Luxembourg AML systems are they good enough for FATF?
Luxembourg's financial systems have a checkered history.
- A September 2020 update of its national risk assessment of money laundering and terrorist financing indicated ongoing threats posed by cross-border proceeds of corruption and tax evasion.
- Luxembourg has fallen foul of European laws this year. In June 2021, the European Commission referred Luxembourg to the European Court of Justice for failing to transpose EU rules on seizing criminals' profits.
- The IMF's 2021 Luxembourg report stated:
- "Money laundering risks should continue to be monitored and mitigated, and the Anti-Money Laundering/Combating the Financing of Terrorism (AML/CFT) framework should be strengthened further."
- And the OpenLux investigation, conducted by Le Monde along with ten media partners for more than a year, labelled lux as a tax haven
- Then there was the OpenLuxwhich revealed that the names of children or deceased people were being listed in the LBR as the Ultimate Business Owner (UBO) of companies.
- Since its inception in 2019, the LBR has had a critical flaw that only allows searches by company name or registration number rather than owner's name.
- While this has made it difficult to link a corporate entity to those who profit from it, French newspaper Le Monde (along with ten media partners) spent a year scraping the registry's website and obtained 3.3 million documents covering over 124,000 companies registered in Luxembourg.
- Whether the new draft bill will tackle the many issues revealed by OpenLux, including its finding that
- "Almost half of the companies, funds, and foundations registered in Luxembourg have no real, identifiable beneficiaries to date,"
- And make the LBR more open and searchable, remains to be seen.
Time for action
- Following these events, it is taking steps toward tightening its AML systems, with new legislation aimed at sanctioning money laundering and tax evasion.
- While the details are still being confirmed, a new draft bill from the Ministry of Justice will enable the Luxembourg Business Register (LBR) to impose administrative sanctions and could include steps such as requesting non-Luxembourg residents to provide ID when registering a business.
- The effectiveness of the bill remains to be seen. Requesting ID would initially be voluntary – which may still leave room for exploitation – and until the details are confirmed, it's unclear exactly how stringent the bill will be.
How does Luxembourg conform with European Union legislation?
- In June, the latest version of the European Union's anti-money laundering directive, 6AMLD, was implemented across Europe. It's unclear if Luxembourg is failing to meet these standards, but it previously struggled to enforce elements of 4AMLD in 2018.
- The Financial Action Task Force (FATF) is due to complete its subsequent mutual evaluation of the country later this year, which will be a crucial milestone for its AML/CFT practices.
- It also remains to be seen how changes to Luxembourg's new draft bill will sit with the EU Anti-Money Laundering Authority, due to be set up by 2024, and if they will reflect its recent lessons learned.
- For compliance teams, Luxembourg's problems with its LBR are a reminder to be careful.
- If using this register or any other business register, teams should be aware of potential problems and seek to verify IDs independently.