On 25 March, the Luxembourg Parliament passed bill 7467 transposing the European (EU) Directive 2018/843 (the so called “5th AML Directive”) on the prevention of the use of the financial system for the purposes of money laundering and terrorism financing into Luxembourg domestic law (“AML/CTF Law”) modifying as such the Law of 12 November 2004. In parallel, another bill (7512) aiming at implementing certain provisions of the 5th AML Directive by establishing a Luxembourg central electronic data retrieval system of bank and payment accounts and safe-deposit boxes was passed. Both laws entered into force on 30 March 2020.
As of the 30th March 2020, the following persons and entities are among others included in the scope of the AML/CTF Law: virtual asset service providers and custodian wallet providers, persons trading or acting as intermediaries in the trade of works of art including storage and trade in the context of free ports, and real estate promoters when acting as intermediaries for the selling or buying of immovable property (not exhaustive list)
In addition, the AML/CTF Law enlarged the definition of “politically exposed person” (PEP) which now includes persons exercising functions that are mentioned on the list regarding prominent public functions which will be made public by the European Commission. There is no longer any reference to the fact that if such person has not been entrusted with prominent public functions for a year or more, it should no longer be qualified as a PEP.
Moreover, the definition of “high-risk countries” now refers to the countries mentioned on the list of high-risk countries established by the European Commission as well as the countries designated as high risk by the Financial Action Task Force (FATF) and any other country which the supervisory authorities as well as the professionals would consider as high risk based on their risk assessment.
Finally, the concept of “control through other means” by a beneficial owner over a legal entity has been clarified and can be assessed based on the criteria mentioned in the law of 10 August 1915 on commercial activities regarding among others the conditions for the preparation of consolidated accounts.
When assessing the risks associated with ML/TF, professionals are required to identify, evaluate, but also “understand” those risks to which they are exposed. As such professionals should not only take into consideration the risks associated to the customers products and services, transactions, countries/geographical zones and distribution channels but also consider all relevant risk factors applicable. In addition, professionals would need to integrate the information provided in the national and supranational risk assessment and sub-sector risk assessment when performing their AML/CTF risk assessment (“Business Wide Risk Assessment”).
In addition, the AML/CTF Law specifies several aspects regarding the customer due diligence such as, but not limited to, the obligation to evaluate and understand the purpose and intended nature of the business relationship, to obtain the proof of registration of the Beneficial Owners (“BO”) in the relevant register of BOs and to keep records of the verification measures undertaken as well as difficulties encountered, if any. Furthermore, the Annex IV of the AML/CTF Law specifies new factors potentially evidencing higher risk situations.
In regard to electronic money products, it is worth specifying that the thresholds below which simplified due diligence can be applied have been lowered.
Regarding enhanced due diligence, the AML/CTF Law explicitly mentions that professionals are required to enhance the monitoring of the business relationship in case of complex and unusual transactions by including four alternative criteria. In addition, it implies to apply enhanced due diligence requirements to relationships or transactions involving high risk countries. Therefore, a set of enhanced customer due diligence measures are provided by the AML/CTF Law. Furthermore, the supervisory authorities or self-regulatory bodies may impose additional mitigating measures in relation to these relationships or transactions in high risk countries such as refusing the right for professionals to establish subsidiaries or branches in such countries. Finally, the extension of due diligence measures is applicable to cross-border correspondent and other similar relationships with respondent institutions, independently of their country of registration.
Moreover, the AML/CTF Law provides clarification regarding the framework related to the adequate internal management as well as due diligence by third parties.
Last but not least, professionals are granted flexibility regarding the identification and verification of the identity of the customer (and/or BOs) via specific recognized, approved or accepted electronic identification means.
The AML/CTF Law fully aligns the self-regulatory bodies’ powers regarding compliance with the AML/CTF Law by the members of the concerned professions by empowering them with supervisory, investigative and sanction powers, including the imposition of fines.
The AML/CTF Law also provides for increased cooperation between supervisory authorities and self-regulatory bodies on a national and international level.
In this matter, KPMG provides tailor-made solutions to get you ready. From impact analysis, practical and effective AML/CFT Gap Analysis or Enterprise Wide Risk Assessment, to risk based approach tailored to your risk level and appetite of and in line with the requirements of the new AML/CTF Law, and also readiness training and customized workshops that cover an array of subjects.
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