Luxembourg has just finalised the update of its national risk assessment on money laundering and terrorist financing (ML / TF).

The national risk assessment 2020 was carried out under the direction of the Ministry of Justice and adopted on 15 September 2020 by the committee for the prevention of money laundering and the financing of terrorism. The first national risk assessment dates from September 2018.

The national risk assessment forms the basis of the risk-based approach to ensure that ML / TF risk prevention and mitigation measures correspond to the identified risks. This approach allows the state, but also supervisory authorities and self-regulatory bodies, to efficiently allocate the resources devoted to the fight against ML / TF. It also helps ensure that the anti-ML / TF regime makes it possible to deal with higher risks and, under certain conditions, to simplify certain measures when the risks are lower.

The main findings of the national risk assessment 2020 were as follows:

  • Money laundering threats facing Luxembourg mainly stem from the proceeds of primary offences committed abroad;
  • Exposure to domestic laundering, resulting from the proceeds of first-time offences committed in Luxembourg, is significantly lower;
  • Threats of terrorism and terrorist financing are considered generally moderate;
  • Vulnerabilities come from sectors that may be exposed to abuse or diversion for ML / TF purposes (financial sector, non-financial sector, legal entities and legal arrangements);
  • The banking sector is vulnerable to ML / TF risks due to various factors such as a diverse customer base in terms of geographic origin, types and purpose of business relationships, high speed of transactions and high volume of financial flows;
  • Within the investment industry, investment funds are susceptible to abuse or misappropriation for various types of fraudulent practices, including for example Ponzi schemes, scams or selling under pressure and the use of shell companies;
  • Within the insurance sector, which is considered moderately vulnerable in Luxembourg, the life insurance sub-sector appears to be more vulnerable due to its large size and fragmentation;
  • Legal professions, accountants, audit professionals, accountants and tax advisers are exposed to significant ML / TF risks given the activities of trust and company service providers (TCSPs) which they can exercise outside their main activities (with the exception of notaries and bailiffs); 
  • The real estate and construction sectors are considered to be at high risk. Real estate transactions involve large amounts where the true origin of funds can be concealed, either through natural persons or by stacking transactions through intermediary legal persons. Fixed assets, such as buildings and land, are particularly vulnerable because they can serve as a long-term store of value and allow for capital gains;
  • Legal persons and legal arrangements (including non-profit organisations) are also considered to be very vulnerable to ML / TF;
  • TCSPs are an inherent high risk cross-cutting vulnerability;
  • Vulnerability to threats is also high in sectors such as money or value transfer services due to the number and large volume of cross-border transactions they involve, specialised PSFs (financial professionals) due to their ability to provide TCSP services and free port operators due to the high risk nature of their activities and international flows;
  • Other sectors, such as goods dealers, market operators, support PSFs and other specialised PSFs and gambling operators are considered less vulnerable because they are in Luxembourg, either limited in size, in scope or in activity.
  • Specific vulnerabilities that are particularly relevant in the context of the COVID-19 pandemic include: online financial services and virtual assets (which may give criminals more opportunities to conceal illicit funds in a larger volume of legitimate payments made online); financially distressed entities (which in turn create opportunities for exploitation by criminals seeking to launder illicit proceeds); and the provision of government or international financial assistance, including through non-profit organisations.

The mitigating factors put in place within different sectors and between sectors reduce the level of risk inherent in a residual risk level. In general, the mitigating factors are most significant in the financial sector, which has been covered by the EU anti-money laundering and counter terrorist financing (AML / CFT) framework since 1991 and which has a good knowledge of risks.

Luxembourg's Ministry of Justice, Ministry of Finance, Ministry of Foreign and European Affairs, the supervisory authorities and self-regulatory bodies, the judicial authorities, the Cellule de Renseignement Financier (CRF), the police and customs authorities and professional associations were involved in this assessment, initiated in early 2020. This information was subsequently supplemented by expert opinion in the context of regular high-level interactions with the authorities and bodies concerned and the private sector.

Regarding the methodology, the national risk assessment 2020 followed the same approach as the first assessment in 2018. It consists in assessing first the inherent risk resulting from the main ML / TF threats to which Luxembourg is exposed and the vulnerabilities of the various sectors and sub-sectors covered by the AML / CFT law of 2004. It then takes into account mitigation measures to mitigate said threats and vulnerabilities to determine the residual risk.

The full assessment can be viewed in English at mj.gouvernement.lu/dam-assets/dossiers/blanchiment/NRA-2020.pdf.