What is money laundering?
Money laundering is a criminal act whereby money that has been obtained through criminal activities, i.e. “dirty” money, is “white washed” by using the financial system in order to conceal its origins. Essentially, then, money laundering means making illegal money look like legitimate money by wiping any traces that could link it to its criminal origins.
Money laundering presupposes that an original offence has been committed. Money laundering relates to any economic benefit that is gained via this predicate offence. Consequently, money laundering is a criminal act.
The fight against money laundering in Luxembourg
In developing an international financial centre, Luxembourg became aware at a very early stage of the need to prevent the use of financial circuits for unlawful purposes. While initially designed to fight money laundering linked to drug trafficking, Luxembourg legislation today criminalises all offences recommended by the Financial Action Task Force (FATF).
Moreover, measures aiming to prevent money laundering not only apply to banks, but to all professionals in the financial sector, such as insurance companies, notaries, estate agents, auditors, casinos, lawyers, tax and financial advisers, and persons selling high-value goods.
Luxembourg anti-money laundering legislation
Luxembourg legislation foresees very strict access conditions for those wishing to exercise a financial sector activity. Moreover, professional secrecy in Luxembourg does not protect those that commit criminal offences, since this secrecy is non-invocable in criminal matters. Financial sector cooperation with legal and administrative authorities exists on various levels and includes the obligation to report any fact that is perceived as an indication of money laundering.
The cooperation with authorities, specifically in the fight against the financing of terrorism, intensified further after the 9/11 attacks. Thus, the law of 12 August 2003 on the repression of terrorism and its financing introduced the financing of terrorism into the penal code and extended the definition of Money laundering by including terrorism and the financing of terrorism in the list of primary offences.
The Law of 12 November 2004 on the fight against money laundering and against the financing of terrorism has been amended in 2018 (i) by the Law of 13 February 2018 transposing some of the provisions relating to the professional obligations and powers of the supervisory authorities as contained in the AML IV Directive as well as implementing Regulation (EU) 2015/847 on information accompanying the transfers of funds and (ii) by the Law of 10 August 2018 reorganising the Financial Intelligence Unit.
The Law of 13 February 2018 notably adapts the definition of “beneficial owner” by distinguishing three categories of beneficial owners with their unique identification requirements, namely the beneficial owners of (i) companies (ii) fiduciary contracts and trusts and (iii) legal entities such as foundations and legal arrangements similar to trusts. Regarding companies’ beneficial owners, the Law now allows professionals to designate as beneficial owner, as the case may be and in very specific circumstances, any natural person holding the position of senior manager within the corporate entity.
On top of this, the Law enacts the core principle of “risk-based approach” whereby professionals have to take appropriate steps to identify and assess the risks of money laundering and terrorist financing they are confronted to, taking into account risk factors such as those related to their customers, countries geographic areas, products, services, transactions or delivery channels.
This specific topic of risk assessment was addressed on 11 December 2018 at the first annual joint CSSF & ABBL compliance conference on anti-ML/ combating TF, which gathered prominent speakers from the Luxembourg authorities (the “Commission de Surveillance du Secteur Financier” and the “Cellule de Renseignement Financier”), together with banks’ representatives.
Still, the provisions of the AML IV Directive involving the setting-up of a register of beneficial owners of trusts (“fiducies”) remain to be transposed into Luxembourg Law (see draft Law N°7216 B). However, the Law of 10 August 2018 on the information to be obtained and retained by trustees and prescribing the relevant information trustees (“fiduciaires”) of Luxembourg fiduciary arrangements (according to the Law of 27 July 2003 regarding fiduciary contracts) shall obtain and keep as regards the beneficial owners of such fiduciary arrangements is already known.
The Law of 13 January 2019 setting up a register of beneficial owners of companies will enter into force on March 1, 2019. The Law applies article 30 of the AML IV Directive and creates a register of beneficial owners of corporate and legal entities including for instance public/private limited companies, partnerships, not for profit associations, foundations and civil companies together with Luxembourg branches of foreign companies and mutual funds (“fonds communs de placement“). The definition of a beneficial owner (“BO”) can be retrieved in the Law of 12 November 2004 and can be briefly described as any natural person who ultimately owns or controls a legal entity through direct or indirect ownership of a sufficient percentage of the shares or voting rights or ownership interest in that entity, or through control via other means. Alternatively, if such person cannot be identified and under specific circumstances, the BO shall be the individual holding the position of senior dirigeant (manager).
The registered entities will hence have to make available specific information on their own BOs in a dedicated registry (the “Registre des Bénéficiaires Effectifs”, a.k.a. “RBE”). The RBE will be managed by the Luxembourg Business Registers under the auspices of the Ministry of Justice. The electronic modalities of transmission/update of the information to be transmitted to the RBE as well as the costs and required supporting documentation engaged should be detailed in a Grand-Ducal Regulation to come.
As to who will be able to access the information of the RBE, the National authorities, within the ambit of their missions, will have an unlimited access to the information stored in the RBE while any person(i.e. the public at large), including the financial stakeholders, will be able to get into a limited set of information.
The AML V Directive (UE 2018/843) entered into force on 9 July 2018. The numerous novelties that are being introduced by this Directive have yet to be transposed into Luxembourg law. Yet, the Directive provides EU Financial Intelligence Units and supervisory authorities with enhanced powers, making sure that the latter will have adequate financial, human and technical resources to perform their functions.
One may associate the forthcoming new legal features of the AML V Directive with a key term: transparency. As a matter of fact, centralised automated mechanisms such as central electronic data retrieval systems to identify in a timely manner the holders of bank and payments accounts will have to be launched, especially with a view to allow FIUs to perform their investigation efficiently.
Among others, enhanced customer due diligence measures will have to be applied when professionals engage in transactions involving high risk third countries. Additionally, payment services providers will have to take into due consideration the new thresholds related non-reloadable payment instruments for business and clients due diligence purposes, having also noted that the AML V Directive will impose on the Luxembourg legislator to issue and keep up to date a list indicating the exact functions which should qualify as prominent public functions.
With regard to traceability of money transfers, Regulation N°2015/847 of the European Parliament and of the Council of 20 May 2015 on information accompanying transfers of funds and repealing Regulation (EC) N°1781/2006 sets out rules on payment services providers with regard to the provision of information concerning payers and payees in order to help prevent, detect and investigate terrorist financing. The provisions of the latter are binding and directly applicable in all Member States since 26 June 2017. The CSSF therefore published circular 17/660 in this regard.
Professional obligations in Luxembourg
- obligation to apply customer due diligence measures: this includes the identification of the customer and of the beneficial owner(s), obtaining information on the business relationship, and constant monitoring of the business relationship (transactions, source of funds, updating data)
- obligation to scrutinize certain transactions with particular attention
- obligation to maintain a continuous follow-up of clients relative to the risk they present
- obligation to keep certain documents
- obligation to have an adequate internal organisation together with group wide policies and procedure in place
- obligation to cooperate with authorities and obligation to notify
- obligation to incorporate a payers and payees’ name or account number into transfers