Luxembourg has decided to establish a special anti-money laundering (AML) unit within its tax administration following parliamentary approval. The head of financial supervisor CSSF, meanwhile, expressed his concern over the use of ‘outdated systems’ at the AML teams of asset and wealth management firms.
The dedicated unit will be part of the Registration Duties, Estates, and VAT Authority, which is one of three bodies in the tax administration. Its creation addresses an international evaluation of Luxembourg’s AML measures and resource allocation.
The new law marks “a small but very important project for Luxembourg’s reputation as a banking and financial centre,” said finance minister Gilles Roth following the vote, the Luxembourg Times reported.
Bigger effort needed, FATF said
An international assessment coordinated by the Financial Action Task Force, or FATF, a global body to coordinate the fight against money laundering, last year concluded that Luxembourg needed to make a bigger effort to supervise the non-financial sector and better scrutinise real estate firms, trust companies, notaries and services firms.
Around twenty new posts will be created in the tax unit. Roth said the financial costs were outweighed by the importance of protecting “the reputation of our financial centre”.
The specialised tax office will oversee controls against money laundering, terrorism financing, and the application of international financial sanctions for various sectors, such as real estate, where it will act as the supervisory authority.
One hundred extra staff for FIU
The new legislation aims to elevate the fight against money laundering to “the same level of importance” as traditional administrative matters within the agency, the legislation said, according to the newspaper. All 60 deputies voted in favour of creating the new office during a plenary session of parliament on Thursday.
In a separate parliamentary vote also held on Thursday, lawmakers approved plans to hire almost 100 magistrates for the country’s financial crime unit, the Cellule de Renseignement Financier, known as CRF.
The FATF assessment published last year also highlighted capacity problems at the CRF. The number of reports concerning money laundering and terrorist financing filed by reporting entities with Luxembourg’s Financial Intelligence Unit rose 24 percent in the two years covered by the justice ministry’s “Statistics 2020-2021” report. During this period, the unit’s number of new cases opened for investigation on cybercrime and tax crimes rose by 143 percent and 146 percent, respectively.
CSSF sees ‘outdated systems’
Meanwhile, a survey conducted by PwC Luxembourg on Tuesday revealed that financial services firms in Luxembourg are reluctant to adopt new technologies to fight money laundering. Only 53 percent of AML teams in Luxembourg were considering the use of artificial intelligence, compared to 81 percent in a similar survey across Europe.
The costs of AML in Luxembourg have increased by 18 percent over the last two years, the survey found, compared to 13 percent for the rest of Europe.
Financial supervisors at the CSSF noted that financial institutions are not yet making optimal use of technologies that would allow for significant efficiency gains. “Many supervised entities use outdated systems when it comes to AML/CTF,” said Claude Marx, director-general of the CSSF, in a PwC press release. “This will hopefully change with new possibilities offered by powerful generative AI tools that are becoming mainstream.”
Competitiveness
PWC’s anti-financial crime leader Michael Weis added that swift adoption of more effective ways to fight money laundering is essential for Luxembourg also to remain competitive in the international asset and wealth management sector, particularly when it comes to Exchange Traded Funds.
“Given the intricate nature of Luxembourg’s financial landscape, specialised AML operations are essential. This necessity, however, presents an opportunity for Luxembourg to distinguish itself,” he said in a statement.