Luxembourg’s Commissariat aux Assurances (CAA) slapped Lombard International Assurance with a record 1.68 million euro fine for lapses in its anti-money laundering (AML) and counter-terrorism financing (CTF) controls. This enforcement action underscores the regulator’s stringent stance on compliance in the financial sector.
With some 46 billion euro in assets under administration, Lombard International Assurance is a key entity in Luxembourg’s life insurance market. It is the European arm of Lombard International Group, which serves High-Net Worth individuals and institutional investors in over 25 markets across Europe, Latin America, Asia and the United States, providing multi-jurisdictional unit-linked life insurance and annuities on a global basis.
The CAA›s probe into the firm’s AML protocols started in November 2021 and concluded that the firm failed to meet the required standards in combating money laundering and terrorist financing. This decision, communicated to the firm on 10 January and made public on 20 March, followed an extensive review procedure.
The fine is the largest-ever dished out against a Luxembourg insurance company and one of the largest ones ever issued by financial supervisors in the grand duchy. Luxembourg insurer OneLife last year was fined 580,000 euro by CAA in a similar case. Asset manager DeGroof Petercam in 2022 was fined 1.56 million euro by bank and fund supervisor CSSF.
Change in supervisory tone
CAA, in its latest annual report, said it issued 18 fines in 2022, without detailing them. Most of the other fines CAA has issued since 2017 ranged between 500 euro and 10.000 euro, according to an overview of administrative fines on its website. Bank and asset management supervisor CSSF issued penalties for a total of 5.88 million euro in 2022.
Key findings from the CAA›s AML/CTF review of Lombard International include:
- Risk assessment lapses: Lombard didn’t conduct thorough risk assessments to pinpoint money laundering and terrorist financing threats.
- Evaluation errors: The method Lombard used to assess and rate the risk level of insurance contracts didn’t align with regulatory standards, resulting in misjudged risk evaluations.
- Procedure shortcomings: The company’s AML and CFT procedures were poorly supervised, leading to discrepancies with legal frameworks and ineffective risk management.
- Intermediary oversight failures: Lombard inadequately verified if intermediaries met legal customer due diligence requirements.
- Customer information gaps: Lombard inconsistently collected and updated customer data, crucial for assessing AML/CTF risk.
- Tax offence risks: The procedures inadequately addressed risks tied to primary tax offences, deemed a high threat in Luxembourg.
- IT inadequacies: The firm’s technology fell short in identifying unusual transactions and reporting suspicious activities.
- Delayed reports: Lombard was tardy in notifying the Financial Intelligence Unit (FIU) about potential money laundering or terrorist financing suspicions.
- HR limitations: The scale of Lombard’s internal organisation, especially the human resources dedicated to AML/CTF, was mismatched with the company’s operations.
In a reaction, Lombard International said the penalty is not connected to any actual instances of money laundering or terrorist financing within the company. Asserting its commitment to regulatory compliance, Lombard stated, “LIA maintains a zero-tolerance policy towards money laundering and terrorist financing, ensuring adherence to all legal and regulatory changes.”
CAA said Lombard International Assurance has launched a comprehensive compliance strategy aimed at addressing the identified issues, extending also to its international operations. The CAA is closely monitoring the implementation of this plan, in collaboration with relevant overseas authorities.
Luxembourg in recent years has stepped up its efforts to comply with international AML and CFT standards following increased pressure from abroad. The Financial Action Task Force, the AML body created by the G7 countries, in 2023 assigned Luxembourg with an “overall good result”. Luxembourg in 2009 was placed on the FATF grey list, which meant a country needed to improve its anti-money laundering and counter-terrorist financing measures. That warning has led to major changes in the decade that followed.