Luxembourg’s Financial Intelligence Unit is key to fulfilling Luxembourg’s international anti-money laundering/terrorist financing prevention obligations, reducing the perception that this country’s financial sector is somehow “above the rules”. Investment Officer recently had an opportunity to speak with FIU director Max Braun.
The unit, officially known in French as Cellule de Renseignement Financier, or CRF, known in English as FIU, receives a steady flow of financial sector wrongdoing reports, investigating them in cooperation with police and judicial authorities.
To deal with these reports, which can involve highly complex financial wrongdoing, the FIU is boosting its staffing numbers rapidly, targeting a 25 percent increase from summer to year-end. The unit will reach a staffing level of 50 by year-end 2023, up from 40 by last summer. “It’s clear that we need to hire additional specialists,” said Braun. “That’s what we are doing.”
FATF review
The FIU director is happy that the Financial Action Task Force said his unit had done well. “The FATF came to the conclusion that we need more people,” he said. “But they also acknowledge that a lot had already happened during recent years.”
The FIU’s 2021-2022 annual report included statistics showing that, apart from a short dip during the Covid period of 2020, the FIU has received over 50,000 reports of suspect transactions every year. In 2023, however, the unit received fewer, at 53,259, than during the pre-Covid year of 2018 (55,498).
“The numbers are quite constant over the last over the last few years,” said Braun. “The main driver, all of those high numbers are the reports that we are receiving from eMoney and payment institutions. Those institutions have their headquarters in Luxembourg, but are operating under European passport, all in all European member states.”
Single report for 2 years
According to the annual report, many demands have been made on the unit’s time, including taking part in international AML/CFT projects, integrating new analytical software and methodologies and the CSF’s ongoing digital transformation. As a result, in July 2023 the agency published a single report for 2021 and 2022.
Another statistical report on the FIU’s activities was published last October by the Luxembourg Ministry of Justice, but based on 2020-2021 statistics. That report noted that Luxembourg, a hub for global finance, has seen a significant uptick in alerts on certain types of questionable transactions.
Under EU law, all suspect transaction reports for Luxembourg-registered firms go to the FIU. The number of reports filed outside the standardised reporting system has steadily increased. This includes financial firms – such as start-ups, who aren’t yet in the FIU’s reporting system – and non-financial actors.
More non-financial reports
Braun is happy about the increased reporting from the non-financial sector. “We observe that the number of reports from the traditional sector is constantly increasing,” he said, saying that the non-financial sector files many more reports than it used to.
Brexit and its consequences also play a factor in the FIU statistics. Some entities, Braun explained, moved to Luxembourg following Brexit. But some entities that were present in Luxembourg pre-Brexit, are now filing their suspicious transaction reports to the UK’s FIU.
It also explains the relative decline of terrorism financing reports received, Braun explained. Many of the reports that the FIU once received are now being filed with the UK’s FIU. At the same time, he explained, the number of attacks in Europe has decreased.
Software upgrades
The FIU works with the United Nations Office on Drugs and Crime, the publisher of the specialised GoAML financial analysis software platform, to get new functionalities added to the software, he explained. The UN ODC recently sent a staff member to visit the FIU to discuss the opportunities offered by graphical mapping databases. “One project that we are doing is implementing a graphical database to identify additional links between suspects.”
The unit’s statistics show that there has been a sharp rise in new investigations into cybercrime and tax crimes, both of which require specialist staff and tools. “We have a very motivated IT team,” said Braun. “They are developing our own solutions to enable more advanced data analysis.”
In terms of dealing with cybercrime, Braun mentioned that his staff includes specialists in virtual asset service providers. “We use specialised analysis tools provided by private companies as there is currently no public software available.”
Improved awareness
Noting that there has always been tax crime, Braun explained that his unit works with the private sector to share typologies or indicators. The point of this is that relevant reports of suspicious activity and transactions are received, he said. “We believe that awareness is better now.”
Braun pointed out that some of the increased numbers were due to significant outreach efforts carried out within the private sector from the FIU, but also the sectorial supervisors, including the self-regulatory bodies. He said this led to an increase in non-standardised reports made outside the standard system. “There is a strong awareness among the sector.”
Luxembourg’s alternative investment industry is subject to the 2004 law on laundering and terrorist financing as “other financial institution”. The FIU has modified GoAML to increase its coverage of alternative investments by adding Raifs and the seven types of alternative investment funds as “entity types”.