Changes to the anti-money laundering and counter-terrorism financing framework in 2020

Luxembourg

The year 2020 is a year of changes for the Luxembourg anti-money laundering and counter-terrorism financing (“AML-CTF”) framework. In fact, Luxembourg has implemented Directive 2018/843 of the European Parliament and of the Council of 30 May 2018 (“Directive AML V”) by way of two laws of 25 March 2020 amending, among others, the law of 12 November 2004 on the fight against money laundering and terrorist financing, as amended (“2004 Law”) (“Implementing Laws”).

The main changes with respect to AML-CTF obligations are as follows:

  • introducing provisions to reduce the risks relating to virtual currencies and assets, and including within the scope of AML-CTF obligations providers engaged in exchange services between virtual currencies and fiat currencies as well as custodian wallet providers (see II);
  • setting out measures to harmonise the way high-risk countries are dealt with (see III);
  • harmonising the powers of competent authorities and self-regulatory bodies (see IV);
  • reinforcing competent authorities’ cooperation with their foreign counterparties (see V);
  • obliging Member States to set up a national central register or central electronic data retrieval system to identify any natural or legal persons holding or controlling payment or bank accounts or safe-deposit boxes (see VI); and
  • several other significant changes (see VII).

I. Virtual assets and their service providers

In light of recent technological innovations and the development of new products, assets and service providers relating to virtual assets, there has been international and European-level recognition that such new products and service providers must comply with AML-CTF obligations. Accordingly, these new products and services have been included within the scope of Directive AML V, which has been reflected in the Implementing Laws. While technological progress is still supported, by including such products and service providers within the scope of AML-CTF obligations there should be improved transparency, making it harder for criminals to exploit this technology for money laundering or terrorist financing purposes.

Furthermore, under the Implementing Laws, virtual asset service providers and safekeeping or administration service providers will need to register with the Luxembourg supervisory authority for the financial sector, the Commission de Surveillance du Secteur Financier (“CSSF”), in order to carry out their activities.

II. Measures relating to high-risk countries

The Implementing Laws set out specific measures that professionals should adopt in business relations or transactions involving high-risk jurisdictions. These measures, to be applied fully in the relevant circumstances, are detailed in the amended version of Article 3-2 (2) of the 2004 Law. Further, the Implementing Laws now require competent authorities to use countermeasures against high-risk countries.

III. Harmonisation of the powers of competent authorities and self-regulatory bodies

The Implementing Laws add several new Articles to the 2004 Law that provide self-regulatory bodies with supervisory and sanctioning powers. Some of these powers already existed in sectorial laws for various professionals falling within the scope of the 2004 Law. However, the addition of these new Articles reinforces such powers to a significant degree and also aligns them with those of the competent authorities (such as the CSSF).

IV. National and international cooperation

Under the Implementing Laws, the CSSF and the Commissariat aux Assurances must cooperate closely and exchange information that helps to combat money laundering and terrorist financing, as well as information relating to the regulation and prudential supervision of credit institutions and financial institutions[1].

In addition to increased national cooperation between competent authorities, the Implementing Laws contain stronger measures for international cooperation between competent authorities and their foreign counterparts, which will enable such authorities to cooperate in their respective missions and in the fight against money laundering and terrorist financing[2]. Cooperation in this context includes the exchange of information and assistance in investigations.

V. Central register on persons holding payment or bank accounts or safe-deposit boxes

The Implementing Laws transpose, inter alia, Article 32a of Directive (EU) 2015/849 on the prevention of the use of the financial system for money laundering or terrorist financing (also known as “Directive AML IV”), as amended by Directive AML V. The new electronic data retrieval system will involve two steps:

  1. Professionals established in Luxembourg[3] offering services relating to payment accounts [4] and bank accounts that have an International Bank Account Number[5] (“IBAN”), as well as credit institutions offering safe-deposit boxes, will need to set up a central registry to identify persons holding or controlling a relevant account or safe-deposit box. The relevant professional must ensure that the CSSF has access to the registry.
  2. The CSSF will centralise the information received from all relevant entities and create a central electronic data retrieval system. This system may be accessed by the CSSF and other national authorities when fulfilling their anti-money laundering and counter-terrorist financing duties.

However, the CSSF has yet to determine how the above measures will be implemented in practice.

To comply with the deadline imposed under Directive AML V, the central registries or central electronic data retrieval systems will need to be operational by 10 September 2020.

VI. Miscellaneous amendments

Other changes have been implemented under the 2004 Law, such as, inter alia, defining what constitutes a prominent public function, including art dealers and intermediaries trading works of art within the scope of the 2004 Law, lowering the threshold for electronic money due diligence requirements and extending the list of documents that professionals must retain under their record-keeping requirements.

VII. Conclusion

In addition to implementing into Luxembourg law the main provisions of Directive AML V, the Implementing Laws also require compliance with the Financial Action Task Force (“FATF”) recommendations. Luxembourg should therefore be prepared for an investigation by the FATF and be able to demonstrate that its legislation complies with international and European requirements.

The amendments to AML-CTF obligations mostly impact professionals in the financial sector, who must ensure that their policies, procedures and contractual documentation are in line with these additional requirements. The Implementing Laws further impact new players in the financial sector, requiring them to navigate between technological progress and compliance with AML-CTF obligations. 

For further assistance on the above, please do not hesitate to contact one of our specialists.

Footnotes:

[1] Article 9-1bis of the 2004 Law, as amended by the Implementing Laws

[2] Article 9-2bis of the 2004 Law, as amended by the Implementing Laws

[3] Including branches of Luxembourg entities operating abroad and branches of foreign entities operating in Luxembourg

[4] As defined under Article 1 (5) of the 2009 Law

[5] As defined under Article 2(15) of EU Regulation 260/2012 establishing technical and business requirements for credit transfers and direct debits in euro