Intent Declared Summary

In 2004, the International Monetary Fund (IMF) released an assessment on Luxembourg's compliance with the Financial Action Task Force's (FATF) Recommendations on Anti-Money Laundering (AML) and Combating the Financing of Terrorism (CFT). The IMF found Luxembourg to be broadly compliant with almost all of the FATF's recommendations. However, this assessment was based on the 2002 methodology for assessing compliance with the FATF recommendations. In 2004, the FATF released a revised methodology to assess compliance with its recommendations. Since then, there has been no comprehensive assessment publicly available as to Luxembourg's compliance with these requirements. However, a 2006 report by the IMF noted that Luxembourg continues to make progress in strengthening its AML/CFT framework. The main law criminalizing money laundering in Luxembourg was first enacted in 1989, and subsequently updated in 1998 and 2004. Following the 2004 IMF assessment, Luxembourg’s AML/CFT laws have undergone several changes. In 2008, an Act transposing the Third European Union Directive on Money Laundering and Terrorist Financing (which requires all EU countries to implement the FATF’s recommendations) was passed, modifying Luxembourg's AML/CFT legal framework. The new law contains provisions regarding the scope of predicate offenses, customer due diligence, and internal risk management measures. Furthermore, the FATF, in its 2008-2009 Annual Report named Luxembourg as one of the jurisdictions that have endorsed the FATF's 40+9 recommendations. Luxembourg is also a member of the FATF.

General Overview

According to a 2004 Report on the Observance of Standards and Codes by the International Monetary Fund (IMF), which is based on the Financial Action Task Force’s (FATF) Recommendations, Luxembourg has a "solid criminal legal framework and supervisory system" to fight money laundering and terrorist financing. Furthermore, the report found Luxembourg to be "broadly compliant" with almost all of the FATF's 2002 Anti-Money Laundering (AML) and Combating the Financing of Terrorism (CFT) Recommendations. The IMF report nonetheless identified weaknesses regarding the limited scope of predicate offences, reporting requirements for suspicious activities related to terrorist financing, the lack of a distinct legal framework for the Financial Intelligence Unit (Cellule de Renseignement Financier, or FIU-LUX), and the low level of local prosecution of money-laundering cases. The IMF report encouraged the FIU-LUX and the regulatory authorities to issue guidelines on the implementation of AML/CFT laws on a regular basis. Both the IMF report and a 2009 International Narcotics Control Strategy Report by the U.S. Department of State (DoS) advised establishing a distinct legal framework for the FIU-LUX. However, the 2004 IMF assessment was based on the 2002 (old) methodology for assessing compliance with the FATF recommendations. In 2004, the FATF released its revised methodology and, since then, there has been little information publicly available addressing Luxembourg's compliance with the FATF recommendations. Furthermore, several of the shortcomings highlighted by the 2004 IMF report are addressed by the newly enacted law of July 17, 2008, which transposed the Third EU Money Laundering Directive into Luxembourg law. However, there is no information publicly available addressing this law’s compliance with the FATF’s recommendations.

According to a 2009 U.S. DoS report, Luxembourg enacted a comprehensive legal and supervisory AML regime, including practices to help prevent the abuse of its bank secrecy laws. However, important cross-border activity, banking secrecy, private banking, and corporate investment vehicles made it harder for Luxembourg authorities to enforce AML/CFT measures. The 2006 Article IV report by the IMF affirms this conclusion, noting that Luxembourg continues to make progress in strengthening its AML/CFT framework.

Money-laundering and terrorist-financing activities are mainly criminalized under the 1989 AML/CFT Law, which was updated in 2004 to bring Luxembourg into full compliance with the requirements of the EU's Second Money Laundering Directive. The Penal Code and the 2003 Counterterrorism Financing Law No. 4954 also provide AML/CFT regulations, as noted in the 2007 U.S. DoS report. Per the same report, Luxembourg had a leading role in the drafting of the Third EU Money Laundering Directive, which contains the requirement for all EU member states to implement the FATF's recommendations. Luxembourg adopted the Third EU Money Laundering Directive with the law of July 17, 2008, which implemented directives 2005/60/CE and 2006/70/CE. According to the 2009 DoS Report, the law contains provisions addressing the scope of predicate offenses, customer due diligence and internal risk management measures.

The FIU-LUX was established within the Ministry of Justice (MJ), and is composed of four State prosecutors and one analyst. The FIU-LUX is responsible for receiving and analyzing suspicious transaction reports (STRs), seizing and freezing assets when necessary, and providing access to up-to-date information on money-laundering or terrorist financing activities. It also cooperates closely with the Commission for the Supervision of the Financial Sector (CSSF) and the Insurance Commission (CAA). The CSSF started its activities on January 1, 1999, as an independent agency under the authority of the Minister of Treasury and Budget. It is responsible for the prudential supervision and regulation of credit institutions, including banks, securities markets, undertakings for collective investment, operators of payment or securities settlement systems, and pension funds. According to the 2009 U.S. DoS report, an AML Committee (Comité de Pilotage Anti-Blanchiment, or COPILAB), which is composed of supervisory and law enforcement authorities, the FIU-LUX, and financial services representatives, was formed by the CSSF to strengthen Luxembourg's AML regime.

Luxembourg is one of the most important financial centers in the world, which creates opportunities for money laundering, tax evasion, and other financial crimes. According to the 2009 U.S. DoS report, a significant number of STRs arise from operations involving clients from subsidiaries of foreign banks in Germany, Belgium, France, Italy, and Switzerland, which constitute the majority of banks registered in Luxembourg. By end of November 2008, per the same report, 901 STRs were filed, representing an 11 percent increase from the previous year. The report attributed this increase to the establishment of PayPal in Luxembourg in July 2007, which in itself, submitted 238 STRs. Luxembourg is a member of the FATF, and FIU-LUX is part of the Egmont Group. As stated in the 2007 U.S. DoS report, FIU-LUX has also concluded Memoranda of Understanding (MoUs) with many countries, including Belgium, Finland, France, Korea, Monaco, and Russia. Luxembourg is a party to the 1988 United Nations (UN) Drug Convention, the 1999 UN International Convention for the Suppression of the Financing of Terrorism, and the UN Convention against Corruption. On May 12, 2008, Luxembourg ratified the UN Convention against Transnational Organized Crime ("Palermo Convention").

The Principles

II1. Legal Systems and Related Institutional Measures

Although the IMF assessed Luxembourg's observance of the FATF's recommendations, its assessment was based on the FATF's 2002 methodology. In 2004, the FATF issued a new methodology to assess country compliance against FATF recommendations. Since the release of the 2004 methodology, there has been little information publicly available addressing Luxembourg's compliance with the recommendations relating to this principle.

According to the IMF's 2004 report, "Luxembourg's legal and institutional framework provides a solid foundation for the fight against money laundering and financing of terrorism" (p. 5). As stated in the 2009 U.S. DoS report, the Law of July 7, 1989, updated in 1998 and 2004, serves as Luxembourg’s main anti-money laundering and counterterrorist financing law. The new Law of July 17, 2008 transposed the Third EU Money Laundering Directive into Luxembourg law, implementing directives 2005/60/CE and 2006/70/CE. As stated in the 2008 Annual Report of the Luxembourg Bankers’ Association (Association des Banques et Banquiers, Luxembourg or ABBL), the new law has extended the list of predicate offences to encompass all offences punishable by a minimum prison sentence exceeding 6 months. It also includes a requirement for all financial institutions to report any suspicion of money laundering or terrorist financing to the State Prosecutor’s Office.

Per the 2009 U.S. DoS report, "Luxembourg has a comprehensive system not only for the seizure and forfeiture of criminal assets, but also for the sharing of those assets with other governments" (p. 341). Furthermore, Luxembourg’s law only allows for criminal confiscations and public takings. Bill No. 5019 of August 2007 also allows Luxembourg to seize assets on the basis of a foreign criminal conviction, regardless of whether a specific treaty is in place with the country in question. The government of Luxembourg actively disseminates information on, and takes action with regard to suspected terrorist activity via UN and EU designation processes. However, the 2009 U.S. DoS report highlights that Luxembourg still does not have legal authority to independently designate terrorist groups or individuals. While the relevant legislation remains in its drafting stages, government prosecutors are confident that existing judicial authority could be exercised if any institution were to identify a terrorist financier.

The FIU-LUX, within the MJ, is composed of four State prosecutors and one analyst. It is responsible for receiving and analyzing STRs, a significant number of which arise from operations involving clients from foreign subsidiaries of banks. Based on the 2009 U.S. DoS report, this consists of banks from Germany, Belgium, France, Italy, and Switzerland, which also account for the majority of banks registered in Luxembourg. By the end of November 2008, according to the same report, 901 STRs were filed, representing an 11 percent increase from the previous year. The report attributed this increase to the establishment of PayPal in Luxembourg in July 2007, which in itself submitted 238 STRs.

The FIU-LUX also has the authority to seize and freeze assets when necessary. Despite Luxembourg’s strict banking secrecy laws, the 2009 U.S. DoS report asserts that competent authorities are not subject to these restrictions when investigating and prosecuting predicate offenses. The IMF report nonetheless identified weaknesses regarding the limited scope of predicate offences, reporting requirements for suspicions related to Financing of Terrorism, the lack of a distinct legal framework for the FIU, and the low level of local prosecution of money-laundering cases. While the new law of July 17, 2008 attends to the shortcomings related to the scope of predicate offenses and reporting requirements, the legal framework of the FIU, and the scarce number of prosecutions seem to remain unaddressed. Moreover, while the FIU-LUX is experienced in receiving STRs, it lacks a clear and transparent legal framework and is insufficiently resourced to fulfill its duties. Both the 2004 IMF report and 2009 U.S. DoS report recommended the establishment of a distinct legal framework for the FIU-LUX.

In its 2007 report, the U.S. DoS stressed that important cross-border activity, banking secrecy, private banking, and corporate investment vehicles made it harder for Luxembourg authorities to enforce AML/CFT measures. Therefore, with regards to the FATF Special Recommendation IX on cross-border declaration and disclosure, the U.S. DoS report advised initiating and enforcing cross-border currency reporting requirements, as well as sharing data with the FIU-LUX.

II2. Preventive Measures - Financial Institutions

The IMF, in its 2004 report, states that Luxembourg is characterized by "a well developed supervisory framework that encompasses AML/CFT preventive measures broadly in line with international standards" (p. 7). The 2004 IMF report notes that legal provisions on STRs are "largely in line with the standard" (p. 8), and the identification of beneficial owners is required under the AML law, without a distinction between natural and legal persons. The 2009 U.S. DoS report states that there are laws in place addressing identification, record keeping, and STR requirements, as well as strict “know your customer” stipulations. Despite the relatively positive assessment by the IMF in 2004, there is little information publicly available as to Luxembourg's compliance with the recommendations relating to this principle, since the IMF assessment was based on the FATF's old (2002) methodology, which has been since revised.

Per the IMF report, a circular publicizing the 2004 AML/CFT law and giving advice on suggested best practices was distributed by the CSSF to the financial industry in October 2005. The 2007 U.S. DoS report states that, by extending reporting obligations of the financial sector to terrorist financing, the 2004 amendments to the AML/CFT law bring Luxembourg into compliance with the FATF’s Special Recommendation IV on STRs. The 2004 amendments, according to the DoS report, also contain requirements on internal controls and impose stricter customer identification requirements, including information on beneficial ownership.

According to the 2009 U.S. DoS report, the new law of July 17, 2008 contains provisions on enhanced customer due diligence and risk management measures. Based on the 2008 ABBL report, the new law outlines instances when either simplified or enhanced due diligence measures may or should be carried out. With regard to performing enhanced due diligence measures, the law also provides a definition of “politically exposed persons”, in line with Recommendation 6. The report also mentions that the new law allows for financial institutions to rely on third parties to perform due diligence measures, including those in third countries, subject to the fulfillment of certain conditions. The law also states however, that even in the event of such reliance, the final responsibility of customer identification and verification still remains with the financial institution in question.

Furthermore, the CSSF conducts mandatory annual audits within banks. Moreover, secrecy rules are waived in the prosecution of money-laundering cases under the law. As noted in the 2009 U.S. DoS report, covered institutions which are required to file STRs with the FIU-LUX include banks, insurance companies and intermediaries, as well as pension funds. The U.S. DoS report notes that a significant number of STRs arise from operations involving clients from foreign subsidiaries of banks in Germany, Belgium, France, Italy, and Switzerland, which account for the majority of banks registered in Luxembourg. By November 2008, per the 2009 U.S. DoS report, 901 STRs were filed, representing a 11 percent increase from the previous year. The report also states that "the banking community generally cooperates with enforcement efforts to trace funds and seize or freeze bank accounts." Furthermore, the AML law contains "safe harbor" provisions that protect entities from legal liability when filing STRs.

With regard to record-keeping, as noted in the 2007 U.S. DoS report, a minimum of five years is required for financial institutions, and in some cases, 10 years for banks. The 2009 U.S. DoS report also mentions that there has been no evidence found on the widespread use of alternative remittance systems or trade-based money laundering in Luxembourg. Separate legislative or regulatory measures to address the issue are not under consideration as authorities maintain that current AML laws would apply to such systems.

II3. Preventive Measures - Designated non-Financial Business and Professions

As noted in the 2007 U.S. DoS report, the 2004 amendments to the AML/CFT law broaden the scope of institutions subject to money-laundering regulations. Under the legislation, covered institutions which are required to file STRs with the FIU-LUX include external auditors, accountants, notaries, lawyers, casinos and gaming establishments, real estate agents, tax and economic advisors, domiciliary agents, and dealers in high-value goods. Nonetheless, there is insufficient information publicly available as to Luxembourg's compliance with the recommendations relating to this principle.

II4. Legal Person and Arrangements & Non-Profit Organizations

The identification of beneficial owners is required under the AML law, without a distinction between natural and legal persons, as noted in the IMF's 2004 report. In its 2009 report, the U.S. DoS notes that while bearer shares are permitted, they do not pose a risk for money laundering due to "know your customer" laws, which require banks to know the identity of the beneficial owner. Furthermore, company directors are publicly listed under a government registry. The MJ agreed in December 2005 to adopt five principles with regard to implementing FATF’s Special Recommendation VIII related to the use of non-profit organizations for terrorist activities, notes the 2009 U.S. DoS report. Nevertheless, there is insufficient information publicly available as to Luxembourg's compliance with the recommendations relating to this principle.

II5. National and International Co-operation

There is insufficient information publicly available as to Luxembourg's compliance with the recommendations relating to this principle. In its 2009 report, the U.S. DoS notes that the government of Luxembourg "cooperates with and provides assistance to foreign governments in their efforts to trace, freeze, seize and forfeit assets" (p. 342). In order to identify and freeze the assets of suspected terrorists, it further "actively disseminates to its financial institutions information concerning suspected individuals and entities" (p. 342).

According to the 2009 U.S. DoS report, there has been extensive dialogue as well as bilateral proceedings between Luxembourg and the U.S. government in addressing several cases related to money laundering and terrorist financing. In December 2007, the Luxembourg Parliament approved the bilateral U.S.-Luxembourg and the multilateral U.S.-EU extradition and mutual legal assistance agreements. The government of Luxembourg also actively disseminates to its financial institutions, information regarding suspected parties on the UN Security Council Resolution 1267 Sanction Committee’s consolidated list and the U.S. list of Specially Designated Global Terrorists, in accordance with Executive Order 13224.

Since 2001, according to the 2007 U.S. DoS report, Luxembourg's Agency for the Transfer of Financial Technology (Agence de Tranfert de Technologie Financière or ATTF) has provided assistance to government and banking officials from Bosnia-Herzegovina, Bulgaria, Croatia, Cape Verde, China, the Czech Republic, Egypt, Macedonia, Romania, Russia, Ukraine, Cyprus, Estonia, Hungary, Latvia, Lithuania, Malta, Poland, Slovakia and Slovenia, El Salvador, Kazakhstan, Laos, Moldova, Mongolia, Serbia and Montenegro, Tunisia, Turkey, Uzbekistan, and Vietnam. Based on the ATTF’s website as of October 2009, Georgia, Azerbaijan, Cambodia, Lebanon, Kosovo and Ukraine have also been added to the list.

Luxembourg is a member of the FATF, and the FIU-LUX is part of the Egmont Group. As stated in the 2007 U.S. DoS report, the FIU-LUX has concluded MoUs with many countries, including Belgium, Finland, France, Korea, Monaco, and Russia. Furthermore, Luxembourg is a party to the 1988 United Nations (UN) Drug Convention, the 1999 UN International Convention for the Suppression of the Financing of Terrorism, and the UN Convention against Corruption. On May 12, 2008, Luxembourg ratified the 2000 UN Convention against Transnational Organized Crime ("Palermo Convention").