The justice ministry’s report, funded by the EU’s pandemic recovery plan NextGenerationEU, states that basic financial products offered by Luxembourg are not riskier than those offered elsewhere. Photo: Shutterstock.

The justice ministry’s report, funded by the EU’s pandemic recovery plan NextGenerationEU, states that basic financial products offered by Luxembourg are not riskier than those offered elsewhere. Photo: Shutterstock.

Luxembourg’s status as a financial centre exposes it to the use of financial services for terrorist financing, indicates a report by the justice ministry.

The ministry’s report, funded by the EU’s pandemic recovery plan NextGenerationEU, states that basic financial products offered by Luxembourg are not riskier than those offered elsewhere. But the grand duchy is exposed to a higher chance of misuse due to the number of entities providing the services.

When it comes to lone actors and small cell operations, the danger is rooted in the exploitation of financial products to collect, transfer and spend small amounts of money for terrorist financing purposes. This concerns basic financial services offered by retail and business banking, payment institutions and e-money institutions.

“The Luxembourg Financial Intelligence Unit, the Cellule de Renseignement Financier (CRF), considers the quality of the suspicious transaction reports (STRs) filed by Luxembourg financial institutions as high,” states the report. These STRs are made to authorities as part of anti-money laundering and counter-terrorist financing compliance. 

“All suspicious transactions, including attempted transactions, must be reported, regardless of the amount of the transaction,” guidelines by the justice ministry say. 

Regarding international organisations and other terrorist actors, the main threat comes from misusing Luxembourg’s financial centre to channel large sums of money to entities established in regions impacted by terrorism. This type of operations concern mainly private banking and the investment sector.

The conclusions of the justice ministry’s report are the result of the selection of jurisdictions relevant with regard to terrorist funding linked to Luxembourg, analysis of financial flows, mutual evaluation reports and other variables, such as beneficial owner registries. 

FATF inspection

Luxembourg is due to undergo an inspection by the Financial Action Task Force (FATF), an intergovernmental anti-money laundering watchdog. The task force is an initiative of the Organisation for Economic Co-operation and Development.

The grand duchy’s last full anti-money laundering evaluation dates back to , when the country was found to be fully compliant with just one out of 40 indicators. FATF gave it an overall score of three on a scale of one, being the best, to four.

A 2014  said that Luxembourg had improved regulation and compliance in several areas. The justice and finance ministries since the first report have set up a joint committee on the prevention of money laundering and the financing of terrorism and authorities have issued several  on money laundering and terrorist financing risks linked, for example, to virtual currencies as part of recommendations by FATF.

The watchdog’s onsite visits are scheduled for November 2022 after a two-year delay because of the covid-19 pandemic. Meetings scheduled for June and July 2020 were initially pushed back to March 2021 but then further delayed because of travel restrictions and lockdown measures. The report’s findings are now due to be discussed in an OECD plenary in June 2023.

(Additional reporting by Cordula Schnuer)