AML Non-compliant Luxembourg – time to apply EDD

The European Commission (EC) has taken legal action against Luxembourg to implement AML regulations promptly and has asked the European Court of Justice (ECJ) to enforce punitive measures. Should the ECJ rule in the EC’s favour, Luxembourg may have to pay a daily penalty.

The specifics of the penalty are scarce, but the action against Luxembourg has been a long time coming. This step is part of a legal procedure started back in late 2016 after Luxembourg failed to completely transpose AML rules around seizing criminals’ profits by an October 2016 deadline. These rules make it easier for member states to freeze and confiscate funds and other assets acquired illegally.

The EU views that ability as

• “A crucial tool to break criminals’ business models and combat organized crime. It is also a way to stop the proceeds of crime being laundered and reinvested in legal or illegal business activities.”
• https://ec.europa.eu/commission/presscorner/detail/en/IP_21_1643

The EC estimates that, currently, only 2% of ill-gotten gains are frozen, and 3% are confiscated in the EU, so it’s clear a lot of work still needs to be done. Given that criminals have been able to keep nearly all of their profits, it calls into question just how effective these rules are or have the potential to be.

But it’s safe to say that Luxembourg’s failure to transpose those regulations into law certainly hasn’t helped matters.

The Luxembourg Times reported that

• The justice ministry acknowledged it was delayed in implementing the rules in an email, presumably responding to a request for comment, and said,
• “Because of the health crisis and the particular complexity (…) this work required some time.”
• He went on to confirm that “Luxembourg will do everything in its power to ensure full transposition of the directive (…) before the delivery of the judgment.”
• https://www.luxtimes.lu/en/luxembourg/ruling-eu-takes-luxembourg-to-court-over-money-laundering-rules-60c0d2cede135b92367c7242

Five years overdue is a long time, and Luxembourg’s track record implementing other directives has been spotty.

While considered separate cases:

• The EC also initiated legal proceedings against Luxembourg in 2017 after the country missed the deadline to transpose the EU’s Fourth Money Laundering Directive (4AMLD) into law. https://www.lysisgroup.com/post/over-40-of-europe-fails-to-meet-basic-money-laundering-requirements
• In addition, there were delays around the implementation of 5AMLD. https://complyadvantage.com/blog/5amld-implementation-where-are-we-now/

The Duchy has since transposed both of these directives fully into law.

Nevertheless, singling out Luxembourg doesn’t tell the whole story. Many other member countries have also struggled to transpose the EU’s money laundering directives into law. Indeed, although the deadline to transpose 6AMLD — the EU’s latest directive — was December 3, 2020, a few countries still haven’t fully transposed the previous two.

• The Czech Republic and Denmark have each only partially transposed 4AMLD. https://ec.europa.eu/info/publications/anti-money-laundering-directive-4-transposition-status_en
• Similarly, seven member states haven’t fully transposed 5AMLD  https://ec.europa.eu/info/publications/anti-money-laundering-directive-5-transposition-status_en