Trusts managed in Luxembourg carry increased vulnerabilities to money laundering, according to a recent Ministry of Justice report. Photo: Shutterstock

Trusts managed in Luxembourg carry increased vulnerabilities to money laundering, according to a recent Ministry of Justice report. Photo: Shutterstock

With its very first vertical analysis of the risks linked to the different types of legal entities and structures, the Luxembourg government has completed its set of tools in the fight against money laundering. The latest tool should help financial services professionals in Luxembourg refine their anti-money laundering risk matrices, if they have not already done so.

Under the leadership of the Ministry of Justice, Luxembourg has finalised its first ever vertical assessment of money laundering and terrorist financing risks in relation to legal persons and legal arrangements. This analysis is of strategic and sensitive nature for Luxembourg, “ranked among the world’s leading financial centres due to its economic, social and fiscal stability”, the noted.

The Luxembourg government is therefore seeking to ensure that all those responsible for applying money laundering prevention measures and those responsible for monitoring them have a full understanding of the risks associated with specific types of entities. In the words of the Financial Action Task Force, the report notes that corporate structures, regardless of their economic and social roles, are sometimes misused for illicit purposes, helping criminals to circumvent anti-money laundering and anti-terrorist financing measures. Complex structures may also allow them to disguise and then convert the proceeds of crime before feeding them back into the financial system.

This first vertical analysis complements the traditional national money laundering risk assessment carried out by the Ministry of Justice. In its last assessment, in 2020, the Luxembourg government concluded that the risk of misuse of legal persons and arrangements was “high”. It is therefore not surprising that this first vertical analysis looks at the risks associated with corporate structures.

Unsurprisingly in relation to the risk matrices already applied by anti-money laundering compliance professionals in the financial services sector, the report concludes that trading companies represent a “high” risk of vulnerability and legal structures a “very high” risk.

The possibility of using nominee contracts at both shareholder and director level increases the risk of misuse of a trading company or legal structure. Also, complex and aggressive shareholding structures are in the government’s sights, according to the justice ministry report. All these methods make it possible to conceal the real identity of the beneficial owner or to make it more difficult to identify them.

Commercial companies --both partnerships and corporations--face an increased risk of fraud and forgery, tax crime and corruption. Legal structures--both domestic and foreign trusts--are subject to the same risks as commercial companies. In addition, there are risks of drug trafficking and participation in organised crime and racketeering.