## cr17255

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---

### EXECUTIVE SUMMARY — Introduction
- This technical note (TN) summarizes findings and recommendations from the 2017 Financial Sector Assessment Program (FSAP) Update for Luxembourg on selected AML/CFT areas.
- The TN is a targeted review—not an assessment—and Luxembourg is scheduled to undergo an assessment against the Financial Action Task Force (FATF) 2012 40 Recommendations in 2020.
- Areas reviewed: tax crimes as predicate offenses to money laundering (ML); access to adequate beneficial ownership information of legal persons and arrangements; AML/CFT supervision of banks, trust and company service providers (TCSPs), and lawyers; and detection and exchange of financial intelligence.

### Luxembourg financial sector profile and AML/CFT context
- Investment and money market fund industry: €3.7 trillion in assets under management, 72 times GDP.
- Banking industry: €773 billion in assets, 14 times GDP.
- Insurance industry: €219 billion, 4 times GDP.
- Money market fund (MMF) assets account for €246 billion of the total.
- Luxembourg hosts the second largest fund administration sector in the world and the largest private banking sector in the Eurozone (ranked sixth in the world).
- Due to size, interconnectedness, and attractiveness, Luxembourg faces potentially significant inherent ML/TF risks, in particular from proceeds of foreign tax crimes.
- The FATF and the OECD previously raised concerns, notably insufficient transparency over beneficial ownership and insufficient coverage of tax crimes.

### Progress since the last FSAP assessment
- Substantial legislative and regulatory measures were taken after the 2009 FATF mutual evaluation report to address main deficiencies.
- Luxembourg initiated a national assessment of ML/TF risks to implement the 2012 FATF standard. Work is underway to implement the 4th EU Anti-Money Laundering Directive (4AMLD) and authorities are engaged in discussions on a 5th EU AML Directive (5AMLD).
- Measures are being taken to assess media allegations (e.g., Panama Papers) of potential misuse of corporate structures.
- Inclusion of tax crimes in the AML/CFT framework and automatic exchange of tax information with a substantial number of foreign tax authorities entered into force on January 1, 2017 and were publicly communicated prior to that date. This communication appears to have contributed to a reduction of the incentive to use Luxembourg’s financial sector for tax evasion purposes.
- Transparency of beneficial ownership of legal persons has improved, particularly for companies that may issue bearer shares, with required immobilization of these shares with appointed depositories and steps to verify deposition or cancellation.
- AML/CFT supervision strengthened: the Commission de Surveillance du Secteur Financier (CSSF) increased staff and onsite visit duration; the Luxembourg Bar Association (LBA) increased monitoring and awareness among lawyers. However, intensity of LBA monitoring remains modest and CSSF supervisory resources may become stretched depending on NRA findings. AML/CFT monitoring of TCSPs under other authorities is unclear.
- Financial Intelligence Unit (FIU) has been proactive in sharing suspicious transaction reports (STRs) spontaneously with foreign counterparts and received positive feedback. FIU resources were strengthened, but the FIU remains small relative to the size of the financial sector and the number of STRs received and may be stretched if inclusion of tax crimes generates a larger number of STRs than anticipated.

### Key recommendations (summary from Executive Summary)
- Issue guidance on the reporting of suspicions of tax crimes and ML related to tax crimes to reporting entities not supervised by the CSSF, including by clarifying the type of information that reporting entities should collect and providing a list of potential red flags of tax crimes. — Time Frame: I; Authorities: FIU, and DNFBPs regulators.
- Finalize the targeted supervisory program related to the Panama Papers and take necessary mitigating and enforcement actions that the review may call for. — Time Frame: I; Authority: CSSF.
- Update the FIU Law regarding international cooperation in line with the current FATF Recommendations. — Time Frame: MT; Authority: MoJ.
- Monitor the resources of the FIU in light of the NRA results and inclusion of tax crimes as predicate offenses to ML, and ensure that they remain commensurate with the workload. — Time Frame: MT; Authorities: MoJ, FIU.
- Further increase intensity (i.e., frequency and depth) of AML/CFT monitoring of lawyers by the Bar Association. — Time Frame: NT; Authorities: MoJ, LBA.
- Ensure that sufficient resources are available for risk-based AML/CFT supervision of banks and TCSPs. — Time Frame: MT; Authorities: CSSF, and all other TCSP regulators.
- If necessary, align the current risk classification of banks and TCSPs under the CSSF’s purview in light of the findings of the NRA. — Time Frame: NT; Authority: CSSF.
- Ensure that AML/CFT monitoring of TCSPs outside the CSSF and LBA purview is adequate and commensurate to ML/TF risks. — Authorities: Tax administration; MoF, Order of accountants.
- Ensure that the 2016/2017 national risk assessment (NRA) focuses adequately on the risks of TCSPs as defined in the FATF standard. — Time Frame: I; Authority: MoF.
- Complete the NRA in a timely fashion, and share its findings within the government and with the private sector as appropriate. — Time Frame: I; Authority: MoF.
- On the basis of the completed NRA, take the necessary risk mitigation policy and operational measures. — Time Frame: NT; Authority: MoF.
- Ensure that the 4AMLD implementation work and engagement on 5AMLD continue to address identified vulnerabilities.

### Methodology and inputs
- Staff reviewed available information, including information submitted by Luxembourg to the FATF on progress made between June 2010 and February 2014 in addressing the deficiencies identified in its last AML/CFT assessment, and answers provided by the authorities to an extensive questionnaire submitted ahead of the FSAP.
- Mission to Luxembourg: December 5–12, 2016.
- Meetings held with competent authorities: Ministry of Finance (MoF); Tax Administration; Ministry of Justice (MoJ); Public Prosecution; FIU; Commission de Surveillance du Secteur Financier (CSSF).
- Meetings held with private sector representatives: LBA and other professions (banks, investment funds, domiciliation companies, and asset management firms).
- Review conducted against: the 2012 FATF Recommendations and 2013 assessment methodology.

### TAX CRIMES AS PREDICATE OFFENSES TO MONEY LAUNDERING — Criminalization and scope
- Tax crimes are predicate offenses in Luxembourg since January 1, 2017. Article 506-1 of the Criminal Code criminalizes ML and lists a wide range of predicate offenses, which, since the January 1, 2017 entry into force of the tax reform Law of December 23, 2016, includes six tax crimes.
- Tax reform law: published on December 27, 2016, came into force on January 1, 2017.
- Main tax offenses under current legislation (applying with respect to income tax, value-added tax (VAT) and inheritance tax):
  - Tax evasion (fraude fiscale), Section 396(1) of the General Tax Law: administrative offense punishable by an administrative fine ranging from 10 to 50 percent of the amount of evaded taxes.
  - Aggravated tax evasion (fraude fiscale aggravée, Section 396(5) of the General Tax Law): thresholds: (i) evaded taxes exceed 25 percent of the annual taxes to be paid, while exceeding the amount of €10,000 (relative threshold), or (ii) €200,000 of annual taxes (absolute threshold). Punishable by a criminal fine ranging from €25,000 to six times the evaded amount of taxes and imprisonment (one month to three years).
  - Tax fraud (escroquerie fiscale) and its attempt (Section 396(6) of the General Tax Law): punishable by a criminal fine ranging from €25,000 to 10 times the evaded amount of taxes and imprisonment (one month to five years).
- As of January 1, 2017, six forms of tax crimes (and their attempt) constitute predicate offenses to ML (listed in the source).
- Assessment: this is a sufficiently broad range of serious tax offenses to meet the 2012 FATF standard requirement.

### Tax crimes — Impact, guidance needs, and follow-up
- Inclusion of tax crimes in AML/CFT framework constitutes significant progress and limits an important vulnerability.
- Private sector views (as of December 2016): welcomed changes but noted lack of clarity on scope of new offenses and implications for AML/CFT obligations; called for guidance on:
  - performance of customer due diligence (CDD) measures, specifically documents to be collected from customers going forward;
  - detection of potential suspicions of tax crimes.
- FIU and CSSF were working on a joint circular to set out their common understanding of the new offenses; circular has since been finalized and published on the CSSF website. It is addressed to reporting entities supervised by the CSSF and provides guidance on practical implementation of the tax reform law, including potential indicators of laundering of the proceeds of tax crimes.
- Recommendation:
  - Issue guidance on the new reporting requirements to reporting entities not supervised by the CSSF, including by clarifying the type of information that reporting entities should collect and providing a list of potential red flags of tax crimes.

### Access to beneficial ownership information of legal persons and arrangements — Findings
- All legal persons established in Luxembourg must be registered in the Registry of Businesses and Corporations (Registre de Commerce et des Sociétés).
- Types of commercial companies under Luxembourg law enumerated in source.
- The fiducie (a legal arrangement similar to the Common Law trust) may be established in Luxembourg; only supervised entities acting in a licensed capacity may act as fiduciaire.
- The exact number of foreign trusts administered in Luxembourg is unclear.
- Historical concerns:
  - FATF in 2010 and Global Forum in 2011 and 2013 raised transparency concerns; Global Forum’s Supplementary Report of 2015 recognized progress but noted further measures were necessary.
  - April 2016 "Panama Papers" leaks increased scrutiny; ICIJ analysis placed Luxembourg fourth in countries with the most active intermediaries and seventh where intermediaries operate.
- Measures in place:
  - Register of companies includes legal ownership information; register is publicly available but information is not verified.
  - Article 3 paragraph 2b of the AML/CFT law requires reporting entities to identify the beneficial owner and take reasonable measures to verify identity; for corporate customers, fiducies and similar legal arrangements, reasonable measures to ensure understanding of ownership and control structure.
  - Requirements apply to TCSPs acting as nominee director and to professional trustees.
  - CSSF supervises financial institutions other than insurance companies and some TCSPs; CAA supervises insurance companies; other supervisors and SRBs supervise most DNFBPs and some TCSPs.
  - Access to beneficial ownership information held by FIs and DNFBPs: possible for judicial authorities as part of an investigation; FIU has broad powers to request information, including outside receipt of an STR.
- CSSF response to Panama Papers:
  - Initial survey to selected banks and targeted supervisory review; working group identified a sample of 30 banks for further onsite examination with external auditing firms.
  - Final report expected to be finalized in late Q2 2017.
  - Interim findings:
    - Four STRs filed as a result of the review.
    - Between 2007 and 2016: assets of offshore structures under management in Luxembourg decreased by 35 percent; the number of offshore structures decreased by 52 percent.
    - According to the CSSF, three quarters of Luxembourg's banks do not offer any administrative services to offshore vehicles at least since 2012.
  - Concerns: focus has been directed heavily on banks; TCSPs are not examined in as much depth.
- 4AMLD implementation:
  - Luxembourg is drafting legislation to implement beneficial ownership register requirements; legislation is expected to be enacted in June 2017.
  - Implementation of similar requirements regarding legal arrangements is underway.
- Bearer shares:
  - Abolished through a registration requirement in force since 2014.
  - All existing and new bearer shares should have been deposited with one of eight approved types of depositories.
  - Transfer of shares without update to the register has no legal effect.
  - All shares not registered by February 2016 must be cancelled, and their value deposited with the Treasury's Caisse de Consignation.
  - The resulting capital reduction amounted to approximately €1.4 billion being deposited in the Caisse de Consignation.
  - Sanctions for non-compliance with the 2014 law: fines ranging from €5,000 to €125,000.
- Recommendations:
  - Finalize the CSSF targeted supervisory program related to the Panama Papers and take necessary mitigating and enforcement action that the review may call for.
  - Consider measures to facilitate access to beneficial ownership and control information by financial institutions and DNFBPs; implementation of relevant 4AMLD/5AMLD provisions may be useful.

### Detection and exchange of financial intelligence related to nonresidents — Detection by reporting entities
- Detection and exchange of financial intelligence related to nonresidents is key for small jurisdictions like Luxembourg with low domestic crime rates and large regional or global financial centers.
- Number of STRs has significantly increased in recent years.
- Vast majority of STRs filed by financial sector professionals: approximately 96 percent in 2013, 97 percent in 2014, and 98 percent in 2015.
- Increase in STRs filed by electronic money/payment institutions:
  - In 2015, e-money/payment institutions filed approx. 57 percent of the STRs emanating from financial institutions; banks filed some 37 percent in 2015.
  - According to the FIU, the vast majority of STRs filed by e-money/payment institutions pertain to very low amounts (example given: €0,99 for mobile applications), while STRs filed by banks typically involved larger amounts.
- Persons included in STRs in 2015 (by nationality): France 14 percent, Luxembourg 9 percent, Belgium 6 percent, Germany 4 percent.
- Persons’ country of residence in 2015: Luxembourg 27 percent, France 9 percent, Belgium 5 percent, Germany 4 percent.
- FIU analysis of STRs in 2015: 82 percent potentially pertained to falsification (e.g., of documents) and fraud; increasing trend of "CEO fraud" and falsified banking instructions.
- The NRA is expected to establish whether recent trends in reporting are in line with Luxembourg’s risk profile.

### Detection and exchange of financial intelligence related to nonresidents — Exchange with other FIUs
- Number of information exchanges between Luxembourg's FIU and other countries has generally increased over the past few years.
- Most requests and spontaneous exchanges were with: the United Kingdom, Germany, Italy, France, the United States, and Spain (each more than 500 transmissions).
- Luxembourg's FIU received most requests from: France, Belgium, Italy, the Netherlands, the United Kingdom, Germany, and the United States (each more than ten requests).
- The number of reports submitted by Luxembourg to other jurisdictions far exceeds requests received by Luxembourg.
- Exchanges with the United Kingdom's FIU in 2015 were four times greater than in 2013, driven in part by Luxembourg forwarding STRs reported by e-commerce businesses to the FIUs of countries where the actual business took place.
- FIU policy is to spontaneously share STRs or analysis with concerned countries without specifically asking for feedback in all cases to avoid burdening the other FIU.
- Financial sector professionals reported receiving follow-up information requests from third countries on STRs they reported to the Luxembourg FIU, suggesting shared information is used and helpful.
- Recommendation:
  - Ensure the NRA establishes whether the current reporting trends are in line with Luxembourg’s risk profile and, if necessary, take appropriate mitigating action.

### FIU resourcing and capacity
- Current staff composition of the FIU: 15 staff, including:
  - 1 director
  - 3 magistrates
  - 5 analysists
  - 5 administrative assistants
  - 1 IT expert
- Observations and concerns:
  - FIU resources have increased over the last years, but may nevertheless be overstretched in the near future.
  - Feedback from reporting entities suggests FIU staff resources may come under pressure, especially if the number of STRs increases significantly as a result of the inclusion of tax crimes as predicate offenses to ML.
  - Authorities are updating the FIU Law to extend the FIU's information exchange capabilities with its EU counterparts; proposed legal clarification is welcome.
- Recommendations:
  - Finalize the update to the FIU Law regarding international cooperation in line with the current FATF Recommendations.
  - Monitor the resources of the FIU and ensure that they remain commensurate with the workload.

### AML/CFT supervision of banks, TCSPs, and lawyers — Supervision of banks and TCSPs (CSSF)
- CSSF supervisory department staffing and coverage:
  - 84 employees for 142 banks (compared to 72 in early 2016)
  - 23 employees for 109 investment firms
  - 13 employees for 125 TCSPs
  - Within the on-site inspections department, 13 staff are dedicated to AML/CFT (compared to 9 in early 2016).
- On-site inspection activity and scope:
  - Duration of CSSF onsite inspections has increased and ranges from several days to several weeks.
  - AML/CFT on-site inspection program for 2012–2015 covered an average of:
    - 12.5 banks inspected onsite per year
    - 9 investment firms
    - 14 TCSPs
    - 3.5 other supervised entities (such as e-money institutions and management companies)
  - These averages appear low relative to the overall number of entities.
- Remedial actions for detected irregularities include administrative fines, reprimands, supervisory imposition of business restrictions, letters and follow-up inspections, fit and proper measures.
- 2016 CSSF reassessment and risk classification:
  - All banks and TCSPs supervised by CSSF are classified as low risk, medium-low risk, medium-high risk, or high risk pursuant to five risk criteria.
  - 5 percent of banks are defined as high risk.
  - 0.8 percent of TCSPs are defined as high risk.
  - Risk classification is based on a 2010 internal circular, first undertaken in 2015 and intended to be refined on the basis of the NRA.
- TCSP oversight and coordination issues:
  - Intensity of AML/CFT oversight of TCSPs varies greatly across supervisors.
  - CSSF supervision appears more comprehensive than the LBA’s monitoring.
  - Extent of AML/CFT supervisory program of the tax administration and of the Order of accountants is unclear.
  - Limited dialogue between competent authorities and limited general overview of the TCSP sector as a whole.
- Recommendations:
  - Ensure that sufficient resources are available for risk-based AML/CFT supervision of banks and TCSPs in light of the findings of the NRA.
  - If necessary, align the current risk classification of banks and TCSPs in light of the findings of the NRA.
  - Ensure that AML/CFT monitoring of TCSPs outside the CSSF and LBA purview is adequate and commensurate to ML/TF risks.

### AML/CFT supervision of lawyers (LBA)
- Lawyer population and SRB structure:
  - Two Bar Associations: LBA (approximately 2400 to 2500 members) and the Bar Association of Diekirch (approximately 30 members).
  - Vast majority of lawyers performing FATF-relevant activities are located in the city of Luxembourg and registered with the LBA.
- LBA monitoring activity and inspections:
  - Created in 2011 an AML/CFT Committee (initially 4 lawyers, now 5 lawyers and one compliance officer) that undertakes on-site inspections.
  - Inspections of LBA-accredited lawyers: 450 in 2012/2013, 116 in 2013/2014, and 150 in 2014/2015; total 716 lawyers inspected, working in 37 law firms.
  - According to the LBA, an average inspection visit takes about two to three hours.
- Inspection findings and STR filing:
  - Inspections between 2012 and 2015 did not detect significant failures requiring AML/CFT sanctions; areas for further improvements were noted and advice provided.
  - Number of STRs filed by lawyers:
    - 17 in 2012/2013
    - 27 per year in 2015/2016
  - Filing of STRs remains low compared to the number of lawyers; LBA issued supporting documents in 2012 including a standardized client check list, a customer form, an identification form, and a transaction details form.
- Recommendations:
  - Further increase intensity (i.e., frequency and depth) of AML/CFT monitoring of lawyers by the Bar Association.
  - Monitor and address the growing workload as the number of LBA accredited lawyers is growing by about 10 percent per year.

### Overall conclusions and next steps
- Authorities have significantly enhanced the AML/CFT legislative and regulatory framework and should continue efforts to implement the 2012 FATF standard effectively.
- Commended actions: completion of the NRA and implementation of the 4AMLD.
- Priority follow-up actions:
  - Complete the NRA in a timely fashion, and share its findings within government and with the private sector as appropriate.
  - On the basis of the completed NRA, take the necessary risk mitigation policy and operational measures.
  - Continue implementation work on 4AMLD and engagement on 5AMLD to address identified vulnerabilities.
  - Ensure FIU resourcing and supervisory resources remain commensurate with potential increases in STR volumes and identified risks.

*Source: cr17255 — IMF staff note excerpts.*

### EXECUTIVE SUMMARY ___________________________________________________________________________ 4

### EXECUTIVE SUMMARY

### Introduction
- This technical note (TN) summarizes findings and recommendations from the 2017 Financial Sector Assessment Program (FSAP) Update for Luxembourg on selected AML/CFT areas.  
- The TN is a targeted review—not an assessment—and Luxembourg is scheduled to undergo an assessment against the Financial Action Task Force (FATF) 2012 40 Recommendations in 2020.  
- Areas reviewed: tax crimes as predicate offenses to money laundering (ML); access to adequate beneficial ownership information of legal persons and arrangements; AML/CFT supervision of banks, trust and company service providers (TCSPs), and lawyers; and detection and exchange of financial intelligence.

### Luxembourg financial sector profile and AML/CFT context
- Investment and money market fund industry: €3.7 trillion in assets under management, 72 times GDP.  
- Banking industry: €773 billion in assets, 14 times GDP.  
- Insurance industry: €219 billion, 4 times GDP.  
- Money market fund (MMF) assets account for €246 billion of the total.  
- Luxembourg hosts the second largest fund administration sector in the world and the largest private banking sector in the Eurozone (ranked sixth in the world).  
- Due to size, interconnectedness, and attractiveness, Luxembourg faces potentially significant inherent ML/TF risks, in particular from proceeds of foreign tax crimes.  
- The FATF and the OECD previously raised concerns, notably insufficient transparency over beneficial ownership and insufficient coverage of tax crimes.

### Progress since the last FSAP assessment
- Substantial legislative and regulatory measures were taken after the 2009 FATF mutual evaluation report to address main deficiencies.  
- Luxembourg initiated a national assessment of ML/TF risks to implement the 2012 FATF standard. Work is underway to implement the 4th EU Anti-Money Laundering Directive (4AMLD) and authorities are engaged in discussions on a 5th EU AML Directive (5AMLD).  
- Measures are being taken to assess media allegations (e.g., Panama Papers) of potential misuse of corporate structures.  
- Inclusion of tax crimes in the AML/CFT framework and automatic exchange of tax information with a substantial number of foreign tax authorities (based on OECD and EU standards) entered into force on January 1, 2017 and were publicly communicated prior to that date. This communication appears to have contributed to a reduction of the incentive to use Luxembourg’s financial sector for tax evasion purposes.  
- Transparency of beneficial ownership of legal persons has improved, particularly for companies that may issue bearer shares, with required immobilization of these shares with appointed depositories and steps to verify deposition or cancellation.  
- AML/CFT supervision strengthened: the Commission de Surveillance du Secteur Financier (CSSF) increased staff and onsite visit duration; the Luxembourg Bar Association (LBA) increased monitoring and awareness among lawyers. However, intensity of LBA monitoring remains modest and CSSF supervisory resources may become stretched depending on NRA findings. AML/CFT monitoring of TCSPs under other authorities is unclear.  
- Financial Intelligence Unit (FIU) has been proactive in sharing suspicious transaction reports (STRs) spontaneously with foreign counterparts and received positive feedback. FIU resources were strengthened, but the FIU remains small relative to the size of the financial sector and the number of STRs received and may be stretched if inclusion of tax crimes generates a larger number of STRs than anticipated.

### Tax crimes as predicate offenses to money laundering — findings and implications
- Concerns raised historically by FATF and OECD regarding insufficient coverage of tax crimes as predicates for ML.  
- Inclusion of tax crimes in the AML/CFT framework (effective January 1, 2017) and broad arrangements for automatic exchange of tax information are key recent measures.  
- Potential implications: increase in STRs related to tax crimes could strain FIU resources; guidance and red flags for reporting entities not supervised by the CSSF are needed to ensure consistent reporting and detection.

Key recommendation bullets (from Table 1 and main text):
- Issue guidance on the reporting of suspicions of tax crimes and ML related to tax crimes to reporting entities not supervised by the CSSF, including by clarifying the type of information that reporting entities should collect and providing a list of potential red flags of tax crimes. — Time Frame: I; Authorities: FIU, and DNFBPs regulators.

### Access to beneficial ownership information of legal persons and arrangements — findings and implications
- Transparency has improved, notably for bearer shares via immobilization with appointed depositories and verification steps for deposited or cancelled shares.  
- The understanding of risks posed by professions that may act as TCSPs appears fragmented among competent supervisory and monitoring authorities. Ongoing national risk assessment (NRA) is expected to clarify risks and guide mitigating measures.

Key recommendation bullets:
- Finalize the targeted supervisory program related to the Panama Papers and take necessary mitigating and enforcement actions that the review may call for. — Time Frame: I; Authority: CSSF.

### Detection and exchange of financial intelligence related to nonresidents — findings and implications
- FIU proactive in spontaneous sharing of STRs with foreign counterparts; positive feedback received.  
- FIU resources were strengthened but remain small relative to sector size and STR volume; resource monitoring is necessary as inclusion of tax crimes may increase STRs.

Key recommendation bullets:
- Update the FIU Law regarding international cooperation in line with the current FATF Recommendations. — Time Frame: MT; Authority: MoJ.  
- Monitor the resources of the FIU in light of the NRA results and inclusion of tax crimes as predicate offenses to ML, and ensure that they remain commensurate with the workload. — Time Frame: MT; Authorities: MoJ, FIU.

### AML/CFT supervision of banks, TCSPs, and lawyers — findings and implications
- CSSF has significantly strengthened AML/CFT supervision by increasing staff and onsite visit duration.  
- LBA increased its monitoring role and lawyer awareness, but overall intensity (frequency and depth) of LBA monitoring appears modest.  
- AML/CFT monitoring of TCSPs operating under other authorities lacks clarity. CSSF supervisory resources could be stretched if NRA requires increased supervision.

Key recommendation bullets:
- Further increase intensity (i.e., frequency and depth) of AML/CFT monitoring of lawyers by the Bar Association. — Time Frame: NT; Authorities: MoJ, LBA.  
- Ensure that sufficient resources are available for risk-based AML/CFT supervision of banks and TCSPs. — Time Frame: MT; Authorities: CSSF, and all other TCSP regulators.  
- If necessary, align the current risk classification of banks and TCSPs under the CSSF’s purview in light of the findings of the NRA. — Time Frame: NT; Authority: CSSF.  
- Ensure that AML/CFT monitoring of TCSPs outside the CSSF and LBA purview is adequate and commensurate to ML/TF risks. — Authorities: Tax administration; MoF, Order of accountants.

### Cross-cutting recommendations and next steps
- Ensure that the 2016/2017 national risk assessment (NRA) focuses adequately on the risks of TCSPs as defined in the FATF standard. — Time Frame: I; Authority: MoF.  
- Complete the NRA in a timely fashion, and share its findings within the government and with the private sector as appropriate. — Time Frame: I; Authority: MoF.  
- On the basis of the completed NRA, take the necessary risk mitigation policy and operational measures. — Time Frame: NT; Authority: MoF.  
- Ensure that the 4AMLD implementation work and engagement on 5AMLD continue to address identified vulnerabilities.

*Source: cr17255 - EXECUTIVE SUMMARY*

### 8.      Staff analysis was based on a range of materials and benefited from discussions with

### 8.      Staff analysis was based on a range of materials and benefited from discussions with

### Methodology and inputs
- Staff reviewed available information, including information submitted by Luxembourg to the FATF on progress made between June 2010 and February 2014 in addressing the deficiencies identified in its last AML/CFT assessment, and answers provided by the authorities to an extensive questionnaire submitted ahead of the FSAP.
- Mission to Luxembourg: December 5–12, 2016.
- Meetings held with competent authorities: Ministry of Finance (MoF); Tax Administration; Ministry of Justice (MoJ); Public Prosecution; FIU; Commission de Surveillance du Secteur Financier (CSSF).
- Meetings held with private sector representatives: LBA and other professions (banks, investment funds, domiciliation companies, and asset management firms).
- Review conducted against: the 2012 FATF Recommendations and 2013 assessment methodology.

### Progress since the last FSAP assessment — Implementation of 2010 Assessors’ Recommended Actions
- Since the FATF evaluation and 2011 FSAP, authorities implemented a speedy remedial action plan including legislative, institutional and regulatory changes.
- February 2014 FATF conclusion: Luxembourg had sufficiently addressed key shortcomings related to (i) the criminalization of ML; (ii) confiscation of illicit proceeds; (iii) licensing of financial institutions and their supervision; (iv) sanctions for non-compliance; (v) implementation of international instruments; (vi) the freezing of terrorist assets and mutual legal assistance in CFT efforts.
- FATF conclusion: Luxembourg had reached a level of compliance at least equivalent to Largely Compliant for all the key and core FATF Recommendations.
- Additional measures taken since 2010 FATF report include actions with respect to bearer shares.

### Bringing the AML/CFT framework in line with the 2012 standard
- Luxembourg initiated an NRA in July 2016. Process led by MoF in collaboration with MoJ, FIU, law enforcement, intelligence services, supervisors, Tax administration, Customs, Ministry of Foreign Affairs, and private sector representatives including the LBA.
- As of drafting: discussions focused on methodology, mapping of activities and sectors to be included, and type of data to be collected.
- Agreement reached to focus the exercise on the residual risk (i.e., the combination of the inherent risks-in terms of threats and vulnerabilities-and the effectiveness of existing mitigating measures).
- Discussions with private sector representatives planned; authorities anticipated to bring the NRA to a close no later than mid-2017.
- No decision at time of FSAP visit on whether the NRA or parts thereof will be published.
- Luxembourg required to transpose the 4th EU AML Directive (4AMLD) into national law by June 2017; EU discussions ongoing on a 5th AML Directive (5AMLD) which may amend some 4AMLD requirements.
- Authorities working on a legislative package to implement 4AMLD by transposition deadline, notably creation of a register of beneficial ownership of legal entities; some elements may need adjustment depending on outcome of EU discussions on 5AMLD.

### Conclusions and recommendations (implementation of 2012 FATF standard)
- Authorities have significantly enhanced the AML/CFT legislative and regulatory framework and should continue efforts to implement the 2012 FATF standard effectively.
- Commended actions: completion of the NRA and implementation of the 4AMLD.
- Recommended actions:
  - Ensure that the 2016/2017 NRA focuses adequately on the risks of TCSPs as defined in the FATF standard; consider all professions that may act as TCSPs in a holistic way.
  - Complete the NRA in a timely fashion, and share its findings within government and with the private sector as appropriate. Consider publication of the NRA's main findings to ensure a common understanding of Luxembourg's risks.
  - On the basis of the completed NRA, take the necessary risk mitigation policy and operational measures.

### TAX CRIMES AS PREDICATE OFFENSES TO MONEY LAUNDERING — Introduction
- Pursuant to the 2012 FATF Recommendations, serious tax crimes should be predicate offenses to ML.
- Standard specifies tax crimes should include a range of tax offenses relating to direct and indirect taxes; countries may decide, in accordance with domestic law, how to define those offenses and the nature of any elements that make them serious.

### Criminalization of tax offenses
- Tax crimes are predicate offenses in Luxembourg since January 1, 2017. Article 506-1 of the Criminal Code criminalizes ML and lists a wide range of predicate offenses, which, since the January 1, 2017 entry into force of the tax reform Law of December 23, 2016, includes six tax crimes.
- Tax reform law: published on December 27, 2016, came into force on January 1, 2017.
- Main tax offenses under current legislation (applying with respect to income tax, value-added tax (VAT) and inheritance tax):
  - Tax evasion (fraude fiscale), Section 396(1) of the General Tax Law: fraudulently obtaining undue tax advantages for oneself or for a third party, or intentionally reducing the state’s tax income. It is an administrative offense punishable by an administrative fine ranging from 10 to 50 percent of the amount of evaded taxes.
  - Aggravated tax evasion (fraude fiscale aggravée, Section 396(5) of the General Tax Law): same elements as tax evasion plus thresholds: (i) evaded taxes exceed 25 percent of the annual taxes to be paid, while exceeding the amount of €10,000 (relative threshold), or (ii) €200,000 of annual taxes (absolute threshold). Punishable by a criminal fine ranging from €25,000 to six times the evaded amount of taxes and imprisonment (one month to three years).
  - Tax fraud (escroquerie fiscale) and its attempt (Section 396(6) of the General Tax Law): criminal offense consisting of the systematic use of fraudulent acts aimed at concealing relevant facts to avoid paying taxes or to be reimbursed for paid taxes. Punishable by a criminal fine ranging from €25,000 to 10 times the evaded amount of taxes and imprisonment (one month to five years).

### Comparative assessment and supporting measures
- Criminal sanctions for aggravated tax evasion and for tax fraud (up to three- to five-year imprisonment, and up to six to ten times the evaded amount of taxes) appear proportionate and dissuasive in comparison to sanctions in most neighboring countries.
- The tax reform law introduced additional supporting measures, including strengthened national coordination and international cooperation provisions.

### Tax offenses as predicate offenses for ML — Scope
- As of January 1, 2017, six forms of tax crimes (and their attempt) constitute predicate offenses to ML:
  - aggravated tax evasion and tax fraud referenced in Sections 396(5) and 396(6) of the General Tax Law;
  - aggravated tax evasion within the meaning of article 29 of the law of January 28, 1948 on registration fees and inheritance tax, as modified, as well as its attempt;
  - tax fraud within the meaning of article 29 of the law of January 28, 1948 on registration fees and inheritance tax, as modified, as well as its attempt;
  - aggravated tax evasion within the meaning of article 80 (1) of the law of February 12, 1979 regarding VAT, as modified, as well as its attempt;
  - tax fraud within the meaning of article 80 (1) of the law of February 12, 1979 regarding VAT, as modified, as well as its attempt.
- Assessment: this is a sufficiently broad range of serious tax offenses to meet the 2012 FATF standard requirement.

### Impact, guidance needs, and follow-up
- Inclusion of tax crimes in AML/CFT framework constitutes significant progress and limits an important vulnerability.
- Private sector views (as of December 2016): welcomed changes but noted lack of clarity on scope of new offenses and implications for AML/CFT obligations; called for guidance on:
  - performance of customer due diligence (CDD) measures, specifically documents to be collected from customers going forward;
  - detection of potential suspicions of tax crimes.
- FIU and CSSF were working on a joint circular to set out their common understanding of the new offenses; circular has since been finalized and published on the CSSF website. It is addressed to reporting entities supervised by the CSSF and provides guidance on practical implementation of the tax reform law, including potential indicators of laundering of the proceeds of tax crimes.

### Additional measures taken to fight tax evasion and increase transparency
- Luxembourg has signed and ratified the Multilateral Joint Council of Europe/OECD Convention on mutual administrative assistance in tax matters and its Protocol, creating a network covering 108 jurisdictions. Law of November 25, 2014 reinforced the legal framework for exchange of information and introduced an anti-tipping off provision applicable to the information holder.
- Luxembourg is a signatory of the Common Reporting Standard (CRS) multilateral Competent Authorities Agreement for automatic exchange of information. Automatic exchange of information enters into force in Luxembourg on January 1, 2017 with 54 countries; exchanges with some 100 countries expected in 2018, in addition to the exchange with the US based on the Foreign Account Tax Compliance Act.
- Law of July 28, 2014 on immobilization of bearer shares and keeping of a register of bearer shares.
- Implemented in 2015 the Directive on mandatory automatic exchange of tax information (2014/107/EU) which introduces the CRS between member states.
- Took steps to implement EU Directive 2015/2376/EU (automatic exchange of information on cross-border tax rulings) and EU Directive 2016/881/EU on country-by-country reporting.

### Conclusions and recommendations (tax crimes)
- The tax reform law strengthens the AML/CFT framework by including tax crimes in the AML/CFT framework, strengthening national coordination and international cooperation, and enabling automatic exchange of tax information.
- To ensure effective implementation by reporting entities, authorities should:
  - Issue guidance on the new reporting requirements to reporting entities not supervised by the CSSF, including by clarifying the type of information that reporting entities should collect and providing a list of potential red flags of tax crimes.

### Access to beneficial ownership information of legal persons and arrangements — Introduction
- All legal persons established in Luxembourg must be registered in the Registry of Businesses and Corporations (Registre de Commerce et des Sociétés).
- Types of commercial companies under Luxembourg law: general partnership (société en nom collectif), limited partnership (société en commandite simple), public or joint stock company (société anonyme), partnership limited by shares (société en commandite par actions), (private) limited liability company (société à responsabilité limitée), cooperative (société cooperative) and European company (société européenne).
- The fiducie (a legal arrangement similar to the Common Law trust) may be established in Luxembourg.
  - Only supervised entities acting in a licensed capacity (e.g., banks, financial sector professionals, investment managers) may act as fiduciaire (trustee).
  - According to authorities, most fiduciaires are supervised for AML/CFT purposes by the CSSF and the Commissariat aux Assurances (CAA), except lawyers who are self-regulated by relevant Bar Associations.
  - It was not established whether and to what extent other professions, such as TCSPs not monitored by the CSSF, CAA and LBA, also act as fiduciaires.
  - According to the authorities and the Global Forum, very few Luxembourg fiducies have been established.

*Source: IMF staff note (excerpts).*

### 27.      In addition, foreign trusts are set up and administered in Luxembourg under the

### cr17255 - 27.      In addition, foreign trusts are set up and administered in Luxembourg under the

### Foreign trusts, TCSPs, and services provided
- Foreign trusts are recognized in Luxembourg under the conditions laid out in the Law of July 27, 2003.
- The exact number of foreign trusts administered in Luxembourg is unclear.
- According to the authorities, the majority of TCSPs in Luxembourg provide corporate services rather than services to domestic or foreign trusts. These services include:
  - providing a registered office to companies without exerting significant influence (domiciliation services);
  - fund administration services;
  - human resources and payroll services;
  - special purpose vehicle management services;
  - tax compliance services.

### Historical transparency concerns and Panama Papers scrutiny
- Past concerns about lack of transparency of legal entities and arrangements in Luxembourg were raised by:
  - FATF in 2010;
  - the Global Forum in 2011 and 2013 (with recognition of progress in 2015).
- FATF noted that the register of legal persons did not allow for identification of the beneficial owner in all cases, lacked measures to guarantee accuracy of registered information, and lacked measures to ensure adequate transparency of legal persons that issue bearer shares.
- Global Forum’s Supplementary Report of 2015 recognized progress (immobilization of bearer shares; requiring service providers to retain information on settlers and beneficiaries of trusts and fiducies) but noted further measures were necessary to ensure information on beneficial ownership of legal persons is readily available to competent authorities.
- The April 2016 "Panama Papers" leaks raised public scrutiny of Luxembourg intermediaries’ role in creating opaque structures; ICIJ analysis placed Luxembourg:
  - fourth in the list of countries with the most active intermediaries, and
  - seventh where intermediaries operate.
- According to the authorities, Luxembourg banks’ adherence to the International Capital Market Association (ICMA) Private Wealth Management Charter of Quality, monitored by the CSSF, provides assurances that the Panama Papers do not reflect current practices.

### Measures in place and supervisory responsibilities
- The register of companies includes information on legal ownership, which may but does not necessarily coincide with beneficial ownership information; the register is publicly available but the information is not verified.
- All FIs and DNFBPs designated under the AML/CFT law are required to identify the beneficial owner as part of regular CDD. Article 3 paragraph 2b of the AML/CFT law requires:
  - reporting entities to identify the beneficial owner (definition consistent with the standard) and take reasonable measures to verify identity;
  - for corporate customers, fiducies and similar legal arrangements, reasonable measures to ensure understanding of ownership and control structure.
- These requirements apply to TCSPs acting as nominee director and to professional trustees.
- Implementation and supervision:
  - CSSF supervises financial institutions other than insurance companies and some TCSPs;
  - CAA supervises insurance companies;
  - a range of other supervisors and SRBs supervise most DNFBPs and some TCSPs.
- Access to beneficial ownership information held by FIs and DNFBPs:
  - possible for judicial authorities as part of an investigation;
  - threshold for opening an investigation is relatively low;
  - the FIU has broad powers to request information, including outside receipt of an STR.
- Quality of collected beneficial ownership information:
  - CSSF and LBA indicate reporting entities under their purview generally perform well in identifying and verifying ultimate beneficial owners or refuse relationships and report to the FIU when identification is not possible;
  - deficiencies are rare and have been subject to CSSF enforcement action (but not LBA actions);
  - private sector representatives indicated identification of ultimate beneficial owners is generally not a major challenge due to customer awareness and cooperation.

### CSSF response to Panama Papers and supervisory review
- Immediately following the Panama Papers publication, the CSSF:
  - initiated a targeted supervisory review of a number of banks;
  - sent an initial survey to selected banks requesting information on scope of business with offshore companies, level of administrative services to offshore structures, measures to ensure compliance with ICMA Charter (including tax compliance), and roles of legal/compliance/internal audit.
- In-depth review process:
  - "Outlier banks" selected on a risk-basis using criteria: number of offshore accounts; evolution of account numbers from 2012 to 2016; assets under management; percentage of accounts linked to Mossack Fonseca; administrative services provided to offshore vehicles; measures taken to ensure compliance with ICMA Charter; role of legal/compliance/internal audit.
  - A working group within the CSSF Risk Division identified a sample of 30 banks for further onsite examination with external auditing firms (other than regular auditors).
  - CSSF assessed identified risk banks for compliance with AML/CFT obligations.
  - Final report detailing results of the in-depth review expected to be finalized in late Q2 2017.
- Findings from the review (interim):
  - Four STRs filed as a result of the review.
  - Between 2007 and 2016:
    - assets of offshore structures under management in Luxembourg decreased by 35 percent;
    - the number of offshore structures decreased by 52 percent.
  - According to the CSSF, three quarters of Luxembourg's banks do not offer any administrative services to offshore vehicles at least since 2012.
- Concerns raised by interviewees:
  - focus of authorities has been directed heavily on banks; TCSPs are not examined in as much depth.

### 4AMLD implementation and beneficial ownership registers
- The 4AMLD requires countries to register beneficial ownership information of legal entities set up in their country.
- Luxembourg is drafting legislation to implement this requirement, which will make beneficial ownership information available to authorities, reporting entities, and others on a need-to-know basis.
- The legislation is expected to be enacted in June 2017.
- Implementation of similar requirements regarding legal arrangements is underway.
- Depending on the outcome of discussions on the 5AMLD, measures might have to be adapted later.

### Bearer shares
- Luxembourg abolished bearer shares through a registration requirement (legislation in force since 2014).
- All existing and new bearer shares should have been deposited with one of eight approved types of depositories.
- The depository is appointed by the management of the legal person; a register of shares must be kept by the depository.
- Transfer of shares without update to the register has no legal effect.
- All shares not registered by February 2016 must be cancelled, and their value deposited with the Treasury's Caisse de Consignation.
- The resulting capital reduction amounted to approximately €1.4 billion being deposited in the Caisse de Consignation.
- The number and value of shares immobilized with a depository are not known.
- Direct Tax Administration and the Administration de l’Enregistrement et des Domaines will seek additional information on bearer shares.
- Sanctions for non-compliance with the 2014 law: fines ranging from €5,000 to €125,000.

### Conclusions and policy recommendations (D)
- Progress noted:
  - Important progress to increase transparency of Luxembourg legal persons;
  - Swift action to assess concerns of misuse by Luxembourg banks of potentially opaque foreign structures;
  - Dematerialization of all bearer shares is encouraging;
  - CSSF commended for identifying potential instances of use of opaque offshore structures and assessing the sector against current norms and legal framework.
- Recommended actions:
  - Finalize the CSSF targeted supervisory program related to the Panama Papers and take necessary mitigating and enforcement action that the review may call for.
  - Consider measures to facilitate access to beneficial ownership and control information by financial institutions and DNFBPs. In this respect, the implementation of relevant 4AMLD/5AMLD provisions may be useful, including to ensure the availability of beneficial ownership information of legal persons and arrangements established in Luxembourg and that are not customers of a financial institution or DNFBP in Luxembourg.

### Detection and exchange of financial intelligence related to nonresidents (Introduction and Sections A–C)
- Context:
  - Detection and exchange of financial intelligence related to nonresidents is key for small jurisdictions like Luxembourg with low domestic crime rates and large regional or global financial centers.
  - 2010 FATF MER pointed to serious shortcomings regarding detection of potential misuse: existing requirements related to CDD, reporting of suspicious transactions to the FIU and supervision rated as partially compliant.
  - Follow-up reports indicate significant progress in the legal framework but insufficient information on implementation, particularly onsite AML/CFT supervision.
- Detection by reporting entities (B):
  - Number of STRs has significantly increased in recent years.
  - Vast majority of STRs filed by financial sector professionals: approximately 96 percent in 2013, 97 percent in 2014, and 98 percent in 2015.
  - Increase in STRs filed by electronic money/payment institutions:
    - In 2015, e-money/payment institutions filed approx. 57 percent of the STRs emanating from financial institutions;
    - Banks filed some 37 percent in 2015.
  - According to the FIU, the vast majority of STRs filed by e-money/payment institutions pertain to very low amounts (example given: €0,99 for mobile applications), while STRs filed by banks typically involved larger amounts.
  - Persons included in STRs in 2015 (by nationality): France 14 percent, Luxembourg 9 percent, Belgium 6 percent, Germany 4 percent.
  - Persons’ country of residence in 2015: Luxembourg 27 percent, France 9 percent, Belgium 5 percent, Germany 4 percent.
  - FIU analysis of STRs in 2015: 82 percent potentially pertained to falsification (e.g., of documents) and fraud; increasing trend of "CEO fraud" and falsified banking instructions.
  - The NRA is expected to establish whether recent trends in reporting are in line with Luxembourg’s risk profile.
- Exchange of financial intelligence regarding nonresidents (C):
  - Number of information exchanges between Luxembourg's FIU and other countries has generally increased over the past few years.
  - Most requests and spontaneous exchanges were with: the United Kingdom, Germany, Italy, France, the United States, and Spain (each more than 500 transmissions).
  - Luxembourg's FIU received most requests from: France, Belgium, Italy, the Netherlands, the United Kingdom, Germany, and the United States (each more than ten requests).
  - The number of reports submitted by Luxembourg to other jurisdictions far exceeds requests received by Luxembourg.
  - Exchanges with the United Kingdom's FIU in 2015 were four times greater than in 2013, driven in part by Luxembourg forwarding STRs reported by e-commerce businesses to the FIUs of countries where the actual business took place.
  - FIU policy is to spontaneously share STRs or analysis with concerned countries without specifically asking for feedback in all cases to avoid burdening the other FIU.
  - In some cases Luxembourg's FIU received positive feedback from other countries.
  - Financial sector professionals reported receiving follow-up information requests from third countries on STRs they reported to the Luxembourg FIU, suggesting shared information is used and helpful.

*International Monetary Fund — cr17255 (selected chapter/section content as provided)*

### 42.      In light of the increased workload, the FIU's resources have increased over the last

### cr17255 - 42.      In light of the increased workload, the FIU's resources have increased over the last

### FIU resourcing and capacity
- Current staff composition of the FIU:
  - 15 staff, including:
    - 1 director
    - 3 magistrates
    - 5 analysists
    - 5 administrative assistants
    - 1 IT expert
- Observations and concerns:
  - FIU resources have increased over the last years, but may nevertheless be overstretched in the near future.
  - Feedback from reporting entities suggests FIU staff resources may come under pressure, especially if the number of STRs increases significantly as a result of the inclusion of tax crimes as predicate offenses to ML.
  - Authorities should remain vigilant and continue to reflect on the staff budget of the FIU, which is key to its long term effectiveness.

### FIU legal update and international cooperation
- Authorities are updating the FIU Law to extend the FIU's information exchange capabilities with its EU counterparts.
- Although the FIU already exchanges information in practice as required, the proposed additional clarification in the law is welcome.
- Practical example of cross-border STR handling:
  - A payment for goods by a customer in a third country on a market place based in Luxembourg: the e-payment provider for the market place reports any STR related to that transaction to the Luxembourg FIU, which promptly copies the STR to the FIU of the third country where the customer is based.

*Conclusions and recommendations (FIU)*
- Finalize the update to the FIU Law regarding international cooperation in line with the current FATF Recommendations.
- Monitor the resources of the FIU are and ensure that they remain commensurate with the workload.
- Ensure that the NRA establishes whether the current reporting trends are in line with Luxembourg’s risk profile and, if necessary, take appropriate mitigating action.

### AML/CFT supervision of banks, TCSPs, and lawyers — overview
- General: AML/CFT supervision is improving; the FATF evaluation highlighted important deficiencies, but the 2014 follow-up report indicates good progress since then.

### Supervision of banks and TCSPs (CSSF)
- CSSF staffing and coverage:
  - CSSF supervisory department now has:
    - 84 employees for 142 banks (compared to 72 in early 2016)
    - 23 employees for 109 investment firms
    - 13 employees for 125 TCSPs
  - Within the on-site inspections department, 13 staff are dedicated to AML/CFT (compared to 9 in early 2016).
- On-site inspection activity and scope:
  - Duration of CSSF onsite inspections has increased and ranges from several days to several weeks.
  - AML/CFT on-site inspection program for 2012–2015 covered an average of:
    - 12.5 banks inspected onsite per year
    - 9 investment firms
    - 14 TCSPs
    - 3.5 other supervised entities (such as e-money institutions and management companies)
  - These averages appear low relative to the overall number of entities.
- Use of multiple information sources for surveillance:
  - Reports from banks, on-site visits, self-assessment questionnaires, information from other authorities and foreign partners, and open source information.
- Remedial actions for detected irregularities:
  - Administrative fines
  - Reprimands
  - Supervisory imposition of business restrictions
  - Letters and follow-up inspections
  - Fit and proper measures
  - Sanctions have been issued for issues related to CDD, record keeping, high-risk customers, targeted sanctions programs, and internal controls.
- 2016 CSSF reassessment and risk classification:
  - All banks and TCSPs supervised by CSSF are classified as low risk, medium-low risk, medium-high risk, or high risk pursuant to five risk criteria.
  - Determining factor for a high risk qualification (vs. medium-high) is detection of significant AML/CFT shortcomings during inspections.
  - Majority of banks and TCSPs are classified as low or medium-low risk.
  - 5 percent of banks are defined as high risk.
  - 0.8 percent of TCSPs are defined as high risk.
  - Risk classification is based on a 2010 internal circular, as updated; first undertaken in 2015 with intention to improve and refine further going forward, notably on the basis of the findings of the NRA.
- TCSP oversight and coordination issues:
  - TCSPs include a range of professions subject to supervision or monitoring by different authorities or SRBs.
  - Intensity of AML/CFT oversight of TCSPs varies greatly across supervisors.
  - CSSF supervision appears more comprehensive than the LBA’s monitoring.
  - Extent of AML/CFT supervisory program of the tax administration and of the Order of accountants is unclear and could not be analyzed.
  - Limited dialogue between competent authorities and limited general overview of the TCSP sector as a whole.

### Supervision of lawyers (LBA)
- Lawyer population and SRB structure:
  - Two Bar Associations: LBA (approximately 2400 to 2500 members) and the Bar Association of Diekirch (approximately 30 members).
  - Both associations are recognized as SRBs and entrusted with AML/CFT functions.
  - Vast majority of lawyers performing FATF-relevant activities are located in the city of Luxembourg and registered with the LBA.
- LBA monitoring activity since 2010:
  - Issued several Circular Letters and Internal Regulations with AML/CFT requirements.
  - Created in 2011 an AML/CFT Committee (initially 4 lawyers, now 5 lawyers and one compliance officer) that undertakes on-site inspections.
  - Inspections of LBA-accredited lawyers: 450 in 2012/2013, 116 in 2013/2014, and 150 in 2014/2015; total 716 lawyers inspected, working in 37 law firms.
  - According to the LBA, an average inspection visit takes about two to three hours.
- Inspection findings and STR filing:
  - Inspections between 2012 and 2015 did not detect significant failures requiring AML/CFT sanctions; areas for further improvements were noted and advice provided.
  - Number of STRs filed by lawyers:
    - 17 in 2012/2013
    - 27 per year in 2015/2016
  - Filing of STRs remains low compared to the number of lawyers; LBA issued supporting documents in 2012 including a standardized client check list, a customer form, an identification form, and a transaction details form.

*Conclusions and recommendations (AML/CFT supervision)*
- Summary findings:
  - AML/CFT supervision has been strengthened for banks, TCSPs under CSSF, and lawyers, but challenges remain to ensure supervision is commensurate with ML/TF risks.
  - It is unclear to what extent risk assessments were driven by existing resources rather than actual risks; current resources may prove inadequate if the NRA identifies higher risks.
  - Monitoring by the LBA has increased but remains relatively weak; given lawyers' gatekeeper role, this could be an important vulnerability.
  - Limited time devoted to supervision and inspections suggests supervision may be superficial; unclear whether lack of sanctions is appropriate.
  - Number of LBA accredited lawyers is growing by about 10 percent per year, posing future challenges for the workload of the AML/CFT Committee.
- Recommended actions:
  - Further increase intensity (i.e., frequency and depth) of AML/CFT monitoring of lawyers by the Bar Association.
  - Ensure that sufficient resources are available for risk-based AML/CFT supervision of banks and TCSPs in light of the findings of the NRA to allow the intensity of supervision to increase.
  - If necessary, align the current risk classification of banks and TCSPs in light of the findings of the NRA.

*International Monetary Fund — Luxembourg report excerpt*

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_Source: https://www.imf.org/-/media/files/publications/cr/2017/cr17255.pdf_