Article Post on 10 April 2020

Circular CSSF 20/740 Related to Finance Crime and AML/CFT Implications during the COVID-19 Pandemic

_The CSSF has issued a new Circular CSSF 20/740 relating to Financial crime and AML/CFT implications arising from the COVID-19 pandemic.

The purpose of this circular is to provide guidance to all professionals subject to anti-money laundering and counter-terrorism financing (AML/CFT) supervision of the CSSF in relation to the money laundering and terrorism financing (ML/TF) risks and AML/CFT implications of the COVID-19 pandemic. 

The CSSF noted that, as many economies experience a downturn, financial flows are likely to diminish. However, experience from past crises suggests that in many cases illicit financial flows will continue, and criminals and terrorists may seek to exploit temporary weaknesses in AML/CFT controls.

The CSSF therefore requires that supervised professionals to maintain effective systems and controls to ensure that Luxembourg’s financial system is not abused for ML/TF purposes.

The CSSF guidance under such circular is structured as follows:

New and emerging ML/TF threats resulting from COVID-19. 

They include:

  • those crimes that represent both a significant operational risk for financial institutions and a ML/TF threat – namely:
    • cybercrime i.e. phishing and email scam campaigns; and 
    • ​​fraud i.e. CEO and Business E-Mail Compromise (BEC) fraud.
  • those crimes where the risk to financial institutions is primarily related to the laundering of illicit proceeds – namely:
    • bribery and corruption i.e. abuse of governmental stimulus packages to support local businesses such as direct grants, tax advantages, advance, payments, state guarantees for loans taken from banks, subsidised public loans;
    • trafficking in counterfeit goods i.e. distribution of counterfeit and/or sub-standard goods in relation to the COVID-19 pandemic. This includes specific activities related to personal protective equipment (PPE), pharmaceutical products, and other healthcare products, including the distribution of fake COVID-19 home testing kits;
    • robbery or theft i.e. “Faking and entering” scams; and
    • insider trading and market manipulation i.e. the unusual channels that information is being transmitted on issuers and securities due to the COVID-19 pandemic may result in a higher number of employees and other categories of persons having access to insider information (and therefore increase the risk of abuse)).

Description of possible areas of particular vulnerability for the financial sector. 

These include: 

  • online payment services;
  • clients in financial distress;
  • mortgages and other forms of collateralised lending;
  • credit backed by government guarantees;
  • distressed investment products; and
  • delivery of aid through nonprofit organisations.

Description of mitigating actions that require particular focus for supervised professionals

In order to adapt to the changing nature of the ML/TF risk created by the pandemic, the CSSF stresses several areas that require particular focus for supervised professionals. These are: 

  • AML/CFT business continuity;
  • transaction monitoring;
  • customer due diligence (CDD);
  • ML/TF risk assessment; and 
  • cooperation with authorities. 

CSSF also encourages professionals to consult the CRF’s (Cellule de Renseignement Financier) recent guidance on COVID-19 typologies, which includes several indicators of suspicious activity.

The CSSF’s approach to AML/CFT supervision during this period. 

In that respect, the CSSF:

  • remains committed to combatting ML/TF and ensuring that the risks arising from and within the Luxembourg financial sector are effectively managed and mitigated;
  • remains fully operational and has implemented several measures to ensure it meets the operational challenges associated with AML/CFT supervision during this time; 
  • will continue AML/CFT supervisory activities during this period. AML/CFT on-site inspections that have already commenced will be completed and the CSSF will also commence inspections on a remote basis during this period. Off-site supervisory activities are also continuing ;. 
  • continues to communicate with supervised professionals in relation to AML/CFT throughout this period. Communications can be made in the following way:
    • all communications should be done either through the eDesk for those who have registered, or by e-mail rather than regular mail;
    • all outgoing communications from the CSSF will be done by e-mail, carrying no handwritten signature from the CSSF; and 
    • the CSSF remains available for meetings by telephone or videoconference.

The CSSF will also continue to cooperate closely and exchange information with other national authorities in order to maintain and further strengthen Luxembourg’s national AML/CFT regime.

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