveness to this end."

Moreover, Luxembourg was found to have made "effective use" of tools aimed at freezing and seizing criminal assets. Similarly, the country's "increased efforts and focus on transparency of legal persons and legal arrangements has a positive impact on preventing misuse of corporate vehicles". Nevertheless, the report found that sanctions were applied "to a varying extent". In addition, the understanding of how legal persons can be or are misused for terrorist financing was considered less developed than that for money laundering.

The report also stressed the importance of international cooperation, which "factors in all areas of Luxembourg's AML/CFT framework". Elaborating on this, the report noted that Luxembourg had "consistently provided constructive, and good quality mutual legal assistance, extradition and international co-operation" throughout the review period.

Among the main areas for improvement cited in the report were that Luxembourg should focus more on money laundering investigations and prosecutions, asset recovery and supervision of non-profit organisations and some non-financial sectors. Another was that Luxembourg should focus more on sectors that are exposed to "significant" money laundering risk, for example real estate and professionals from the non-financial sector offering trust and company services. The authorities were also encouraged to improve the detection, investigation and prosecution of "more complex" money laundering cases.

Nevertheless, Luxembourg's Ministry of Justice and the Ministry of Finance praised the Grand Duchy's good overall result, particularly regarding its level of technical compliance and the performance of its AML/CFT system. Concerning technical compliance, Luxembourg received the highest rating (i.e. "compliant") for 28 of the FATF's 40 recommendations. For eleven recommendations, Luxembourg was assessed as "largely compliant", thus bringing the technical compliance score to 39 out of 40. The effectiveness of the Luxembourg system was assessed as "significant" for four of the eleven immediate results, with a "moderate" level of effectiveness for the remaining immediate results.

The ministries noted that the new report, covering the period from 1 January 2017 until 18 November 2022, reflects the "considerable progress" made by Luxembourg since then, which is based on "a clear political will to improve the AML/CFT system and on a strong commitment from authorities concerned."

"Recognition of the performance of Luxembourg's system in the fight against money laundering and the financing of terrorism strengthens Luxembourg's credibility on the international scene," commented Luxembourg's Minister of Justice, Sam Tanson.

Luxembourg's Minister of Finance, Yuriko Backes, added: "I welcome the publication of this mutual evaluation report which confirms the robustness and integrity of our financial centre, thus strengthening its reputation on a global scale."